What New Tariff Threats Mean for Markets

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What’s in Today’s Report:

  • What Trump’s Tariff Threats Mean for Markets
  • Updated Market Outlook (Beyond Tariffs/Trade)
  • Weekly Market Preview
  • Weekly Economic Cheat Sheet (All About Inflation)

Futures are sharply lower after President Trump renewed tariff threats against China, putting the expectation for a U.S./China trade deal in doubt.

President Trump threatened to increase tariffs on Chinese imports to 25% on 200 billion this Friday if a trade deal is not complete.

Outside of trade, economic data was mixed.  Chinese composite PMI declined (52.7 vs. (E) 52.9) while Euro Zone composite PMI and retail sales slightly best estimates.

Today there is one Fed Speaker: Harker (9:30 a.m. ET) but obviously the focus of markets will be on any trade updates.  As of this writing, the Chinese trade delegation is still coming to the U.S. for more negotiations this week.  If that is cancelled, look for stocks to take another leg lower.  Conversely, if it’s announced Chinese Vice-Premier Liu He is attending the talks, that will be a positive.

From a technical standpoint, 2890 in the S&P 500 is notable support and if that’s broken, selling could accelerate.

What Is Dow Theory Saying Now?

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What’s in Today’s Report:

  • What is Dow Theory Saying Now
  • 10’s-2’s Yield Spread and Bank Stock Outlook (Post Powell’s Press Conference)

Futures are bouncing slightly ahead of the jobs report and following yesterday’s modest declines.  Generally it was a quiet night of news.

EU Core HICP (their CPI) was stronger than expected, rising 1.2% vs. (E) 1.0% and incrementally added to the modest hawkish shift in the global central bank outlook following Powell’s press conference.

Today the headline numbers are the Employment Situation Report (Jobs: 180K, UE: 3.8%, Wages: 0.2% m/m) and the ISM Non-Manufacturing PMI (E: 57.3).  If the jobs number is very strong (job adds above 250k, UE below 3.7% and wages above 3.5% yoy, that might cause a decent sell off given Powell’s hawkish surprise on Wednesday, but barring that it shouldn’t impact markets too much.

Absent a jobs report surprise, the two biggest events today are comments by Fed Vice Chair Clarida (11:30 a.m. ET) and Williams (1:45 a.m. ET).  Specifically markets will be looking to see whether they echo Powell’s “transitory” comments about inflation, or if they sound more concerned.  The former will pressure stocks, while the later might provide some relief.

Other Fed officials speaking today include: Evans (10:15 a.m. ET), Bowman (3:00 p.m. ET) and after the market close: Bullard, Daly, Kaplan, Mester.

Tom Essaye Quoted in Financial Times on May 1, 2019

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Tom Essaye, founder of The Sevens Report, said a modest but noticeable 539,000-barrel draw from the Strategic Petroleum Reserve — just the second time the US has tapped its SPR this year…Click here to read the full article.

Tom Essaye Quoted in Barron’s on May 2, 2019

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Keep an eye on how the market overall responds to Wednesday’s drop. “Traders will be focused on whether the S&P 500 can hold yesterday’s low…” Click here to read the full Barron’s article.

 

Tom Essaye Quoted in MarketWatch on May 2, 2019

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Tom Essaye quoted in MarketWatch on May 2nd 2019. After Powell’s news conference, investors were “left with a market lacking a material, positive catalyst at the moment and one at the top of reasonable valuations…” said Tom. Click here to read the full article.

FOMC Takeaways (Where’s the Positive Catalyst Now?)

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What’s in Today’s Report:

  • FOMC Takeaways – No Discernable Positive Catalysts for Stocks
  • Why This Fed Isn’t Good at Communication
  • Jobs Report Preview
  • Oil Market Update

Futures are tentatively bouncing from yesterday’s late sell off as markets digest an imminent U.S./China trade deal, mixed economic data and the Fed meeting.

Multiple press reports yesterday implied a U.S./China trade deal could be completed next Friday, with the 10% tariffs on 250B in goods immediately reduced.  This meets current market expectations and is already priced in, so there was no rally on the news.

Economic data met low expectations overnight as the EU Manufacturing PMI rose slightly to 47.9 vs. (E) 47.8, but that’s not moving markets.

