Identifying Potential Positive Surprises

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What’s in Today’s Report:

  • Identifying Potential Positive Surprises
  • EIA/Oil Analysis

Futures are sharply higher on more positive U.S./China trade “chatter” and political resolution in Italy.

Chinese officials made general comments about not wanting to further escalate the trade war and won’t retaliate to the recent tariffs, and that’s helping sentiment.  But, to be clear, no actual progress has occurred – just vague rhetoric, and as far as we can tell the phone call between the two delegations has not occurred yet (remember it was loosely scheduled for Tuesday).  Point being, things haven’t improved as much as the two day rally would imply.

Economic data was decent as German unemployment met expectations while EU Economic Sentiment was better than expected (103.1 vs. (E) 102.5).  Regarding Italy, the country will avoid new elections, and while that’s not a sustainable positive catalyst for markets, it does, for now, remove another potential headwind.

Attendance and volumes will continue to decrease into the long weekend, but focus will remain on any trade related headlines.  Economically, the notable reports today include Q2 Revised GDP (E: 2.0%), Jobless Claims (E: 213K) and Pending Home Sales (E: -0.3%) although none of those should move markets.

Bottom line, if Treasury yields are stable, stocks can hold these early gains, although we continue to caution this rally is being driven by month-end positioning more than any actual, positive progress on the headwinds facing this market.

A True Curve Inversion

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What’s in Today’s Report:

  • When Is a Yield Curve Inversion Truly a Negative Signal
  • Consumer Confidence Takeaways (Hawkish Risks)

It is another quiet morning with mixed price action as stock futures edged higher on positive Italian political headlines while Treasury yields extend recent losses despite the lack of any material economic releases or trade headlines.

In the bond market, the benchmark 10s-2s yield curve spread hit a fresh 12 year low below -5 basis points this morning while the 30-Year yield has hit a new record low, signaling more broad market angst by the “smart market.”

Looking into today’s session, there are no economic reports although the EIA will release weekly oil and refined product inventory statistics at 10:30 a.m. ET and after last night’s 11.1M bbl draw reported by the API, we could see significant moves in the oil market today and that could affect stocks.

As far as other catalysts go, there is one Fed speaker today: Daly but not until after the closing bell (5:30 p.m. ET) while there is also a 5-Year T-Note Auction (1:00 p.m. ET) which could move yields and ultimately stocks.

Lastly, U.S.-China trade talks were scheduled for the front half of this week and so far there has not been any news on the topic. But, investors will continue to wait for any new developments on the trade war front as it is the primary influence on global markets right now.

What’s Next for U.S.-China Trade?

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What’s in Today’s Report:

  • What’s Next for U.S.-China Trade?
  • Durable Goods Report Takeaways

It’s a mixed morning in the global financial markets as equity indexes are largely directionless while safe-haven assets have a mild bid after a mostly quiet night of news.

Longer duration Treasuries are outperforming so far today which is resulting in the 10s-2s Treasury yield spread inverting to new cycle lows, below –2 basis points as of this writing.

Economically, Chinese Industrial Profits rose +2.6% in July from –2.4% in June while Q2 German GDP met estimates at +0.4% year/year, but neither release materially moved markets.

Looking into today’s session, there are no Fed speakers, but several economic reports to watch: S&P CoreLogic Case-Shiller HPI (E: 2.3%), FHFA House Price Index (E: 0.3%), and Consumer Confidence (E: 130.0).

There is also a 2-Yr Treasury Note auction today (1:00 p.m. ET) and if demand is soft (so yields rise), it could further invert the yield curve and cause another wave of recession fears as we saw earlier this month.

Lastly, another round of U.S. – China trade talks were scheduled for today although there have been no updates on the topic. So any positive news regarding those talks will be well received by investors, while if they end up not actually taking place, that will weigh on stocks and other risk assets today.

Is the Trade War A Bearish Gamechanger Now?

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What’s in Today’s Report:

  • Updated Market Outlook
  • Weekly Market Preview (All About U.S./China Trade)
  • Weekly Economic Cheat Sheet

Futures are modestly higher after positive U.S./China trade comments by President Trump.

Trump stated early this morning that China “called” and conveyed a desire to get back to the negotiating table.

