A New Risk For Bond Portfolios?

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What’s in Today’s Report:

  • Powell’s Senate Testimony Takeaways (Not a Dovish Catalyst Near Term)
  • Did the Fed Quietly Make A Long Term Policy Change? (It Means Higher Inflation Could Be Coming)

Futures are marginally lower following the escalation of tensions between India and Pakistan.  Outside of geo-politics, it was a quiet night.

Pakistan reportedly shot down two Indian fighter jets and carried out air strikes in Kashmir in the biggest uptick in tensions between the two nuclear nations in decades.

Economic data was spare as Euro Zone money supply slightly missed estimates (3.9% vs. (E) 4.0%).

Today the media headlines will focus on the Cohen testimony and the Trump/Kim summit in Vietnam, but neither event will impact markets.

So, we’ll remain focused on Powell’s House Financial Services Committee Testimony (10:00 a.m. ET) to see if there are any more clues about balance sheet reduction, and we’ll also watch Pending Home Sales (E: 0.9%) for any signs of stabilization in housing.

What a Trade Deal Means for the Rally

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What’s in Today’s Report:

  • What a U.S. – China Trade Deal Means for the Rally

Futures are down modestly and international shares were broadly lower overnight as the recent rally in global stocks is being digested after a mostly quiet start to the week.

The German GfK Consumer Climate report was in-line with estimates at 10.8 for the month of March which offers at least some mild hope for an EU economic rebound in Q1.

Today, investors are going to be primarily focused on Fed Chair Powell’s testimony before Congress that begins at 10:00 a.m. ET with his prepared remarks due to be released at 9:45 a.m. ET.

While Powell cannot take a much more dovish tone than he already has so far in 2019, it is important he at the very least stays as dovish, as any hawkish shifts in rhetoric could spook markets, especially given how far stocks have rallied in recent weeks.

There are a handful of economic releases that are also due out this morning that could move markets: Housing Starts (E: 1.255M), S&P CoreLogic Case-Shiller HPI (E: 0.4%), FHFA House Price Index (E: 0.4%), and Consumer Confidence (E: 125.0).

Seven Macro Catalysts

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What’s in Today’s Report:

  • Seven “If’s” That Will Move This Market

Money flows are decidedly risk-on this morning thanks to renewed optimism about U.S.–China trade negotiations after an otherwise very quiet weekend.

Late yesterday, President Trump officially delayed the March 1st tariff deadline sending US stock futures up 10-15 points at the electronic open and shares in mainland China up over 5%.

There were no notable economic reports or other market moving catalysts overnight.

Looking into today’s Wall Street session, there are two economic reports due out this morning: Chicago Fed National Activity Index (E: 0.13) and Dallas Fed Manufacturing Survey (E: 3.0). These two releases are not usually watched closely by investors but they were especially bad in late 2019 and contributed to the heavy selling in December, so if they “whiff” again, we could see stocks come for sale.

There are no Fed officials scheduled to speak today which will leave the market primarily focused on any new developments or details regarding trade negotiations with China. Note that the March 1st deadline was delayed indefinitely and there were no other material developments regarding trade over the weekend so investors will be looking for any further indication on the next steps towards a deal.

A New Prognosis from Dr. Copper?

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What’s in Today’s Report:

  • Is  Dr. Copper’s Prognosis for the Markets Just Change?
  • Economic Data (Yesterday Was Not a Good Day)
  • Energy Update

Futures are recouping yesterday’s losses not because of what happened overnight (which was nothing) but instead of what might happen today.

Trump & Chinese Vice Premier He will meet at 2:30 ET and markets hope more progress on a deal is signaled.

Additionally, markets hope Fed officials (specifically Williams and Clarida) give more clarity on the end of QT at a Fed conference later this afternoon.

As mentioned, there are no economic reports or notable earnings today so focus will be on the Trump/He meeting and the various Fed speakers making comments today:  Williams (10:15 a.m. ET), Bullard (1:30 p.m. ET), Clarida (1:30 p.m. ET), Harker (1:30 p.m. ET).  For those events to power stocks meaningfully higher, we’ll need to see hints that a U.S./China deal would reduce current tariffs, and a clear indication that QT will end in 2019.

Tyler Richey, co-editor of the Sevens Report Quoted in MarketWatch

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Gold erases weekly gain as prices drop after ECB decision

“A firming dollar and sharply rising bond yields” were also reasons why gold saw such a big drop Thursday. Gold rallied too far too fast on the dovish shift in the…” said Tyler Richey, co-editor of the Sevens Report. To read the full article click here.

