OPEC’s Catch-22

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What’s in Today’s Report:

  • OPEC’s Catch-22 Explained
  • ISM Manufacturing PMI Analysis

Futures are modestly lower as the Trump-Xi “trade truce” continues to be digested this morning while the yield curve flattened further overnight, underscoring growth concerns.

The major underlying story this morning is the yield curve as the 2’s-10s spread compressed to new lows overnight (13bp) and the 2’s-5’s actually inverted.

Economically, EU PPI was 4.9% vs. (E) 4.5% in Oct. but the recent plunge in energy prices has investors largely shrugging off the “hot” print.

Today is likely to be a fairly quiet day ahead of tomorrow’s National Day of Mourning for President George H.W. Bush although there are two potential catalysts to watch: Motor Vehicle Sales (E: 17.2M) and New York Fed President Williams speaks shortly after the open (10:00 a.m. ET).

What the Trade Truce Means for Markets

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What’s in Today’s Report:

  • What The U.S./China Trade Truce Means for Markets
  • Four Keys to A Bottom Updated:  Getting Closer, but Not There Yet
  • Weekly Market Preview
  • Weekly Economic Cheat Sheet (All About Growth and Jobs)

Futures and global markets are surging (up more than 1%) as Trump and Xi agreed to U.S./China trade war truce.

As was generally expected, the U.S. will not raise tariffs on China to start 2019 and both sides have agreed to a three month negotiation period.

Economic data was good as EU and UK Manufacturing PMIs both beat estimates

Today there is one important economic report, the November ISM Manufacturing PMI (E: 57.2) and it needs to be a “Goldilocks” reading to help fuel this early rally.  We also get three Fed speakers (Williams (9;15 a.m. ET), Brainard (10:30 a.m. ET), Kaplan (1:00 p.m. ET)) but none of them should move markets.

Bottom line, tech and industrials are the key sectors to watch today, and outperformance from both will be needed for stocks to hold these big, early gains.

Trump/Xi Meeting Preview

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What’s in Today’s Report:

  • G-20 Preview:  The Good, the Expected & the Ugly

Futures are modestly lower on positioning ahead of the G-20 and due to disappointing foreign economic data.

Regarding the G-20, there was no new news overnight, and the expectation remains for a trade war “truce.”

Economic data was disappointing.  Chinese Nov. Manufacturing PMI dropped to 50.0 vs. (E) 50.2, the lowest since mid-2016.  EU inflation also underwhelmed as the core flash HICP rose 1.0% y/y vs. (E) 1.1% y/y.  So, despite some decent data this week, “ROW” (rest of world) economic activity remains underwhelming.

There are no economic reports today and just one Fed speaker, Williams (1:00 p.m. ET), but he won’t move markets.  So, markets should be in a general holding pattern ahead of the G-20 and I’d expect a quiet day.  That said, there has been a constant flow of headlines on the potential outcome of the Trump/Xi meeting, so we’ll continue to watch the headlines for any headline surprises that could cause volatility.

Was Powell’s Speech a Bullish Gamechanger?

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What’s in Today’s Report:

  • Was Powell’s Speech a Bullish Gamechanger?  No.
  • Oil Update – Another Bearish Report
  • The Unexpected Winner from Powell’s Speech (Yield Curve)

Futures are modestly lower on digestion of yesterday’s rally combined with worries about potential auto tariffs.

Rhetoric on U.S. auto tariffs continues to get louder and there is a growing fear they will be enacted this year.  That is not the consensus expectation at this point, but it’s not an insignificant (and it would be a new negative for stocks).

Economic data o/n was better than expected as Japanese Retail Sales, German Unemployment and EU Economic Sentiment all beat estimates.

Today focus will be on economic data, and the most important report will be the Core PCE Price Index (E: 1.9%).  That number needs to stick near 2.0% yoy to allow the Fed to continue to tilt dovish.  Other notable data today includes Jobless Claims (E: 219K) and Pending Home Sales Index (E: 0.3%).   There are also three Fed speakers today, (Mester and Evans (2:00 p.m. ET), Kaplan (3:00 p.m. ET)) although none should move markets given the Powell comments.

Finally, we can expect more preview articles about the Trump/Xi meeting but the bottom line is the market expects (and has priced in) a “truce” that sees no new tariffs and a period of intense negotiation.

