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it was the Dukes

EARNINGS PREVIEW
October 18, 2014

Relative Levels

Bretton Woods

DJIA:
16,380 -164.4 (-0.99%)
S&P:
1,887 -19.2 (-1.00%)
NASDAQ: 4,258 -17.8 (-0.42%)

ALL PAIN, NO GAIN

Weekly Recap

Germany trimmed its 2014

growth outlook to 1.2% from
1.8%, while dropping its 2015
outlook to 1.3% from 2.0%.

Greek bond yields back above

8%

Sep US Housing Starts 1017K

Gulf states to oppose OPEC

output cut

Japanese manufacturers
sentiment falls to +8 in Oct vs
+10 in Sep

Fed reports balance sheet

assets of $4.47T on
Wednesday, +$19B w/w and
+$660.8B y/y

Equity markets finished lower having rallied back from an intraday 450pts
drop in the Dow on Wednesday. The late week pain trade was higher with
most participants feeling the brunt of an oversold equity market. Treasuries
dropped to a record 1.8%, breaking June 2013 lows and setting new
standards across the board. The biggest question around the late week rally
continues to be: Why? The market clamored for headlines citing: Bullards
surprisingly bullish comments (Thursday) around delaying a potential taper,
better earnings out of industrial names and renewed optimism around ECB
purchases. Colleagues of Bullard were quick to dismiss his comments, though
a lack of growth commentary from the Chairman of the Fed seemed to
indicate a major shift in the near-term (10.29 meeting) was unlikely.
WHAT ARE THE IMPLICATIONS?
Sentiment regarding the sell-off has eased slightly though unconvincingly
concerns around i) Fed tightening, ii) deflationary/economic backdrop in
Europe (see Greek 10Y), iii) a stronger dollar, iv) WTI crude/brent, v) residual
event-risk (i.e ebola, Ukraine), and vi) China slowdown, still remain. With
domestic 3Q14 earnings heading into their busiest two weeks, investors will
be looking for a stabilizing trend in growth to offset sentiment volatility (last
few prints have suggested that trading is unreflective of fundamental earnings
picture). It is worth noting that the velocity of the weeks sell-off was unlike
any other this year. Some have likened the move to the mini-correction in
February, however we note that the 6% drawdown experienced in the month
of Jan-Feb still falls shy of the 9.8% peak-to-trough SPX move last week.
DEFLATION, HIDE YOUR KIDS.
Perhaps the single key data point out of this week was a 4% drop in German
industrial production from July to August, versus an expected decline of 1.5%.
The country also fell short on the factory orders front (released Monday). The
country also trimmed its 2014 growth outlook to 1.2% from 1.8%, while
dropping its 2015 outlook to 1.3% from 2.0%. The surprise move reignited
fears over global growth and deflation, which have already been on edge
since the US signaled a near-term end to its easing program. Recall, the IMF
also warned about the risks of a global economy, calling for countries to work
together to do more for world-wide growth.

October 18, 2014