A changing mood on the final day of October - I'm doing my best not to say spooky - is threatening to eat away from what looks to be a 14% gain in the stock markets, a.k.a. the best month in equities since 1974.

S&P 500 futures are 13.9 points lower (-1.09%) at 1,267 and Dow futures are off 99 points at 12,069.

"Following last week's euphoria over the European Summit plan, investors are in a more skeptical mood this week," said BMO Capital Markets. "In our view, while the plan will help contain the risk of a European banking crisis and financial contagion to other countries, it falls well short of resolving the crisis."

They noted it leaves Greece with too-much debt (120% of GDP), keeps the EFSF guarantee at a low threshold, and sees European banks raising capital to the bare minimum of what is deemed sufficient. 

Moreover, implementation risks are high "as any backsliding on Greece's or Italy's austerity measures, or pushback from private investors (read: China) in funding the broader EFSF, could deflate investor hopes of a resolution to the crisis."

Safe-heaven Treasuries are stronger across the curve. The 10-year and 30-year Treasury yields are eleven and thirteen basis points lower in early trading at 2.21% and 3.25%. The two-year yield is two basis points firmer at 0.28%.

Light crude oil is down 1.35% at $92.69 per barrel and gold prices are 0.55% lower at $1,738.10.

Key Events This Week: 

Monday:

9:45 - The week should kick off with the Chicago Business Barometer slowing down a bit in October but remaining at robust growth levels. The median forecast is 58.0 - eight points above the growth threshold - compared with 60.4 in September.

"The Chicago business gauge has outperformed the national ISM index consistently since the recovery began, probably reflecting the upswing in Chicago area production of motor vehicle supplies and parts," said Citigroup. "And while we expect a small drop off in October, our forecast would still indicate healthy growth."

One concern, they note, is order backlogs. That component fell from 60.5 to 51.9 last month - the lowest since the early stages of recovery.  "If firms' order books continue to shrink, it could erode activity growth in this region. This same pattern has been evident in the national ISM manufacturing survey."

• Treasury Auctions:
• 11:30 - 3-Month Auction
• 11:30 - 6-Month Auction

Tuesday:

10:00 - The ISM Manufacturing Index slowed down in July and August, managed to avoid entering contraction, and now appears on a modest upswing. Economists are projecting a score of 52 in October, a 0.4-point uptick from September and 1.6 points better than in August (a two-year low).

"The evidence coming in from regional surveys has been a bit stronger than last month, suggesting that the pace of manufacturing growth is picking up slightly," said IHS Global Insight.

Janney Capital Markets said last month's index "affirmed hopes that the global crisis of confidence wasn't flowing through into what had been the most consistent post-recession source of output, the US factory sector."

Their outlook beyond this month is mixed, however. 

"The industry often serves as an effective leading indicator of overall economic trends, yet the fact that manufacturing so far outpaced consumer and other elements of output growth in the last two years suggests that a period of underperformance is in order going forward."

10:00 - Cutbacks to the public sector should weigh on or pull down Construction Spending in September. Total spending is expected to see a modest decline of 0.3% in the month - following a 1.4% boost in August - but according to Citigroup the only negative component will be the public sector, which saw an inexplicable 3.1% jump in August. 

"A gain in residential investment may be hampered by a dip in improvements, and public spending likely tailed off after a surprising jump in August," said Citigroup, noting that construction spending gained traction in the third quarter despite weaker residential investment, a trend they attributed to higher spending on nonresidential projects. "The pickup in nonresidential investment in the quarter was broad-based."

• Treasury Auctions:
• 11:30 - 4-Week Bills

Wednesday:

8:15 - Private job growth is expected to improve vaguely in October's ADP Employment Report. Estimates range from 38k to 150k, with the median settling at 100k. The September report showed an expansion of 91k new jobs. (However, that 91k growth was an understatement compared to the Bureau of Labor Statistics' number of 134k.)

