Where Do Markets Go From Here?

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What’s in Today’s Report:

  • Where Do Markets Go From Here?
  • Weekly Market Preview:  Coronavirus news first, but it’s an important week from a data standpoint too
  • Weekly Economic Cheat Sheet:  Why Wednesday is the Most Important Day of the Week

Markets are trying to stabilize and futures are down modestly, but they have been volatile as futures have been down 1% and up 1% before trading back closer to flat.

If there’s a “reason” for the attempted rebound, it’s the surging expectation for a globally coordinated central bank response sometime later this week (possibly a 50 bps cut).

Coronavirus news remained negative in aggregate as cases increased in the U.S., although the news is no worse than what the market’s priced in last week.

Economically, the Chinese Feb. Manufacturing PMI imploded to 35.7 vs. (E) 46.0, but that wasn’t a surprise.  The data from the EU and Britain was solid.

Today the market will be driven by the latest coronavirus headlines, but there is an important economic report, the ISM Manufacturing PMI (E: 50.4), and a better than expected number would give the market a needed confidence boost.

Tom Essaye Interviewed with Yahoo Finance on February 28, 2020

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Tom Essaye intereviewed with Brian Sozzi and Alexis Christoforous from Yahoo Finance to discuss the debate on whether the Federal Reserve must hold an emergency meeting this weekend and cut interest rates to arrest the coronavirus stock market crash.

Click here to watch the full interview.

Tom Essaye Interview with Yahoo Finance

What to Make of Yesterday’s Selloff

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What’s in Today’s Report:

  • What To Make Of Yesterday’s Collapse
  • Yield Curve Update (Steepening But for the Wrong Reasons)

Futures are down sharply  but well off the overnight lows as markets digest yesterday’s collapse in stocks.

Coronavirus continues to spread (new cases in Nigeria and New Zealand) but China announced the fewest number of new cases since January 23rd, so there is progress occurring.

Economically, Japanese Retail Sales (-0.4% vs. (E) –1.0%) and Industrial Production beat estimates.

Coronavirus headlines will continue to dominate trading and today will be another volatile day (Friday’s in corrections always are), but outside of coronavirus markets will be focused on the Core PCE Price Index (E: 1.8%), Consumer Sentiment (E: 100.9) and one Fed speaker Bullard (9:15 a.m. ET).

Tom Essaye Quoted in Barron’s on February 24th, 2020

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And don’t forget about the Nevada caucus, where Bernie Sanders scored a big victory. “Politically, Sanders won the Nevada Caucus with more than 40% of the vote, implying his base is bigger than thought, meaning he might be a more…” writes The Sevens Report’s Tom Essaye. Click here to read the full article.

China subway

 

Coronavirus and the Bond Market

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What’s in Today’s Report:

  • Bond Market Update: Bull Steepening and New Record Lows in the 10-Year Yield
  • Coronavirus Facts and Fears

U.S. stock futures were volatile overnight, reversing from tentative gains to losses as global shares continued to decline amid the evolving coronavirus outbreak situation.

News regarding COVID-19 remained largely the same overnight; the outbreak in China continues to be contained but is spreading more rapidly in other regions including the EU.

The 10-Yr yield is encouragingly stabilizing this morning while the 2-Yr continues to decline as traders are now pricing in 65% odds of a Fed rate cut by April due to the coronavirus outbreak’s negative effects on the economy.

Today, coronavirus headlines will continue to dominate the news and markets however, there is one economic report to watch: New Home Sales (E: 708K) and two Fed officials are scheduled to speak: Kaplan (9:35 a.m. ET) and Kashkari (1:00 p.m. ET).

Tom Essaye Quoted in Yahoo Finance on February 20, 2020

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The second reason stocks could keep rising is that so far, the economic fallout from the COVID-19 virus appears to be only temporary. In fact, Essaye said investors are seemingly anticipating any lost earnings in the first quarter will simply be recovered in later quarters…Click here to read the full article.

Bull

Valuation Support in the S&P (Updated)

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What’s in Today’s Report:

  • How Intense Was the Selling Yesterday?
  • Valuation Support and Technical Update: S&P 500

Stock futures enjoyed a “relief rally” overnight but have since returned to the flat mark as yields continue to bleed lower amid coronavirus fears however there were no materially negative developments regarding the outbreak since yesterday’s close.

There were no market-moving economic reports overnight.

While investor focus will continue to be on the COVID-19 outbreak, there are a handful of additional catalysts on the calendar today that could move markets.

