What Does The Fed Decision Mean for the Rally?

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What’s in Today’s Report:

  • What Does the Fed Decision Mean for the Rally?
  • The Key Takeaway from Yesterday’s Fed Decision (It Wasn’t Positive)
  • EIA Analysis and Oil Update

Futures are sharply lower on follow through from the modest declines following yesterday’s FOMC decision.

If there’s a “reason” for the pullback it’s two-fold:  First, digestion of Powell’s depressing outlook on future growth and second, a potential rebound in coronavirus cases.

Regarding coronavirus, the number of new cases is not spiking, but it is accelerating, as it’s done for over a week.  Point being, there hasn’t been a recent spike in new cases over the past few days, the rise in cases has been occurring for over a week.  But, the news cycle is turning again and renewed media focus on the virus is weighing on sentiment.

Looking forward to today, the key number is Jobless Claims (E: 1.500M) and again we need to see this number 1) Continue to decline and 2) Beat expectations, especially in light of Powell’s caution on the economy.  Also, Continuing Claims needs to decline.  If jobless claims disappoint markets, the selling today will likely intensify.

Economic Breaker Panel: June Update

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What’s in Today’s Report:

  • Economic Breaker Panel: June Update
  • NFIB Small Business Optimism Index Takeaways

S&P futures wavered between gains and losses overnight amid mixed economic news and an uptick in new COVID-19 cases across parts of the U.S. while focus turns to the Fed.

In their latest update, the Paris-based OECD now expects a 6.0%-7.6% contraction in the global economy in 2020, the worst in 100 years.

Economically, both China’s CPI and PPI readings for May were well below estimates with the latter pointing to a concerning increase in deflationary pressures (-3.7% YoY) as a result of the coronavirus pandemic.

Looking into today’s session, there is one economic report due out ahead of the bell: CPI (E: 0.0%) before investors will look ahead to the FOMC Meeting Announcement (2:00 p.m. ET) and Fed Chair Press Conference (2:30 p.m. ET) in the afternoon.

Specifically, the Fed’s new economic projections and any clarity on QE plans will be most closely watched items this afternoon and have the most potential to move markets into the close.

FOMC Preview

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What’s in Today’s Report:

  • FOMC Preview (Wildcard to Watch)
  • What Do Rising Treasury Yields Really Mean?

S&P 500 futures are down roughly 1% this morning tracking European shares lower after German trade data showed a much larger than anticipated drop in exports during the depths of the COVID-19 pandemic in April.

Eurozone GDP and the NFIB Small Business Optimism Index slightly beat expectations however German exports declined by the most on record in April, tumbling by -24.0% on the month which is weighing heavily on EU shares today.

Looking into today’s session, there are two lesser followed economic reports due to be released: April JOLTS (E: 5.750M) and Wholesale Trade (E: 0.4%) which are not likely to move markets while there are no Fed speakers as the June FOMC Meeting Begins today.

With tomorrow’s Fed announcement and Powell’s press conference coming into focus, it is possible we see a continued wave of profit taking today, especially given the disappointing economic data out of Europe, however a sense of “Fed paralysis” should keep the losses somewhat limited.

Was the Jobs Report an “All Clear” for Markets?

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What’s in Today’s Report:

  • Was the Jobs Report An “All Clear” for Markets?
  • Is a “V” Shaped Recovery Happening?
  • Weekly Market Preview:  Fed Meeting Wednesday
  • Weekly Economic Cheat Sheet:  Jobless Claims Remain the Key Report

Futures are modestly higher thanks to momentum as markets extend Friday’s rally following a quiet weekend.

Economic data was mixed overnight as Chinese exports were better than expected (-3.3% vs. (E) -6.5%) while German Industrial Production missed estimates (-17.9% vs. (E ) -16.2%).  But, neither number was bad enough to turn the bullish momentum.

Protests continued across the U.S. and were mostly peaceful, but this remains largely a non-issue for markets.

Today there are no economic reports and no Fed speakers so re-opening headlines and virus trends will drive trading, and as long as there isn’t any materially negative news on either front, the bulls will likely remain in charge.

Jobs Report Preview

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What’s in Today’s Report:

  • Jobs Report Preview
  • ECB Decision Takeaways (The Outlook for Europe Continues to Improve)

Futures are sharply higher thanks to a big rally in European markets, which rose on the hopes for more stimulus.