"ADP data will guide market expectations for October private payrolls," said Nomura Global Economics, who forecast 135k new private jobs. Last month, Nomura noted that over the past year, the ADP headline figure has been within 50k of the BLS figure just five times and it has missed by 100k or more five times, too.

12:30 - Little fanfare is anticipated for this FOMC Meeting Announcement. The last one was major as the Fed announced Operation Twist in an effort to pull down the yield curve, but economists say if a new injection of quantitative easing is on the way, it won't be this meeting.

"The Fed's last decision point in September left plenty of opportunity to enact policy; this one, well, not so much," said Janney Capital Markets. "With the Fed having announced plans for Operation Twist in mid-September and only begun their asset purchases in mid-October, the economic effects of the program have yet to hit Main Street. In our view, those effects will be minimal, however the Fed policymakers which hope that Op-Twist will have an impact nonetheless need to wait before enacting any follow-up policy."

IHS Global Insight note that opinions at the Fed are highly divided on whether to do more, but the recent improvement in economic data has made a decision less urgent.

Fed Chairman Ben Bernanke will say more about the state of monetary policy when he holds a press conference at 2:15.

Thursday:

8:30 - The recent trend of Initial Jobless Claims hasn't been scary or volatile, but nor has it been a harbinger of optimism. The four-week average is currently 406k, down from 418k a month ago, but weekly figures haven't been able to break through the 400k level. No improvement is anticipated for the final week of October: economists predict 410k new claims - 10k more than the prior week.

"Continuing claims" - the rally of people still receiving benefits - "likely continued its saw-toothed pattern, rising by 44,000 after an outsize plunge," said Citigroup. "This figure, as well as the insured rate, has been little changed for nearly seven months." 

8:30 - Dennis Lockhart, president of the Atlanta Fed, gives opening remarks at a conference on "What Should We Really Expect from Monetary Policy," in Atlanta.

10:00 - The ISM Non-Manufacturing Index, which covers the services, construction, and financial sectors, is anticipated to see few changes in October. The consensus forecast is a slightly-improved score of 53.6 (vs. 53 last month), indicating "moderate but steady" growth, in the words of Citigroup. 

"Readings near 53 are marginal gains, and that is about all the economy can muster," added IHS Global Insight.

Of particular interest will be the employment component; it fell into contraction last month, falling to 48.7 from 51.6.

• Treasury Auctions:
• 1:00 - 7-Year Notes

Friday:

8:30 - Growth in October's Employment Situation report is, alas, expected to be slower than in September. Part of the reason is that September received a boost from 45,000 striking workers returning to Verizon. But that's a weak excuse. Fact is, the economy just isn't creating jobs or exhibiting a shapely V recovery. Estimates for job growth range from 50k to 150k; the median is 95k, down from 103k in September.

"After what looked to be a dismal couple of months ended up in some positive revisions, and with the sizable effects of striking Verizon workers skewing the month-to-month comparisons, employment trends are now moving into a state of stagnation," said Janney Capital Markets. "We anticipate job growth will hover in the 100 - 150 thousand payroll range for the foreseeable future, just barely enough to absorb the workers coming online via graduation or plain old population growth."

"The fundamentals in the labor market remain tepid, but there doesn't seem to be any deterioration either," said Citigroup. "Private payroll gains have been averaging about 150,000 per month thus far this year and closer to 120,000 per month in the past three months. Our October forecast is right in this range."

One consistent pullback is state and local government jobs, which have been averaging a loss of about 20,000 jobs per month, Citigroup said, noting that pace is accelerating lately.

"The labor market is creating jobs, but not rapidly enough to bring down unemployment," said IHS Global Insight. "We expect employment growth to ease to 75,000 in October - private up 100,000; government down 25,000 - from 103,000 in September. But since September's total would have been just 58,000 but for the return of 45,000 striking Verizon workers, October's 75,000 would still represent a small underlying improvement."