Yield Breakout (Threat to Stocks?)

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What’s in Today’s Report:

  • What Higher Yields Mean for Stocks
  • Jobs Report Preview

Futures are moderately lower following hawkish commentary by Fed Chair Powell and ahead of a critical speech on China by VP Pence.

Fed Chair Powell said in a Q&A after the bell that the Fed is a “long way” from neutral rates and may have to go “past” neutral.  The comments further pressured bonds overnight and extended the rise in global bond yields.

Politically, VP Pence will deliver a very critical policy speech on China that goes beyond economic criticism, and the concern is the speech will make a trade deal even more difficult to achieve.

Today focus will be on bond yields (does the surge in yields/dollar continue?) as well as the Pence speech on China (just how critical will it be?).  Economically, there are two reports, Jobless Claims (E: 213K) and Factory Orders (E: 2.1%) and one Fed speaker, Quarles (8:15 a.m. ET), but none of that should move markets.

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Why Italy’s Budget Matters

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What’s in Today’s Report:

  • Italian Political Primer

Futures are modestly higher and European shares stabilized overnight thanks to positive developments in Italy.

News broke overnight that while Italy still plans on a 2.4% budget deficit for 2019, it will reduce that figure by 0.2% in each of the following two years, resulting in 2.0% in 2021.

Italian yields pulled back from multi-year highs and the euro found support, weighing slightly on the dollar overnight which is a slight positive for US markets.

Today, jobs week kicks off with the ADP Employment Report before the bell (E: 179K) and then the ISM Non-Manufacturing Index (E: 58.0) is due out at 10:00 a.m. ET.

Aside from economic data, there are a slew of Fed speakers today: Barkin (8:05 a.m. ET), Harker (12:00 p.m. ET), Brainard (1:00 p.m. ET), Mester (2:15 p.m. ET), Powell (4:00 p.m. ET), and Kaplan after the close (8:00 p.m. ET).

Europe will remain the primary focus today and as long as the overnight progress on the Italian budget plans is not forfeited in morning trade (before the Euro close) then risk on money flows and an easing dollar should support some upward momentum in US stocks today.

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Is Canada the Biggest Trade Winner?

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What’s in Today’s Report:

  • Is Canada the Clear Winner from the New NAFTA?

S&P futures are decidedly lower while most international markets were down overnight thanks to Italian political/budget fears.

The 2.4% budget deficit Italy proposed to the EU was not well received yesterday and the mention of “Italy’s own currency” by a notable law maker overnight sent Italian bond yields to more than four year highs.

Meanwhile safe haven money flows are pushing Treasury and Bund yields lower and the dollar is up to fresh multi-week highs which will quickly become a headwind on US shares again in the near term.

Today, there are no notable US economic reports but there are two Fed speakers to watch: Quarles (10:00 a.m. ET), and more importantly Chair Powell (12:00 p.m. ET). Otherwise, focus will be on Europe and any developments with Italy’s budget or further discussions of Italy’s “own currency.”

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A Big Week for Economic Data (And It Needs to Be Good)

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What’s in Today’s Report:

  • Weekly Market Preview (All About Economic Data – And It Needs to Be Good)
  • Weekly Economic Cheat Sheet

Futures are modestly higher after the U.S. and Canada agreed on a new trade deal late Sunday night.

A new three way NAFTA deal is in place as Canada joined the U.S./Mexico trade framework, further reducing non-China trade uncertainty.  Notably, though, U.S./China relations deteriorated further as a security meeting between the U.S. and China was cancelled.

Economic data was disappointing as Chinese Sept. Manufacturing PMI fell to 50.8 vs. (E) 51.2, EU Manufacturing PMI slightly missed at 53.2 vs. (E) 53.3 and German Retail Sales dropped –0.1% vs. (E) 0.5%.

Today the key economic report is the September ISM Manufacturing PMI (E: 59.9).  That number needs to remain firm to help support stocks.

More broadly, while futures are higher on the U.S./Canada trade news, that’s unlikely to spur a sustainable rally for two reasons:  First, a U.S./Canada deal was always expected, so this isn’t a real surprise.  Second, the big trade wildcard, China, saw things get incrementally worse over the weekend with the cancellation of the security meeting.  Bottom line, I’ll be surprised and impressed if this early Canada related rally can hold throughout the day.