First, there are four economic reports to watch: S&P CoreLogic Case-Shiller HPI (E: 0.5%), FHFA House Price Index (E: 0.3%), Consumer Confidence (E: 132.5), and the Richmond Fed Manufacturing Index (E: 13). Two Fed officials are also scheduled to speak during market hours: Kaplan (9:45 a.m. ET) and Clarida (3:00 p.m. ET).

Finally, the U.S. Treasury will hold a 2-Yr Note Auction at 1:00 p.m. ET. This could be an important event to watch as the results of the auction could shed further light on the market’s expectations for rate cuts in the months ahead (which have risen significantly this week) and potentially compress the 10s-2s yield curve spread to fresh multi-month lows which could further stoke fears of a global slowdown.

Pullback – Why Stocks Are Down 2%

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What’s in Today’s Report:

  • Pullback – Why Stocks Are Dropping and Is This the Start of a Correction?
  • Weekly Market Preview:  Focus on politics and growth.
  • Weekly Economic Cheat Sheet:  Durable Goods and inflation will be in focus this week.

Futures are down more than 2% as an increase in COVID 19 cases in new places (South Korea and Italy), combined with a big Sanders victory in the Nevada Caucus are adding to the growth concerns following Friday’s soft flash PMI.

Politically, Sanders won the Nevada Caucus with more than 40% of the vote, implying his base is bigger than thought, meaning he might be a more formidable opponent to Trump than what the market was previously thinking.

Economic data was sparse as the German Ifo Business Expectations survey beat estimates (93.4 vs. (E ) 92.1), but that number obviously isn’t moving markets.

Today there are no economic reports and just one Fed speaker,  Mester (3:00 p.m. ET), so focus will be on any COVID 19 updates (and anything that hints at a slowing of transmission will help stocks bounce).  From a fundamental support standpoint, 3,219 is 18.5X next year’s earnings so we’ll be interested to see if that can hold in the near term.

What Caused Stocks to Drop (And Recover?)

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What’s in Today’s Report:

  • Why Stocks Dropped and Recovered Yesterday
  • Yield Curve Update:  Why is 10’s-2’s At A Multi-Month Lows?

Apologies for the slightly delayed send, it was user error (I typed in the wrong address at 7:00 a.m. this morning).

Futures are modestly lower despite better than expected economic data, as markets digest yesterday’s decline.

Global Manufacturing PMIs were better than expected in Feb as the EU PMI rose to 49.1 vs. (E) 47.5, while the UK PMI increased to 51.9 vs. (E) 49.6 and the solid data is helping to reduce worries about COVID-19’s impact on the global economy.

COVID-19 headlines were slightly negative overnight as cases rose in China, Japan and South Korea and really the spread of the disease in Asia is the focus of the market right now.  Any headlines that imply the spread is accelerating in Asia will hit sentiment.

Today the key number is the February Flash Manufacturing PMI (E: 51.4), and if that beats expectations that will further reduce concern that COVID-19 virus will be a major headwind on U.S. economic growth (and that will be a fundamental positive for stocks).   We also get Existing Home Sales (E: 5.45M) and have four Fed speakers today:  Bostic & Brainard (10:00 a.m. ET), Clarida & Mester (1:30 p.m. ET).

How to Recognize a Blow Off Top

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Good Morning,

 

Today’s Report is attached as a PDF.

What’s in Today’s Report:

  • How To Recognize a Blow Off Top
  • Don’t Sleep on Inflation?  (PPI Just Hit a Multi-Year High)

Futures are slightly lower as markets digest yesterday’s rally following a mostly quiet night of news.

News on COVID-19 was mixed as China did another “diagnostic change” and the number of COVID 19 cases fell, while in South Korea the number of infections rose.  But, markets still view the transmission rate of the disease  as peaking (and this assumption is what’s driving markets higher – and it’s also the greatest source of near term risk for stocks if the situation changes).

Economic data was sparse but German GfK Consumer Climate and British Retail Sales both beat estimates, although neither is moving markets.

Today there are two notable economic reports, Jobless Claims (E: 211K) and Philly Fed (E: 12.0), and as remains the case, the stronger the data, the better (markets will especially be looking for confirmation of the strong Empire report from Philly Fed).   There is also one Fed speaker, Barkin at 1:20 p.m. ET, but he shouldn’t move markets.

Please email info@sevensreport.com if you have any trouble downloading today’s Report.