Perspective on Yesterday’s Rally

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What’s in Today’s Report:

  • Perspective on Yesterday’s Bullish Catalysts (Draghi’s QE reference, Trump’s tweet)
  • Is ECB QE Bullish for European Stocks?

Futures are little changed following a quiet night as markets digest yesterday’s events (Draghi dovish, Trump’s positive U.S./China tweet) ahead of the Fed later today.

In contrast to the suddenly positive mood on the Street, economic data again was disappointing.  German PPI missed expectations (1.9% yoy vs. (E) 2.2% yoy) as did British Industrial Trends (-15 vs. (E) -12), but neither number is moving markets.

Today is clearly all about the FOMC Decision at 2:00 p.m. ET.  There’s virtually zero chance of a rate cut at this meeting, so the keys to watch will be 1) Whether the word “patient” is removed from the end of the second paragraph (signaling a looming rate cut) and do 2) The dots show no rate hikes in 2020 and 3) A cut in 2019.

If the answer to each of these is “yes” the meeting will be dovish and likely extend the rally. If the answer is “no” to all three it’ll be hawkish and stocks will get hit, and if we get a mixed bag, the reaction from markets shouldn’t be too drastic.

 

Sevens Report Quarterly Letter

Next week is the final week of the quarter, and we’ve already begun working on the Q2’19 Sevens Report Quarterly Letter.

The Q2 Quarterly Letter will be delivered to subscribers on July 1st.

Volatility returned and investors are now facing multiple risks including: 1) Trade uncertainty, 2) Worries about economic growth, 3) Geopolitical concerns and 4) Shifting Fed policy.

Investors I speak with want to hear from their advisor in this environment. That’s why we’re producing the letter on the 1st business day of the quarter, because we want you to be able to impress clients by sending them your quarterly letter before your competition (and with little-to-no work from you).

Tom Essaye Quoted in MoneyWeek on June 14, 2019

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“You had a market that became very pessimistic and then all of a sudden we had the Fed’s dovish rhetoric and no…” says Tom Essaye. Click here to read the full MoneyWeek article.

Federal Reserve

FOMC Preview (Will the Fed Confirm the Rally?)

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What’s in Today’s Report:

  • FOMC Preview – Will the Fed Confirm the Rally?

Futures are modestly higher as stocks rally off dovish comments by ECB President Draghi and again ignore more ugly economic data.

In a speech Draghi said the APP (the EU QE program) had a lot more “room” implying it could be re-started, and that helped global equities rally modestly.

Economic data, meanwhile, was again ugly.  German ZEW Business Expectations collapsed to –21.1 vs. (E) -9.3 while Euro Zone exports missed estimates at –2.5% vs. (E) -1.2%.

Today will likely be dominated by pre-Fed positioning and trading should be quiet, although there’s always the chance we get a U.S. – China trade update as the G-20 draws closer.  Economically there is just one report, Housing Starts (E: 1.240M), and it shouldn’t move markets.

Why Are Stocks So Resilient (And Can It Last?)

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What’s in Today’s Report:

  • Why Are Stocks So Resilient (And Can It Last?)
  • Last Week’s Key Event (It Wasn’t Mexican Tariffs)
  • Weekly Market Preview (Four Big Events This Week, Not Just the Fed)
  • Weekly Economic Cheat Sheet (All About the Fed)

Futures are fractionally higher following a weekend full of  articles on trade and the Fed but none of them shifted the current market outlook.

There were multiple stories on U.S./China trade and they were mixed (some positive, some negative).  The bottom line remains that the best hope for the G-20 summit is a resumption of negotiations and promises of no new tariffs.

There was no notable economic data over the weekend.

The Fed meeting is just over 48 hours away so barring any major surprises on U.S./China trade, markets should be relatively calm into that meeting.

But, that said, there is an important economic report today, Empire Manufacturing (E: 10.0), which will give us the first look at economic activity in June and this report could confirm or deny the U.S. economy is again losing positive momentum, although it’ll take a big miss or beat vs. expectation to materially move stocks.

Tom Essaye Quoted in MarketWatch on June 13, 2019

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Tom Essaye, founder of the Sevens Report Research, partly credited expectations for further economic supportive measures from China for the market’s gains. “Chinese Vice Premier Hu called for more stimulus…” Click here to read the full article.

Tom Essaye Quoted in Yahoo Finance on June 12, 2019

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The Sevens Report’s Tom Essaye said this week that the trade war is one of several key uncertainties creating volatility in the market. A major divide seems to exist between market expectations for three…Click here to read the full article.

Tom Essaye Quoted in U.S. News on June 13, 2019

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Tom Essaye, the founder and president of Sevens Report Research in Palm Beach Gardens, Florida, says last weekend’s G-20 finance ministers and central bank governors meeting produced no progress on U.S.-China trade, and there are no…Click here to read the full article.

Weighing Gold

Tom Essaye Quoted in CNBC on June 12, 2019

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“Momentum can carry this market higher especially into the Trump/Xi G20 summit, but the bigger (and longer-term more important) question regarding…” says Tom Essaye. Click here to read the full article on CNBC.

Stock Buyer on the stock exchange floor

Fed Expectations (What’s The Best Scenario?)

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What’s in Today’s Report:

  • The Right Fed Expectation for This Market
  • More Proof There’s No Chinese Buyers Strike for Treasuries (That’s a Positive)

Futures are modestly lower following a night of bad micro and macro-economic news.

On the micro front, Broadcom (AVGO), a major semi-conductor company, missed earnings and provided ugly guidance for 2H ‘19, citing the trade war as a major negative on demand.

On the macro front, Chinese economic data was on balance disappointing as Fixed Asset Investment and Industrial Production both missed estimates, although Retail Sales was a mild beat.

Looking ahead to today, the major number is the Retail Sales report (E: 0.7%), and the market would welcome a slightly disappointing number as it would further solidify the expectations for a Fed rate cut in July, and likely spur a rebound this morning. We also get Industrial Production (E: 0.2%) and Consumer Sentiment (E: 98.4) this morning as well.

Tom Essaye Quoted in Seeking Alpha on June 12, 2019

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Tom Essaye quoted in Seeking Alpha. Analysts are also starting to reassess the June market comeback, with some saying it doesn’t quite make sense. “This rally is not fundamentally backed. Instead what we are seeing is a…” Click here to read the full article.

Tom Essaye Headshot