Does this Cyclical Rotation Have Legs?

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What’s in Today’s Report:

  • Does this Cyclical Rotation Have Legs?
  • Factory Orders Data Takeaways
  • Dr. Copper Update

U.S. stock futures are higher this morning and global stocks rallied overnight thanks to more positive trade headlines and mostly “Goldilocks” economic data overseas.

The Financial Times was the first to report the Trump administration is considering rolling back $112B worth of tariffs that went into effect on September 1st which would be a significant concession and first sign of real progress towards a “phase one” deal being reached.

Economically, the first composite PMI reports were released overseas and both the Chinese and British figures firmed in October, further easing concerns about the health of the global economy.

Today, there are several economic reports due to be released: International Trade (E: $52.5B), ISM Non-Manufacturing Index (E: 53.5), and JOLTS (Previous: 7.051M, while two Fed officials are scheduled to speak: Kaplan (12:40 p.m. ET) and Kashkari (6:00 p.m. ET).

Beyond the data and Fed speakers, focus will be primarily on the trade war as investors look for further insight to whether or not the Trump Administration will move forward with tariff rollbacks and delays as was reported overnight. Any confirmation would be well-received and see stocks extend this recent squeeze higher towards 3,100 in the S&P.

An Analogy To Explain This Market (Investors Loved It)

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What’s in Today’s Report:

  • An Analogy to Help Explain This Market (Investors Loved It)
  • Weekly Market Preview (Trade and Data Remain the Focus)
  • Weekly Economic Cheat Sheet (Global Growth Updates This Week)

Futures are modestly higher as global markets extended Friday’s jobs report and trade-driven rally.

On trade, U.S. and Chinese officials again repeated that substantial progress has been made on Phase One, while Wilbur Ross downplayed chances of auto tariffs (something that wasn’t ever priced into the market but was a peripheral risk).

Economically, EU and British manufacturing PMIs slightly beat estimates but remained in contraction territory (45.9 and 44.2 respectively).

Today there is one economic report, Factory Orders (E: -0.5%), and normally I don’t follow it, but it’ll give us greater insight into the current state of business spending, so a better than expected reading there will be a positive.  Additionally, there is one Fed speaker, Daly (3:05 p.m. ET) but she won’t move markets as Clarida and Powell made future Fed policy very clear last week – they’re done cutting barring an economic rollover.

ISM PMI Day (More Important than the Jobs Report)

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What’s in Today’s Report:

  • Jobs Report Preview (Minor Post Fed Adjustments)
  • Is Dr. Copper Sending Another Signal?

Futures are slightly higher following yesterday’s declines thanks to decent economic data and ahead of the jobs report and ISM Manufacturing PMI.

Global manufacturing PMIs were a bit better this morning as a private market reading of Chinese manufacturing beat estimates (51.7 vs. (E) 51.0) and that’s notable because it contradicts the soft government reading from Thursday.  Additionally, the British manufacturing PMI also beat estimates.  The Japanese reading, however, was soft (48.4 vs. (E) 48.9).

Bottom line, global manufacturing PMIs aren’t collapsing, but they aren’t showing the type of stabilization that markets have priced in, either.

Today the focus will be on economic data and while the Employment Situation report (E: 93K job adds, 3.6% UE rate, 3.0% wage growth) will dominate the headlines, the ISM Manufacturing PMI (E: 49.0) is actually going to be the more important report, because if it shows further deterioration, that will increase worries about the U.S. economy.  More broadly, as we said yesterday, with the Fed on hold, “good” data is good for stocks, and “bad” data is bad.

Finally, there are two notable Fed speakers today, Williams (12:00 p.m. and 2:30 p.m. ET) and Clarida (1:00 p.m. ET) although neither should move markets given we just heard from Powell.