Trade Hopes, Momentum, and New Highs

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What’s in Today’s Report:

  • Bottom Line: Momentum and Hope Continue to Fuel the Rally
  • Weekly Economic Cheat Sheet: Focus on Friday’s Flash PMIs

U.S. futures are modestly higher and most international markets rallied overnight thanks to more trade war optimism and unexpected stimulus by China’s central bank.

A “constructive” phone call between China’s Liu He, USTR Lighthizer and Secretary Mnuchin reportedly took place on Saturday which is helping boosting hopes for a trade deal.

Additionally, the PBOC cut a key interest rate for the first time in 4 years, offering a dovish tailwind to risk assets this morning.

Today is lining up to be a fairly quiet session as far as catalysts go as there is just one economic report: Housing Market Index (E: 71) and only one Fed official is scheduled to speak: Mester (12:00 p.m. ET).

With trade war optimism continuing to be the main driver of this most recent run to new all-time highs the markets will remain keenly focused on any new developments or news regarding the “phase one” trade deal.

Whose Telling the Truth on U.S./China Trade? Stocks or Treasuries?

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What’s in Today’s Report:

  • The Current State of U.S./China Trade Negotiations:  Whose Telling the Truth?  Stocks or Treasury Yields?
  • Why A Spike in Jobless Claims Caught Our Attention (Highest Since June)

Futures are marginally higher as the U.S./China trade saga remains the singularly dominant influence on markets.

The commentary overnight was positive as Larry Kudlow said the “mood music” of the negotiations was “pretty good” and a deal is close, although there was no actual new information presented.

Economically there were no surprises as EU HICP (their CPI) rose 1.1%, as expected.

Today there are several important economic reports including (in order of importance):  Retail Sales (E: 0.2%), Empire State Manufacturing Survey (E: 5.0) and Industrial Production (E: -0.4%).  Broadly, markets need to see strong data to imply the U.S. economy is stabilizing and starting to re-accelerate.

But, beyond the data, U.S./China trade will remain a huge influence over stocks so any more headlines that a phase one deal is imminent will likely send stocks higher (even if there is no actual news contained in the comments).

Sevens Report Co-editor Tyler Richey was Quoted in MarketWatch on November 14, 2019

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The bearish supply and production data by the Energy Information Administration and “lack of clarity” on the U.S.’s plans for tariff policy changes as part of the phase one trade deal with China, are “both negative influences on the market…” said Tyler Richey, co-editor of Sevens Report Research. Click here to read the full article.

Tank

Sevens Report Co-editor Tyler Richey was Quoted in MarketWatch on November 13, 2019

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“Trade war concerns are being offset by positive comments on the global economy by both Fed Chair Powell and OPEC’s Secretary General Barkindo…” said Tyler Richey, co-editor at Sevens Report Research. Click here to read the full article.

Oil Rig

Valuation Update: Dangers of FOMO (Fear of Missing Out)

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What’s in Today’s Report:

  • Valuation Update:  Dangers of FOMO (Fear of Missing Out)

Futures are slightly lower as a potential “stall” in U.S./China trade talks and disappointing data weigh marginally on global stocks.

Chinese economic data was universally disappointing, as Fixed Asset Investment, Retail Sales and Industrial Production all missed estimates.  The soft numbers implied the global economic rebound expected by stocks isn’t a done deal just yet.

Today there are two notable economic reports, Jobless Claims (E: 215K) and PPI (E: 0.3%) and a figurative parade of Fed speakers including (in order of importance):  Powell (10:00 a.m. ET), Clarida (9:10 a.m. ET), Evans (9:10 a.m. ET), Daly (11:45 a.m. ET), Williams (12:00 p.m. ET), Bullard (12:20 p.m. ET).

But, the data points shouldn’t move markets, and neither should any of the Fed speak because Chair Powell spoke yesterday and clearly signaled the Fed is on hold, which is what the market expects and has priced in.

So, we can expect trade commentary and headlines to move markets.  Clearly the market is ignoring the phase one “stall” headlines, otherwise, stocks would be down sharply this morning.  But, headlines worsen and the stall increases the risk of a phase one breakdown, that will hit markets hard.

Tom Essaye Quoted in Invest Records on November 11, 2019

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“Stocks hit fresh new highs last week on a familiar theme: Positive chatter/headlines on phase one of a U.S./China trade deal, while earnings and global data…” wrote Tom Essaye, president of the Sevens Report, in a Monday note to clients. Click here to read the full article.

Tom Essaye

Tom Essaye Quoted in ETF Trends on November 11, 2019

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“Historically speaking the inversion of that benchmark yield curve measure means that we now must expect a recession anywhere from six-to-18 months from today…” Tom Essaye, founder of The Sevens Report, said in a note this summer. Click here to read the full article.

ETF Trends

An Economic Fork in the Road

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What’s in Today’s Report:

  • Economic Breaker Panel Update: An Economy at a Fork in the Road

Global markets are trading with a moderate risk-off tone this morning as the trade war weighs on sentiment.

It remains unclear whether the U.S. will offer relief on existing tariffs as part of the “phase one” trade deal with China (which has been priced into stocks in recent weeks), or just cancel the scheduled December tariffs, which would be a disappointment.

Meanwhile, on the economic front, Eurozone Industrial Production was largely overlooked because of trade angst but the release was not as bad as feared (0.1% vs. E: -0.3%) further easing recession concerns in Europe.

There were other headlines overnight including escalating protests in Hong Kong which saw the Hang Seng underperform (down nearly 2%) and chatter about the public impeachment hearings in Washington today but neither are materially affecting U.S. stocks at this point as the market’s main focus remains the trade war.

Looking into today’s session, there is one economic report to watch: CPI (E: 0.3%) before focus will turn to Powell’s testimony before Congress on the state of the economy at 11:00 a.m. ET. Later in the day, there are two other Fed officials scheduled to speak before the closing bell: Barkin (12:30 p.m. ET) and Kashkari (1:30 p.m. ET).

Bottom line, there are a lot of headlines this morning but the trade war remains the single most important influence on this market so if expectations for tariff removal continue to fade, stocks are likely to trade with a heavy tone.

Tom Essaye Appeared on WPTV on November 11, 2019

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Tom Essaye of Sevens Report Research lays out some good tips to avoid accumulating debt this holiday shopping season. Click here to watch the full video.

Tom Interviewing at WPTV Channel 5

Tom Essaye Presented at Marine Bank on November 12, 2019

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Tom Essaye presented at Marine Bank, a fantastic community bank in Vero Beach, FL. He talked about 2020 recession risks.

They made a generous donation to the Els for Autism Foundation in honor of the event.

Tom Essaye at Marine Bank Presentation