The Volatility Index to Watch (Not VIX)

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What’s in Today’s Report:

  • The More Important Volatility Index to Watch
  • Was Clarida Hawkish?

Futures are bouncing modestly this morning as US-China trade sentiment improved incrementally overnight and CRM earnings beat, helping bolster the beat up tech space.

On trade, the Washington Post printed another Trump interview overnight.

There were no material changes in tone, but the market is increasingly pricing in a “trade truce” of some kind resulting from the Trump-XI meeting at the G20 which is being well received by global investors so far today.

In the U.S., there are a few economic reports to watch that could move the market: GDP (E: 3.5%), International Trade in Goods (E: -$76.8B) and New Home Sales (E: 575K).

But, investor focus will be primarily on the Fed today as one of the two “events to decide the year” will happen over the lunch hour with Powell speaking in New York at 11:30 a.m. ET.

Expectations have shifted increasingly dovish so there is a risk he disappoints, but mention of inflation concerns or “flexibility” regarding 2019 rate hikes should be well received and act as a tailwind for stocks.

Sevens Report’s Tom Essaye appeared in Yahoo Finance on November 23, 2018

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Sevens Report’s Tom Essaye appeared in Yahoo Finance on November 23, 2018. His take on oil, market volatility, stocks and more. Watch the entire clip here.

Sevens Report’s Co-editor Tyler Richey quoted in MarketWatch on November 26, 2018.

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Sevens Report’s Co-editor Tyler Richey quoted in MarketWatch on November 26, 2018. His take on Dow Theory. Read the full article here.

Is Flat the New Inverted?

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What’s in Today’s Report:

  • Is Flat the New Inverted?

Futures are trading slightly lower this morning on an uptick in trade war fears following an otherwise quiet night.

After the close yesterday, the WSJ ran an interview with Trump where he said he was ready to move forward with increasing tariff rates (from 10% to 25%) in early 2019 and delaying the hike per China’s request was “highly unlikely.”

Today, there are a few potential catalysts on the schedule. Economically, there are three reports due out: S&P CoreLogic Case-Shiller HPI (E: 0.3%), FHFA HPI (E: 0.3%) and Consumer Confidence (E: 136.5).

Meanwhile on the Fed front, Clarida speaks ahead of the open (7:45 a.m. ET) while Bostic, George, and Evans speak on a panel in NY this afternoon (2:30 p.m. ET).

With Powell’s speech later this week still a major focus of the market, the Fed chatter will be watched closely while the market will remain very sensitive to any further rhetoric on the trade front (the other big event being the G20) after Trump’s comments yesterday afternoon.

Technical Market Update

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What’s in Today’s Report:

  • Technical Market Update
  • Two Events to Decide the Year
  • Weekly Market Preview
  • Weekly Economic Cheat Sheet (All About Inflation This Week)

Futures are surging and global markets are up 1% thanks to apparent progress on the EU/Italy budget standoff.

Italian deputy PM Salvini said over the weekend that Italy wasn’t “stuck” on the 2.4% budget deficit, adding to the momentum that a compromise might be achieved.

Economic reports overnight were again disappointing.  Japanese flash manufacturing PMI missed estimates (51.8 vs. (E) 53.0), as did German IFO business expectation (98.7 vs. (E) 99.2.

There are no notable economic reports or Fed speakers today, so focus will remain on the tech sector.  Tech traded with some decent relative strength Friday, and if it can build on that today, then we could see a good bounce back rally.  Conversely, if tech fails to rally, then so too will the boarder markets.

Two Events to Decide The Year?

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What’s in Today’s Report:

  • Two Events to Decide the Year?

Futures are marginally lower as markets digest recent volatility following a mostly quiet Thanksgiving holiday.

Regarding U.S./China trade, there were numerous articles published overnight on the upcoming summit and while they varied in tone (both positive and negative) none of them changed expectations for the event.

Economically, the Nov. EU flash composite PMI declined and missed expectations, falling to 52.4 vs. (E) 53.0.  That soft reading, combined with new lows in oil (down 2%) are the two “reasons” for the decline in futures this morning.

Today will be a typically quiet post-Thanksgiving Friday but there is an important economic report to watch:  Composite Flash PMI (E: 54.8).  Economic data has been more mixed lately, and a soft number here will fuel concerns the U.S. economy is losing momentum.

Finally, keep in mind that U.S. equity markets close at 1:00 p.m. ET.