Will This Quarter Be Any Better?

With the third quarter turbulence now firmly behind us, we can all look forward to something stable in the last quarter of the year. We will likely see some favorable movement on the key macro questions that have weighed on the market lately. The most important of these macro questions pertain to the U.S. economic growth outlook and the unsettled European situation.

A host of economic reports this week will provide us further color on the health of the U.S. economy. With the September non-farm payroll report coming out this Friday, the labor market will remain in focus. Last month’s non-farm payroll report was particularly disappointing when no new jobs were created. The expectation is for headline gains of about 60K and private sector gains of about 90K.

We will get a preview of the Friday jobs report through Wednesday’s ADP report and will be looking for the weekly Jobless Claims numbers to stay under the 400K level where it reached last week. In other major economic reports this week, we get a look at the manufacturing sector through today’s manufacturing ISM report and the Factory Orders report on Tuesday. The service sector ISM reading comes out Wednesday.

The September manufacturing ISM report coming out a little later today will be of particular interest to the market. The expectation is for the index to stay unchanged from the August level at 50.6. Friday’s favorable reading on the Chicago PMI has improved the odds that today’s ISM report will not disappoint. An inline or better ISM reading will be a key positive for stocks and other risky assets.

As we found repeatedly in the third quarter, developments in Europe will remain of abiding interest to the market. The news today is Greece will likely fall short of the deficit target that it had agreed to with its creditors. What this means is that they will need to implement even more austerity measures to forestall a default. The Greeks are in a tough spot. Tax increases and spending cuts, measures that the government has implemented to steady the country’s fiscal situation, have worsened the economic recession and made it difficult to meet the deficit targets.

In corporate news, all eyes will be on Apple (AAPL) as the market waits for the company to launch its fifth generation iPhone on Tuesday. The company has consistently stayed ahead of competition, but it may not be easy to repeat its past performance given the already lofty expectations. Eastman Kodak (EK) will remain in focus as the company battles speculation that it was planning a bankruptcy filing. Arch Coal (ACI), the metallurgical coal producer, issued a negative preannouncement, citing production issues at its Mountain Laurel facility.

Today’s trading action will likely reflect renewed concerns about the likelihood of a Greek default following headlines that the country was falling short of deficit targets. The September manufacturing ISM report will also be in focus, with a postive ISM reading likely offseting some of the Greece-related negativity.

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