Tom Essaye Quoted in CNBC on March 29, 2019
“Looking forward, there’s been material progress in alleviating the earnings growth and Fed worries that caused the Q4 2018 correction. But it would be a…” Click here to read the full article.
Updated Equity Market Outlook
What’s in Today’s Report:
- Updated Equity Outlook: A Resilient Market vs. Two Building Headwinds
- Weekly Market Preview (All About Data)
- Weekly Economic Cheat Sheet
Futures are sharply higher following better than expected global PMIs as hope for a global economic rebound stays alive.
China’s “official” Manufacturing PMI rose to 50.5 vs. (E) 49.8 in March, Japan’s Manufacturing PMI rose to 49.2 vs. (E) 48.9, and the UK’s Manufacturing PMI surged to 55.1 vs. (E) 51.2.
The only disappointment in Europe, where the EU Manufacturing PMI slipped to 47.5 vs. (E) 47.6, and inflation also underwhelmed.
Today focus will remain on economic data and the key report today is the ISM Manufacturing Index (E: 54.2). If that number can beat expectations, it will further reinforce the idea of a growth rebound and bonds yields should rise, the dollar should fall, and this morning’s rally should be extended, although I think it’s hard to imagine the S&P 500 moving more than a percent or two ahead from here of earnings season (more on that in the issue). Other reports today include Retail Sales (E: 0.3%) and Construction Spending (E: -0.2%).
Finally, a “head’s up” that today is April Fool’s Day, just in case anyone (in my case most likely my children) tells you something preposterous!
Are Cyclical Sectors Set To Rebound?
What’s in Today’s Report:
- Are Cyclical Sectors Set To Rebound? (They Did Yesterday)
It’s green across the screen this morning but the gains are modest as more positive commentary on U.S./China trade and decent economic data are supporting markets.
On trade, Treasury Secretary Mnuchin said talks have been “productive” but gave no further details.
Economically, German Retail Sales beat estimates rising 0.9% vs. (E) -1.0%, making it two days in a row of better than expected EU data.
In normal times, today the key data point would be the Core PCE Price Index (E: 0.2% m/m, 1.9% y/y) as that’s the Fed’s preferred measure of inflation. And, if it ran hot or cold, it would have an impact on perceived Fed policy. In today’s market, however, it’s take a massive (and almost impossible) move in that price index to change expected Fed policy, so this number likely won’t move markets. Other notable events today include New Home Sales (E: 615k) and one Fed Speaker: Kaplan (10:30 a.m.).
Bottom line, this market remains driven by Treasury yields. They are over extended to the downside and rose slightly yesterday and that helped stocks – and if we see a further rise in yields today ahead of the Chinese PMIs on Sunday, that could boost markets into the weekend.
Tom Essaye Quoted in ETF Daily News on March 27, 2019
“We need global growth to stabilize to help propel stocks higher from here. The currency and bond markets continue to flash large and…” Tom Essaye, founder of The Sevens Report, said in a note. Click here to read the full article.
Another Bad Signal From the Bond Market
What’s in Today’s Report:
- Why Another Bond Auction Caused Yesterday’s Decline
- The Next Catalyst for Markets (Coming This Sunday)
Futures are slightly higher following a positive U.S/China trade article and better than expected EU economic data.
EU Money Supply (M3) rose 4.1% vs. (E) 3.9%, delivering the first upside economic surprise in Europe in some time. And, while M3 isn’t exactly a widely followed report, at this point we’ll take what good data we can get from Europe.
On trade, a Reuters article stated Chinese officials have made new concessions on IP rights and tech transfers which represents an incrementally positive step, although other issues still need to be resolved before there is a an official deal.
Today there are some notable economic reports including Final Q4 ‘18 GDP (E: 2.2%), Jobless Claims (E: 225K), and Pending Home Sales (E: -1.0%) but none of them should move markets unless there are major surprises. Similarly, there are numerous Fed speakers, Quarles (7:15 a.m. ET), Clarida (9:30 a.m. ET), Bowman (10:00 a.m. ET), Bostic (11:30 a.m. ET) and Bullard (6:20 p.m. ET), but again they shouldn’t move markets, either.