The rally in Europe didn’t come because of any new headlines, and instead appears to be a delayed reaction to the bigger than expected ECB QE program, combined with the passage of the German stimulus earlier in the week.

Economically, the only notable number was German Factory Orders which fell –25.8% vs. (E) -20%.

Today the focus of markets will be the jobs report, and the estimates for job adds and the unemployment rate are as follows: Job Adds:  -7.725M, UE Rate: 19.8%.

Practically speaking, anything less than 10 million job losses likely doesn’t cause a pullback in stocks, while a number under 5 million job losses could extend today’s early rally, because markets are still solely focused on the incremental changes in economic data, not the historically bad absolute values.  The only other notable economic report today is Consumer Credit (E: -$14.0B).

Combatting FOMO (Fear of Missing Out)

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What’s in Today’s Report:

  • Why Stocks Rallied Yesterday (There Were Legitimate Reasons)
  • Combatting FOMO (Fear of Missing Out)
  • What Happens When Stimulus Checks Stop Coming?
  • EIA and Oil Market Update

Futures are modestly lower as markets digest Wednesday’s big rally, following a quiet night of news.

Germany finalized its stimulus plan, but it didn’t include an incentive program for traditional (non-electric) car purchases and that’s causing mild disappointment and European shares are lower as a result.

Economic data was again better than feared as Euro Zone Retail Sales dropped –11.7% vs. (E) -18.0%.

Today there are two key events that could move markets:

First, the ECB is expected to increase its QE program (called the PEP) by € 500 bln.  If that does not happen, markets will be disappointed because stimulus remains a key driver of this rally.

Next, weekly jobless claims (E: 1.790M) remain very important and we need to see both initial claims and continuing claims fall further this week, and if that does not happen markets will be disappointed, especially given the rally of the past 10 days.

 

Market Multiple Levels: S&P 500

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What’s in Today’s Report:

  • Market Multiple Levels: S&P 500 Chart
  • What Do Protests Mean for Markets

S&P futures are once again up by double digits today as more stimulus chatter by global central banks and good economic data offset intensifying civil unrest in the U.S.

Economically, global Composite PMI data for May was mostly upbeat with Chinese and EU figures coming in ahead of expectations while the EU Unemployment Rate in April was not as bad as feared at 7.3% vs. (E) 8.2%.

Looking into the U.S. session, focus will be on economic data early with three notable reports due to be released: ADP Employment Report (E: -8.663M), Factory Orders (E: -14.0%), and ISM Non-Manufacturing Index (E: 44.0).

There are no Fed officials scheduled to speak today so investor focus will likely turn back to the protests across much of the country as well as the simmering geopolitical tensions between the U.S. and China after this morning’s economic data.

Bottom line, if economic data in the U.S. largely confirms the upbeat data from overseas, the rally could extend higher towards 3,100 in the S&P 500 however the market is becoming near-term overextended and due for a breather.

Market Multiple Update

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What’s in Today’s Report:

  • Market Multiple Table – June Update
  • ISM Manufacturing Index Takeaways

Futures are solidly higher today, rising with international markets thanks to easing geopolitical tensions offsetting COVID-19 worries and historic civil unrest in the U.S.

Chinese firms reportedly purchased multiple shipments of U.S. soybeans on Monday, contradicting earlier headlines that the government had broadly halted ag orders. The positive trade activity is acting as a tentative tailwind this morning.

There were no economic reports overnight but oil prices are up nearly 3% as OPEC+ (including Russia) is expected to extend current policy and output cuts beyond June.

Today, Motor Vehicle Sales (E: 10.0M) is the only economic data due to be released while there are no Fed officials scheduled to speak. That will leave investors largely focused on the simmering trade tensions between the U.S. and China as well as the ongoing, in some cases violent, protests across much of the U.S.

Tom Essaye Quoted in Yahoo Finance on May 28, 2020

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“I think the market has priced in that April is probably the worst of the economic data,” explained Sevens Report Research founder Tom Essaye. “While it looks like the worst is behind us — which is great — we need to start to see…” Click here to read the full article.

Tom Essaye Quoted in Stock Investor on May 27, 2020

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To help me unpack the question of whether the ramp-up in the twin “Ds” is going to represent a serious threat to the economy and the markets, I turned to my friend and brilliant colleague, macro analyst extraordinaire Tom Essaye of Sevens Report Research. Click here to read the full article.

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