Today we get a few notable economic reports via Jobless Claims (E: 215K), Productivity and Costs (E: 1.9%, 1.8%) and Factory Orders (E: 1.5%), but none of those should move markets.  Instead, with no major events scheduled for today, traders will be focused on whether the S&P 500 can hold yesterday’s low (2923).  If that support is fails than look for selling to accelerate.

Curve Steepening: Buy Banks?

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What’s in Today’s Report:

  • 10’s-2’s Showing Signs of Life – Good for the Banks?

S&P futures are indicating stocks will open at all-time highs today thanks to strong earnings and Fed optimism after President Trump mentioned rate cuts and QE yesterday.

AAPL beat on earnings and revenue in Q1 but also notably revised guidance solidly higher citing improvement in Chinese markets. The company’s shares are trading up roughly 6% in the pre-market.

Most overseas markets are closed for holidays today and the market’s main focus will be the Fed events this afternoon: FOMC Meeting Announcement (2:00 p.m. ET), Fed Chair Press Conference (2:30 p.m. ET).

There are a however a few important economic reports that could move markets this morning: ADP Employment Report (E: 180K), ISM Manufacturing Index (E: 55.0), and Construction Spending (E: 0.2%).

Bottom line, the market is looking for more dovish rhetoric out of the Fed today and if Powell delivers, another set of closing highs in U.S. stock indexes is likely.

Will the Fed Cut Rates?

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What’s in Today’s Report:

  • FOMC Preview

U.S. futures and most international equity markets were mildly lower overnight after corporate results from GOOGL missed estimates while economic data was mixed.

China’s PMI Manufacturing Index fell to 50.2 from 50.8 in April (but importantly remained above 50, in expansion territory) while the Eurozone Q1 GDP Flash was 1.2% vs. (E) 1.1% year-over-year which helped ease recently rising concerns about weakness in EU growth metrics.

Looking into today’s session, the calendar remains busy however with the FOMC Meeting getting underway, it would take a material surprise in economic data or multiple earnings shocks to really move the market ahead of tomorrow’s Announcement and Powell’s press conference.

Economically, there are four releases to watch this morning: Employment Cost Index (E: 0.7%), S&P Case-Shiller HPI (E: 0.3%), Consumer Confidence (E: 127.0) and Pending Home Sales (E: 0.7%).

On the earnings front, there are several notable companies releasing reports today including: GE ($0.09), MA ($1.67), BP ($0.68%), GM ($1.09), PFE ($0.76), and STX ($0.72) before the open and AAPL ($2.37) and AMD ($0.05) after the market close.

An Update from Dr. Copper

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What’s in Today’s Report:

  • An Update from Dr. Copper

Futures are little changed following more U.S./China trade optimism and mixed earnings.

President Trump said he expects to host Chinese Premier Xi at the White House “soon” and a trade deal could be signed in June.

Earnings after the bell were mixed at INTC badly missed, while F and AMZN both posted solid numbers.

There was no material economic data overnight.

Today should be a generally quiet day as the volume of earnings reports subsides (reports we’re watching include XOM ($0.75), AAL ($0.50) and CVX ($1.26)) and are just two economic reports: Preliminary Q1 ‘19 GDP (E: 2.2%) and Consumer Sentiment (E: 97.1).  If GDP is a bad miss (which is unlikely) that might temporarily pressure stocks, but really markets are already looking ahead to next week, which is absolutely full of important macro events and continued earnings.

Earnings Season Takeaway (Mild Positive)

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What’s in Today’s Report:

  • Earnings Season Early Takeaway (Mildly Positive)
  • Sector Winners From a U.S./China Trade Deal Announcement (It’s Coming Any Day Now)
  • EIA and Oil Market Update

Futures are little changed following a generally quiet night as earnings remain in focus.  Economic data was sparse overnight and isn’t moving markets.

Results after hours Wednesday were good as FB and MSFT both beat estimates, although that’s being offset partially by ugly MMM results this morning.

Today there are two notable economic reports, Durable Goods (E: 0.8%) and Jobless Claims (E: 209K) and it’ll be important to see some sort of stabilization in business spending via Durable Goods.

But, the real focus today will remain on earnings, as we get several important reports.  If numbers are good in aggregate, this rally can continue.  Some earnings we’re watching include – Pre-Open: UPS ($1.42), MMM ($2.50), MO ($0.92).  After the Close: AMZN ($4.72), INTC ($0.87), SBUX ($0.56).