Why QT Matters to This Market

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What’s in Today’s Report:

  • Why QT Matters To This Market

Futures are flat as more reports of an impending U.S./China trade deal offset disappointing economic data.

Japanese & EU flash manufacturing PMIs both fell below 50 in February.  The Japanese PMI dropped to 48.5 while the EU reading fell to 49.2 (vs. (E) 50.4).

Multiple media outlets reported a U.S./China trade deal is almost done, but we don’t know if tariffs will be reduced.

Today focus will be on economic data as we get several potentially important reports.  They are, in order of importance:  Flash Composite PMI (E: 54.4), Philly Fed Mfg Index (E: 14.0), Durable Goods (E: 1.0%), Jobless Claims (E: 225k),  Existing Home Sales (E: 5.04M).

If the data is good, that will fuel a further rally towards 2800 in the S&P 500, although I don’t think good data today will be enough to get us through that level (it’ll take more dovish Fed commentary on the balance sheet to do that in the near term).

Technical Tipping Point

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What’s in Today’s Report:

  • Technical Update – We’ve Reached the Tipping Point
  • Why Copper Really Rallied Yesterday

Futures are slightly lower and international markets were mixed overnight as investor focus is shifting to today’s release of the January FOMC Meeting Minutes.

Japanese Exports in January were worse than feared (-8.4% vs. E: -6.1%) while the British CBI Industrial Trends Survey was 6 vs. (E) -5 but neither release moved markets o/n.

There are no economic reports in the U.S. today however the European Commission releases Flash Consumer Confidence data for February (10:00 a.m. ET) and given the recent string of underwhelming EU data points, another bad number could weigh on EU (and to a lesser extend U.S.) stocks into the European close.

The big event today will be the release of the January FOMC Meeting Minutes at 2:00 p.m. ET. Investors will be looking for any further clues as to the Fed’s plans for the balance sheet as a dovish adjustment is one of the few potentially bullish catalysts left for this stock rally right now.

Other than the Fed, U.S.-China trade negotiations continue in Washington however a deal is largely priced in and the talks are now a risk to the market as any “bad news” regarding the trade war would likely hit stocks hard.

Valuation Update

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What’s in Today’s Report:

  • Valuation Update – What Will Cause a Further Rally?
  • Weekly Market Preview
  • Updated Economic Outlook

Futures are modestly lower this morning as last week’s gains are digested following a quiet holiday weekend.

There were no US-China trade developments since Friday however negotiations are set to resume in Washington this week.

Economically, the British Labour Market Report largely met expectations while the headline to the German ZEW Survey for February fell to a more than 4-year low, underscoring analysts concerns about German growth expectations.

Looking ahead to the U.S. session today, there is one Fed speaker ahead of the open: Mester (8:50 a.m. ET) and one economic report due out in the first hour of trade: Housing Market Index (E: 59.0).

The market’s main focus will continue to be U.S. – China trade negotiations as a successful deal or at the very least extension to the next tariff deadline (March 1st) has largely been priced into stocks at current levels, so any renewed tensions could hit stocks, potentially hard, in the coming sessions.

Tom Essaye quoted in CNBC

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Sevens Report’s Tom Essaye quoted in CNBC on February 13, 2019.

“Markets always assumed the March 1 trade deadline was flexible, but this just confirmed it. Bottom line, the fundamentals are roughly balanced right now as there is…” Click here to read the full article.

Time to Chase Stocks? Not So Fast

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What’s in Today’s Report:

  • Time to Chase Stocks? Not So Fast.

Money flows were risk-on overnight thanks to continued trade-war optimism but stock futures are off the highs following more soft economic data overseas.

Trump said he would push back the March 1st tariff deadline, which was previously considered a “hard date,” if there is “good progress” towards a trade deal at that time while President Xi is now expected to attend talks on Friday. Both are incremental positives for the prospects of a successful deal.

Economic data out overnight was less optimistic however. EU Industrial Production fell –4.2% vs. (E) -3.2% Y/Y in December which is just the latest release fueling concerns about a global economic slowdown.

Today, the January CPI Report (E: 0.1%) will be watched closely ahead of the open while there are several Fed speakers before lunch: Bostic (7:15 a.m. ET), Mester (8:50 a.m. ET), Harker (12:00 p.m. ET).

The major focus of the market right now however remains the trade negotiations in Beijing and stocks will be most sensitive to any material headlines regarding the ongoing talks.