Market Perspective for October 3, 2016

The third quarter ended on a positive note, despite last week’s volatility. The Nasdaq continues to lead the indexes into October amid bullish sentiment. Deutsche Bank U.S. shares fell further on Monday while German markets were closed for a holiday.  The bank has yet to confirm last week’s rumored settlement agreement with regulators.  A tentative OPEC production cut agreement lifted oil prices as Brent Crude broke $50 in early Monday trading, while premature selling and a stronger dollar pulled West Texas Intermediate (WTI) lower.

ISM manufacturing figures for September crossed into expansion territory with a reading of 51.5, an increase from the 49.4 figure in August, which indicated a minor contraction. The non-manufacturing report is due out on Wednesday. It is expected to show a slight increase from 51.5 to 52.

Light vehicle sales slowed in September and August construction spending estimates were down by 0.7 percent. On Thursday, it is anticipated that weekly unemployment claims will increase slightly compared to those of a week ago while remaining near record lows. The week will culminate on Friday with the release of the closely-watched monthly non-farm payroll report. While the unemployment rate is expected to remain steady at 4.9 percent, analysts believe that 181,000 jobs were created. This is a significant increase over last month. Strong economic, unemployment claims and jobs reports should bolster bullish sentiment.

Several key economic and monetary reports will also be released overseas. The latest monthly UK manufacturing and services PMI figures will be released Monday and Wednesday respectively. The forecast is for both reports to show a slight decline but remain in expansion with readings above 52. Japanese consumer confidence figures, which are expected to rise, will be available on Tuesday. The Royal Bank of Australia is expected to keep its benchmark interest rate unchanged this week. Investors will analyze the wording for any indication of a future change in policy.

Only a few widely-held stocks are left to report third-quarter earnings, including Darden Restaurants, Micron Technologies, Yum! Brands and Monsanto. The parent of casual dining chains like Olive Garden, Darden (DRI) is looking to extend seven consecutive quarters of better-than-expected earnings. Investors will be looking for signs of a turnaround when Micron Technologies (MU) reports after the market closes Tuesday. Following announcements of a dividend increase and a spin-off of its China operations, Yum! Brands (YUM) will report its third quarter results Wednesday after the bell. The figures are expected to beat forecasts and show continued revenue and earnings growth. The markets will also be keen to hear the latest earnings and revenue figures from Monsanto (MON) as it prepares to be purchased by German multinational chemical giant Bayer AG (BAY).

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