Can A Trade Truce Sustain New Highs?

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What’s in Today’s Report:

  • Can a Trade Truce Sustain New Highs in Stocks?
  • What the Saudi Oil Attacks Mean for Oil Prices
  • Weekly Market Preview (All About the Fed)
  • Weekly Economic Cheat Sheet

Futures are modestly lower following attacks on Saudi oil infrastructure over the weekend.

Oil surged 10% overnight after half of Saudi oil production was taken offline following attacks this weekend, as higher oil prices and increased geo-political tensions (the U.S. & Saudi are blaming Iran) are pressuring futures.

Meanwhile, Chinese economic data was universally disappointing as Fixed Asset Investment, Retail Sales, and Industrial Production all missed estimates.  This is being somewhat ignored given the oil markets, but there remains little actual proof the Chinese economic has stabilized (and with the S&P 500 at 3000, that’s priced in).

Today focus will be on geo-politics and any further escalation in tensions between the U.S. and Iran will weigh on stocks.  Beyond the short term, barring a U.S./Iran conflict (which is still very unlikely) the net impact of this weekend’s news will be to strengthen the valuation “ceiling” at 17X 2020 S&P 500 EPS (so 3,026 in the S&P 500), as it’s hard to justify stocks above that level given elevated geo-political risks.

Economically, there’s only one notable number today, the September Empire Manufacturing Survey (E: 4.9), and any evidence of stabilization in manufacturing will help stabilize stocks.

Tom Essaye Quoted in Yahoo Finance on September 13, 2019

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“SmileDirectClub is a show me the money story,” Invesco global market strategist Brian Levitt said on Yahoo Finance’s The First Trade. Sevens Report Research founder Tom Essaye echoed Levitt’s sentiment, adding the stock could stay under pressure near-term as investors grow comfortable with the thesis…Click here to read the full article.

Dental Lab

Technical Updates (S&P 500, 10 Year, Copper)

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What’s in Today’s Report:

  • ECB Decision Takeaways (Not As Dovish As Expected)
  • Why ECB QE Infinity Might Not Work
  • Should We Buy European ETFs?

Futures are slightly higher as “chatter” about an interim U.S./China trade deal continues to build.  Otherwise, it was a quiet night.

Nothing official has been released or confirmed, but based on multiple press reports the market now expects: 1) No more tariff increases and 2) Large agricultural purchases by China  (which is essentially where we were back in June, although now we have more actual tariffs).

Economically, EU trade balance met expectations.

Today the focus will be on Retail Sales (E: 0.3%) and for stocks to continue this rally, we need to see a “Goldilocks” number (better than expectations but not too strong).  If that happens, then the S&P 500 will hit new all time highs, likely led by cyclical sectors (XLY/XLF/XLB/XLI).

Tyler Richey Quoted in MarketWatch on September 11, 2019

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“Bolton is a known foreign policy hawk and, apparently, he and President Trump’s views began to diverge over time. Part of that very well could be that Trump’s keenly…” said Tyler Richey, co-editor at Sevens Report Research. Click here to read the full article.

Oil Rig

Is the Tariff Delay Bullish?

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Today’s Report is attached as a PDF.

What’s in Today’s Report:

  • Why Isn’t the Tariff Delay Causing a Bigger Rally?
  • Bond Market Update:  Not Confirming 3000 in the S&P 500

Futures are marginally higher ahead of the ECB decision and following a short tariff delay by President Trump.

Trump announced that the October 1 tariff increases (25% to 30% on 250 bln of imports) will be delayed till October 15th as a gesture of “goodwill.”

Economic data was again soft as German Industrial Production dropped –0.4% vs. (E) -0.1%, continuing the trend of disappointing EU manufacturing data.

Today the key event is the ECB Meeting.  The decision is at 7:45 a.m. and the Press Conference will be held at 8:30 a.m.  For the ECB to meet expectations we need to see 1) A rate cut, 2) More QE and 3) A “Tiered” deposit system.  Outside of the ECB we also get two important economic reports,  CPI (E: 0.1%) and Jobless Claims (E: 215K) and they could move markets if they are surprises (especially is CPI runs hot).

Tom Essaye Quoted in MarketWatch on September 11, 2019

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“The two most beat-up sectors in the August pullback (energy and financials) both rebounded hard yesterday and…” wrote Tom Essay, president of the Sevens Report, in a Tuesday note. Click here to read the full article.

Oil Rig

Tom Essaye Interviewed with WPTV on September 10, 2019

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Tom Essaye of Sevens Report Research discusses the importance of rebuilding the Bahamas for multiple reasons. Click here to watch the full video.

Tom Essaye Interviewing with WPTV

ECB Preview

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What’s in Today’s Report:

  • ECB Preview
  • Have Treasury Yields Bottomed?

Stock futures are flat while most international markets rallied overnight thanks to incremental progress on trade amid a continuation of the recent rotation into cyclicals.

There were no notable economic reports overnight.

China announced tariff exemptions for multiple U.S. imports o/n which is an incremental positive as both sides have made modest concessions in recent weeks.

The rotation from momentum to cyclicals is continuing overseas, a theme that will remain in focus today. Remember that because of the heavy weighting of big tech stocks in the major indexes, this rotation could remain a headwind on the broader stock market in the near term.

Today, there is one economic report to watch: PPI (E: 0.1%) and no Fed officials are scheduled to speak.

There is a 10-Yr Treasury Note Auction at 1:00 p.m. ET and depending on the reaction from the bond market, there could be an impact on stocks however investor focus has largely shifted forward to the ECB tomorrow which will likely keep stocks largely paralyzed for the next 24 hours.

Updated Market Multiple Table

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What’s in Today’s Report:

  • Updated Market Multiple Table
  • Contrarian Play: Bullish Breakouts in the Energy Patch

U.S. stock futures are suffering mild losses this morning as investors digest yesterday’s more pronounced sector-rotation money flows amid mixed economic data with focus turning to central bank events over the next week.

Chinese CPI and PPI were slightly firmer than expected in August, while French and Italian Industrial Production figures were underwhelming.

In the U.S., the NFIB Small Business Optimism Index was a mild disappointment at 103.1 vs. (E) 103.5 mostly due to declining growth expectations.

The mixed economic data, however, was not enough to materially affect investor sentiment and therefore is only having a modest impact on price action this morning.

Today, there is just one economic report to watch: July JOLTS (E: 7.311M) and there are no Fed officials speaking as they are in their “blackout period” ahead of next week’s FOMC meeting.

That will leave investors focused on the recently emerging “rotation trade,” and due to the heavyweight that tech stocks carry in the major indexes, if big tech names remain under pressure today, that will likely be a drag on the broader market.

How Much Have Things Improved?

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What’s in Today’s Report:

  • Updated Market Outlook:  How Much Have Things Improved?
  • Weekly Market Preview (ECB Thursday is the Key)
  • Weekly Economic Cheat Sheet (Retail Sales Friday)

Futures are marginally higher following a generally quiet weekend as markets continue to digest some (very) mild progress on U.S./China trade.

Economic data was mixed as Chinese exports missed expectations (-1.0% vs. (E) 2.5%) while German exports (0.7% vs. (E) -0.5%) and British Industrial Production (0.3% vs. (E) 0.1%) both beat expectations.

But, the reports aren’t moving markets as focus is on central banks this week (specifically the ECB on Thursday).

Today there are no notable economic reports nor are there any Fed speakers (they are entering the “blackout” period ahead of next Wednesday’s meeting) so we’ll be watching for any trade related headlines, and any continued improvement in the “tone” of relations will continue to support stocks.