So, we’ll be watching bond yields as the key to whether stocks can resume the rally. If bond yields (Treasury yields and Bund yields) can move higher today, then likely so can stocks
Tom Essaye Quoted in CNBC on March 27, 2019
“We need global growth to stabilize to help propel stocks higher from here. The currency and bond markets continue to flash large and…” Click here to read the full article.
New Earnings Risks
What’s in Today’s Report:
- Why the Stronger Dollar and Commodity Prices Matter to Stocks
- Housing Market Data Update
- More Evidence a Rate Cut Might Be Coming
S&P futures have turned negative in pre-market trading as bond yields continue to bleed lower with the benchmark 10-yr yield hitting fresh lows in the mid-2.30% range overnight.
Economically, Chinese Industrial Profits were down -14.0% YTD, falling from -1.9% in December.
The Reserve Bank of New Zealand was the latest central bank to turn decidedly dovish overnight citing concerns about the global economy while Brexit angst also persists amid new votes in Parliament today.
The list of catalysts in the Wall Street session is a short one today with only one economic report due out: International Trade (E: -$57.4B) and just one Fed speaker later in the evening: George (7:00 p.m. ET).
That will again leave the market primarily focused on the bond market and to a lesser degree the dollar. Recession fears are front and center right now with Fed funds futures pricing in more than 80% odds of a rate cut in the next 10 months as of this writing.
Bottom line, without a rebound in yields and at least a steady dollar (a pullback would be more favorable) then it will be very difficult for stocks to mount any sort of rally today.
Seven “Ifs” Updated
What’s in Today’s Report: Seven “Ifs” Updated (Post FOMC and PMIs)
Stock futures are moderately higher with bond yields while the dollar is steady this morning as the volatility from late last week continues to be digested by global investors.
U.K. Parliament took control of the Brexit process from Prime Minister May late yesterday but the news is not having a material impact on markets so far today and there were no market moving economic releases overnight.
In the U.S. today, several reports on the housing market are due out this morning: Housing Starts (E: 1.201M), S&P CoreLogic Case-Shiller HPI (E: 0.3%), and FHFA House Price Index (E: 0.3%) while Consumer Confidence (E: 132.5) will hit in the first hour of trading.
Additionally, there are two Fed speakers ahead of the bell: Harker (8:00 a.m. ET) and then Rosengren (8:30 a.m. ET).
While a lot of news will hit this morning between the economic data and Fed chatter, the primary focus of the stock market will be bond yields and the curve. If yields continued to fall and the curve flattens further, stocks will have a very hard time staying in positive territory as growth concerns will continue to weigh on sentiment.
Why Stocks Dropped
What’s in Today’s Report:
- Why Stocks Dropped Friday
- Weekly Market Preview (All About Growth)
- Weekly Economic Cheat Sheet
Futures are slightly lower thanks to continued momentum from Friday’s sell off. Outside of politics, it was a generally quiet weekend.
Economically, we got an upside surprise from German IFO Business Expectations, which rose to 95.6 vs. (E) 94.0 and that offsets a small part of last week’s bad PMIs (but not nearly enough to address growth concerns).
Politically, the release of the Mueller report dominated headlines over the weekend, but as has been the case for nearly two years, this topic is not an influence on markets.
There are no economic reports today and no material Fed commentary, so focus today will be on whether the S&P 500 can stabilize and hold 2800. The Mueller report will continue to dominate media coverage, but again this simply isn’t an influence on stocks, Treasuries or the dollar.
Technical Update
What’s in Today’s Report:
- Technical Update – What The Charts Are Saying About This Market
Futures are moderately lower following more disappointing European economic data.
EU flash PMIs were a disappointment again, as the composite EU PMI fell to 51.3 vs. (E) 51.4. Manufacturing was especially bad as the EU flash manufacturing PMI dropped to 47.6 vs. (E) 49.5, a five year low.
Today the highlight will be the Flash Composite PMI (E: 55.2). That number was always going to be important, but it’s even more important now following the disappointing EU economic data, as markets will need more proof the U.S. can withstand failing global growth to continue this rally. Other events today include Existing Home Sales (E: 5.080M), Wholesale Trade (E: 0.1%) and Fed speaker Bostic (9:30 p.m. ET) but none of those should move markets.