If There’s No Trade Deal Should We Rotate to Value?

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What’s in Today’s Report:

  • If There’s No U.S./China Trade Deal, Should We Rotate to Value?  No.  Here’s Why.
  • EIA/Oil Market Update

Futures are flat following conflicting U.S./China trade headlines as the “noise” on this topic reaches a peak as senior-level talks begin today.

Positively, the Trump administration appears ready to grant permanent waivers for U.S. companies to send non-sensitive components to Huawei.

Negatively, the South China Morning Post said the lower-level talks earlier this week didn’t go well.

The U.S./China headlines will dominate markets today and tomorrow.  Broadly speaking, a trade “truce” that results in no more additional tariffs (and hopefully removes the tariffs expected to go into effect) is still the market expectation.  Regarding the conflicting headlines, the easiest way to cut through the noise is this: If the Chinese delegation leaves before Friday night, that’s bad.  If they leave after, that’s good.

Tom Essaye Quoted in CNBC on October 8, 2019

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Senator Warren has been a vocal – and frequent – critic of not only banks but large corporations more broadly. Looking at the potential economic impact of a Warren presidency on the broader market, Sevens Report founder Tom Essaye wrote that “it is a very reasonable statement that if Warren were elected…it would be negative for the stock market in the extreme.” Click here to read the full article.

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Tyler Richey Quoted in MarketWatch on October 8, 2019

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“The rising tensions between the U.S. and China over the last 24 hours has resulted in a broad risk-off move. Oil is being dragged down with stocks and other assets sensitive to global growth expectations, which continue to fall under pressure…” said Tyler Richey, co-editor at Sevens Report Research. Click here to read the full article.

Oil Rig

Tom Essaye Quoted in CNBC on October 8, 2019

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“The U.S.-China trade talks are the clear highlight this week. Some sort of a trade truce that results in no more new tariffs is the clear market expectation. If that does not occur, this market is at…” said Tom Essaye, founder of The Sevens Report. Click here to read the full article.

Stock trader

Trade Meeting Preview (Good, Bad, Ugly)

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What’s in Today’s Report:

  • U.S.-China Trade Talks: Good/Bad/Ugly (and Best)

S&P 500 futures jumped as much as 1.4% in early morning trade after Bloomberg reported that China is willing to discuss a “partial U.S. trade deal despite tech blacklist.”

The risk-on rally has faded moderately however as the article pointed out that Chinese officials are not optimistic and would only accept a partial deal if the next waves of U.S. tariffs are canceled.

Furthermore, China is willing to make non-core concessions like ramping up purchases of U.S. ag products but won’t budge on key issues like intellectual property theft, issues which the White House has said are critical to a deal.

The trade war will clearly continue to dominate the markets today as we have already seen in the sizeable pre-market moves however there are a few additional potential catalysts to keep an eye on.

Economically, the August JOLTS report will be released shortly after the Wall Street open (E: 7.181M) while Powell and George are scheduled to speak at 11:00 a.m. ET (note Powell did move markets yesterday by mentioning balance sheet expansion).

In the afternoon, there is a 10-Yr Treasury Note Auction at 1:00 p.m. ET which could move the yield curve and ultimately the stock market before the FOMC Meeting Minutes will print at 2:00 p.m. ET.

A Warren Presidency and Markets

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What’s in Today’s Report:

  • What Would a Warren Presidency Mean for Markets?

Stock futures reversed from overnight gains and are now decidedly lower with EU shares after the Trump administration expanded its “blacklist” to 20 Chinese companies and Chinese officials said to “stay tuned” for retaliatory measures.

Economically, the Chinese Composite PMI firmed to a multi-month high of 51.9 last month (although the services component was mildly underwhelming) and German Industrial Production was not as bad as feared (0.3% vs. E: -0.1%), while the NFIB Small Business Optimism Index was inline.

Today, there is one economic report to watch in the morning: PPI (E: 0.1%) and then the Treasury will hold a 3-Yr Note Auction at 1:00 p.m. ET (auctions have had an impact on the yield curve recently and as a result, moved markets).

Later in the day, there are a few notable Fed speakers: Evans (1:35 p.m. ET), Powell (1:50 p.m. ET), and Kashkari (5:00 p.m. ET), and while investors will watch Powell’s speech closely, the main influence on markets remains the trade war this week and as such, traders will continue to be most sensitive to any further developments or statements released by the White House or Beijing.

Is It Too Late for a Trade Truce?

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What’s in Today’s Report:

  • Is It Too Late for a Trade Truce?
  • Weekly Market Preview (All About U.S./China trade)
  • Weekly Economic Cheat Sheet

Futures are modestly lower on digestion following Friday’s big rally, although there was also more soft economic data and a slightly negative U.S./China trade article.

German Manufacturers’ Orders missed expectations, falling -0.6% vs. (E) -0.4% and it’s yet another disappointing global manufacturing datapoint.

A Bloomberg article Sunday afternoon was a mild negative as it lowered expectations for a broad trade deal at this week’s talks, but there was no new news revealed.  To that point, we need to all brace for an avalanche of U.S./China trade headlines as we approach the Thursday start of senior-level talks, but cutting past the noise, the expectation is for a “Trade Truce” so anything that contradicts that expectation will be a negative for markets.

Today there is no notable economic data and two Fed speakers: Kashkari (10:20 a.m. ET) and Powell (1:00 p.m. ET).  Powell is clearly the more important of the two, but he’s giving opening remarks at a movie screening about the Fed (seriously) so I don’t think he’ll say anything market moving.

Tom Essaye Quoted in Yahoo Finance on October 3, 2019

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“Bottom line, worries about the economy spiked this week, and the last thing this market needs is a soft jobs number to reinforce the idea that any trade truce next week between the U.S. and Chins is ‘too late’ to help manufacturing sentiment. So, it’s not often the case, but the stronger this jobs report, the better, as a strong report will help calm any…” says Sevens Report Research founder Tom Essaye. Click here to read the full article.

New York Stock Exchange Traders

Is a Bad ISM PMI Really Worth a 3% Pullback?

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What’s in Today’s Report:

  • Jobs Report Preview
  • Is A Bad ISM Really Worth a 3% Pullback?

Futures are enjoying a modest oversold bounce despite more trade noise and disappointing economic data.

On trade, the U.S. imposed $ 7.5 billion worth of tariffs on the EU following a WTO ruling.  But, while the headline is scary, this was widely expected and not a new negative.

Economic data was soft again as Japanese and EU composite PMIs and the UK services PMI all missed estimates.

Today the focus will be on economic data and the key report is the ISM Non-Manufacturing Index (55.4).  If it badly misses expectations, concerns about a broader economic slowdown will grow further, and that will weigh on stocks again.  We’ll also be watching Jobless Claims (E: 215K) for any signs of slowing in the labor market.

There are also several Fed speakers today, but with rate cuts expected, I doubt they will say anything too material.  Speakers today include:  Quarles (8:30 a.m. ET), Mester (12:10 p.m. ET), Clarida (6:35 p.m. ET).

Tom Essaye Quoted in MarketWatch on September 30, 2019

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“On Saturday, the Treasury Department stated it’s not considering blocking Chinese companies from listing on U.S. exchanges ‘at this time,’ refuting the Bloomberg story from Friday, which caused the declines in stocks…” wrote Tom Essaye, president of the Sevens Report, in a note to clients. Click here to read the full article.

IT person in front on multiple screens