Why Downside Risks Are Building in Stocks

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What’s in Today’s Report:

  • Why Downside Risks Are Building in Stocks
  • Weekly Market Preview
  • Weekly Economic Cheat Sheet (Friday is an important day)

Futures are modestly lower following a generally quiet three day weekend, as investors digest last week’s deterioration in economic data and U.S.-China trade relations.

Economic data was sparse overnight and the only notable report was German GfK Consumer Climate, which slightly missed expectations (10.1 vs. (E ) 10.4).  There was no material economic data out Monday.

On trade, Trump’s trip to Japan was a general non-event and there were no new developments (positive or negative) on U.S.-China trade.

Today we have a few housing numbers including Cash-Shiller HPI (E: 2.5% y/y) and FHFA HPI (E: 0.3% m/m) as well as Consumer Confidence (E: 129.8), but none of those should move markets materially.

Instead, focus will be on the news wires for any updates on U.S. – China trade and on support in the S&P 500 at 2800, which is becoming an increasingly important level.

The Bond Market Is Screaming For a Rate Cut

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What’s in Today’s Report:

  • Why The Bond Market Is Screaming For a Rate Cut

Futures are bouncing modestly following some hopeful comments by President Trump on U.S.-China trade.

Late yesterday President Trump made comments expressing optimism about an eventual U.S.-China trade deal that includes a solution for Huawei.  No specifics or new details were provided, however.

Brexit entered a new phase as PM May announced she will resign on June 7th.  But, until a “No Deal” becomes more likely, the global markets will continue ignore Brexit.

Today focus will be on Durable Goods Orders (E: -2.0%) and support at 2800 in the S&P 500.  Yesterday that support level held and that’s a key number to watch going forward, as a violation of 2800 could open up an “air pocket” in stocks.

Regarding Durable Goods, it’d be nice if the data was solid, but it’s an April number so it won’t reflect activity following the flare up of U.S.-China trade tensions, and the headline is likely to be negatively skewed by cancellations for the 737, which started last month.

Tom Essaye Appeared on TD Ameritrade on May 23, 2019

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Tom Essaye interviewed with Ben Lichtenstein with TD Ameritrade on what is driving the market right now and who is it affecting the most: Banks, crude, energy…& more importantly what will it take to turn the market around? Click here to watch the full video.

Tom Essaye Quoted in Barron’s on May 21, 2019

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Tom Essaye quoted in Barron’s on May 21, 2019. “Today’s news was a positive development, but by no means a game-changer for the broader Huawei situation…” Click here to read the full article.

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A U.S.-China Tech War Too?

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What’s in Today’s Report:

  • Why the Trade War is Becoming a Tech War (And That’s Bad)
  • Brexit Update – Is a “No Deal” Brexit A Possibility (Yes)
  • EIA and Oil Update – Bearish Supply News

It’s an ugly morning as futures are down about one percent as markets digest disappointment from the week’s two big events, the FOMC Minutes and the global flash PMIs.

EU flash PMIs missed estimates at 51.6 vs. (E) 51.7 but EU and German manufacturing PMIs were especially weak (47.7 & 44.3) and that’s negative for global growth.

Yesterday’s FOMC Minutes were slightly hawkish and confirmed the Fed isn’t close to a rate cut right now.

Given the soft foreign data, the key report today is the flash Composite PMI (E: 52.4).  If that number is soft, it’ll further stoke worries about global growth and will be a negative for stocks.  Other reports today include Jobless Claims (E: 215K) and New Home Sales (E: 680K).

Bottom line, this market is facing several headwinds and support at 2800 is now important, but should likely hold unless hopes for a Trump/Xi meeting at the G-20 meeting are dashed, or U.S. growth begins to roll over.

Economic Breaker Panel Update

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What’s in Today’s Report:

  • Economic Breaker Panel: May Update

U.S. stock futures are flat as investors look ahead to today’s release of the FOMC Minutes while most overseas markets bounced o/n in sympathy with the U.S. rally yesterday, although trade tensions remain elevated.

A NYT article released late yesterday revealed a modest escalation in the “tech war” as the U.S. will likely add several Chinese surveillance companies to the same “blacklist” that Huawei is on. This is an incremental negative as the odds of the broader “trade war” being resolved in the near-term continue to fall amid escalations in the U.S.-China “tech war.”

There are no major economic reports today but the calendar is relatively busy with the EIA Petroleum Status Report  due out at 10:30 a.m. ET (oil has traded with a sluggish tone this week and a selloff could drag stocks lower), while the main focus of the session will be on the release of the FOMC Meeting Minutes at 2:00 p.m. ET.

Additionally, there are multiple Fed speakers on the calendar: Williams (10:00 a.m. ET), Bostic (10:10 a.m. ET), and Kaplan (10:15 a.m. ET), however it is unlikely any of them move markets ahead of the Minutes.

Tom Essaye Quoted in Barron’s on May 20, 2019

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Tom Essaye quoted in Barron’s on May 20, 2019. “Several U.S. tech firms have stopped conducting business with Huawei, per the…” Click here to read the full article.

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Trade Update: Good/Bad/Ugly

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What’s in Today’s Report:

  • Trade Update: Good/Bad/Ugly

Futures are rebounding with EU markets from yesterday’s sharp, tech-led losses thanks to some encouraging Huawei news o/n and a benign speech by Powell late Monday.

The U.S. announced some temporary exemptions will be issued for companies exporting to Huawei (mainly for existing products) which is helping ease some of yesterday’s elevated trade angst.

Overseas, there were no notable economic reports but the RBA cited risks to global growth in their most recent meeting minutes release, which pressured the aussie.

Looking into today’s U.S. session, focus will largely remain on the trade war and specifically any further information on the Huawei exemptions for U.S. exporters.

There are a few other potential catalysts however, including one economic report: Existing Home Sales (E: 5.37M) and a few Fed speakers: Bostic (7:50 a.m. ET), Evans (10:45 a.m. ET), and Rosengren (12:00 p.m. ET) but none of these are expected to materially move markets amid the most recent trade war developments.

Tyler Richey Quoted in Bloomberg on May 20, 2019

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Tyler Richey was quoted in Bloomberg on May 20, 2019. “You’ve got some conflicting influences on the market and the price action today is pretty indicative of that…” Click here to read the full article.

Tyler Richey

Tom Essaye Quoted in CNBC on May 17, 2019

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Tom Essaye quoted in CNBC on May 17, 2019. “Through any lens, this is a broadside against the Chinese government, which is generally considered to be the beneficial…” Click here to read the full article.