It’s unclear exactly what Trump means (Chinese officials say no call has happened between the U.S. and China today) but the generally optimistic tone is helping to reverse some of Friday’s declines.

Today any U.S./China trade-related headlines will move markets but it’ll take more than just vague commentary by officials to undo the damage done to markets and investors’ psyches on Friday.

Economically, Durable Goods (E: 1.1%) will be released later this morning and it’s an important number, as any potential economic slowdown will emanate from reduced business spending and investment.  The bottom line, a solid number here will help economic sentiment.

Tyler Richey Quoted in MarketWatch on August 21, 2019

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Looking at the inventory data from a trend standpoint, “it appears the stretch of steep draws in crude supply, which were offering fundamental price support to…” said Tyler Richey, co-editor at Sevens Report Research. Click here to read the full article.

Tom Essaye Quoted in Yahoo Finance on August 22, 2019

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8 of the Best Investments During an Economic Slowdown

Tom Essaye, editor of the Sevens Report newsletter, says he favors being conservative with tactical investments at this time. Real estate can be a solid holding in the current…click here to read the full article.

Powell Speech Preview

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What’s in Today’s Report:

  • Powell Speech Preview
  • Can Strong Consumer Spending Prevent a Recession?

Futures are marginally higher following a quiet night as trader position ahead of the Powell speech later this morning.

Economic data was sparse overnight although core Japanese CPI met expectations at 0.6% y/y.

There was no trade news overnight although Kudlow (Director of the National Economic Council) said discussions between the U.S. and China were “productive” on Wednesday (although he always says that).

Today the big event is the Powell speech at 10:00 a.m. ET. From a market standpoint, the 10’s-2’s spread will tell us whether the speech is positive or negative for stocks.  If Powell is sufficiently dovish, then 10’s-2’s should widen out towards 5 basis points, and that should help stocks rally.  Conversely, if Powell is not sufficiently dovish, 10s’-2’s will invert, likely notably, and in that case, if could get a bit ugly for stocks in the afternoon.

Rising Chances of a True Yield Curve Inversion

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What’s in Today’s Report:

  • FOMC Minutes Takeaway – Increased Chances of a True Inversion
  • EIA/Oil Market Update

Futures are slightly lower as markets digest yesterday’s “not dovish” FOMC Minutes, another temporary yield curve inversion, and mixed economic data.

Global flash PMIs were better than expected but still remained below 50 (so still signaling contracting activity).  The EU flash PMI rose to 47.0 vs. (E) 46.2.

The 10’s-2’s Treasury yield spread temporarily inverted again on Wednesday but currently sits at +2 bps.

Today focus will be on the August Flash Composite PMI (E: 51.9) and as has been the case lately, a good number will be good for stocks.  We also get Jobless Claims (E: 215K) this morning.

Bottom line, bond yields should continue to lead stocks.  If the flash PMI is solid and yields rally, so can stocks, and if the PMI is soft and yields drop, then so will stocks.

Did the Yield Curve Actually Invert?

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What’s in Today’s Report:

  • Why Italian Political Drama Matters to You
  • Did the Yield Curve Actually Invert? Only Sort Of

Futures are solidly higher this morning, rising in sympathy with EU shares as Italian political concerns ease while a German Bond auction was unexpectedly weak, both of which are helping bolster stocks.

In Italy, odds of a coalition government being formed are rising materially, reducing fears and general uncertainties surrounding new elections this fall.

Economic data was thin o/n however there was a soft 30-Year Bond auction in Germany this morning which is helping yields rise and fueling general risk-on money flows.

After a choppy start to the trading week, the list of market catalysts picks up today as there is one economic report: Existing Home Sales (E: 5.380M) but investors will be primarily focused on the July FOMC Meeting Minutes (2:00 p.m. ET).

If the Minutes release is another “hawkish disappointment” like the announcement and Powell’s press conference were in late July, we could see another wave of volatility as investors’ dovish hopes are elevated going into the Jackson Hole Economic Symposium later this week.

Tyler Richey Quoted in MarketWatch on August 13, 2019

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“Looking ahead though, the outlook for oil remains neutral at best right now as global growth concerns remain the single biggest headwind for…”  said Tyler Richey, co-editor at Sevens Report Research. Click here to read the full article.

Man in an Oil rig