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Two Steps Forward, One Step Back

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What’s in Today’s Report:

  • What the Italian Deficit Means for Stocks

Futures are modestly lower as the Italian deficit came in larger than hoped.

The official Italian budget produced a deficit of 2.4% of GDP, larger than hoped by markets.  The euro extended its loses from Thursday and German bund yields declined following the announcement.

Economically, EU Core HICP (their CPI) missed estimates, rising 0.9% vs. (E) 1.1.%.

Today focus will be on the Core PCE Price Index (E: -0.1% m/m, 2.0% y/y) as that’s the Fed’s preferred measure of inflation, although barring a number well above 2.0%, it shouldn’t move markets.  Also on the calendar today is Consumer Sentiment (E: 100.8) and one Fed speaker:  Williams (4:45 p.m. ET).

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Fed Takeaways

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What’s in Today’s Report:

  • Fed Decision Takeaways
  • Why the Italian Budget Matters to You

Futures are slightly higher following a generally uneventful night as markets digested the Fed decision.  Importantly, there was no major follow through to Wednesday’s late sell off.

Economic data didn’t contain any surprises as German Gfk Consumer Climate beat estimates (10.6 vs. (E) 10.4).

Today there are multiple economic reports including Durable Goods Orders (E: 2.2%), Final Q2 GDP (E: 4.3%), Jobless Claims (E: 216K) and Pending Home Sales (E: 0.0%) as well as two Fed speakers, Kaplan (2:00 p.m. ET), Powell (4:30 p.m. ET).  But, Powell just spoke at length yesterday so he shouldn’t say anything too surprising.  Meanwhile, unless we get a very disappointing Durable Goods report, the economic data shouldn’t move markets.

Instead, the Italian budget will be the most important event today, and if the budget deficit prints above 2.5%, that likely will weigh on the euro and boost the dollar, which could be a headwind for stocks.

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Fed Wildcard to Watch

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What’s in Today’s Report:

  • The FOMC Wildcard to Watch: Powell’s Presser
  • The Oil Rally (And How Long It Can Last)

Stock futures are slightly positive this morning ahead of the Fed today while global markets were largely flat after another quiet night of news.

There were no market moving economic reports overnight.

Oil prices are slightly lower this morning after the API reported a +2.9M bbl build in crude stocks vs. (E) -1.3M bbls draw ahead of this morning’s weekly EIA release.

Today, the main market focus will be the Fed Events: FOMC Announcement and Forecasts (2:00 p.m. ET), Fed Chair Press Conference (2:30 p.m. ET) although, there is also one economic report out in the U.S. this morning: New Home Sales (E: 630K).

Barring any bombshell headlines about trade or to a lesser degree, politics, it is likely to be a quiet session with price action being driven by positioning until the Fed starts up at 2:00 p.m. ET.

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Tom Essaye Quoted in Fox Business on September 25, 2018

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The Federal Reserve appears ready to hike interest rates Wednesday for the third time this year, as the central bank responds to rising inflation and robust hiring by U.S. employers. “Something pretty significant would have to happen for the Fed not to hike in December,” said Tom Essaye, founder and editor of The Sevens Report.

Click here to read the full article.

Tyler Richey on U.S. News, September 21, 2018

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8 Affordable Commodity Stocks to Buy

Trade tensions have hit certain commodities more, with copper one of the commodities to fall. Prices are down 22 percent year-to-date. Tyler Richey, co-editor of the Sevens Report newsletter, says trade war concerns are overshadowing a positive backdrop for copper, as the U.S. and global economy is strong.

Click here to read the full article.

Rate Hike Preview

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What’s in Today’s Report:

  • FOMC Preview (Key Word: Accommodative)
  • Chart: Brent Crude Hits Multiyear High

US stock futures are pointing to a modest rebound this morning after yesterday’s pullback in the major indexes as US—China trade tensions linger.

On a positive note, the US did sign a revised trade deal with South Korea overnight which slightly improved sentiment towards global trade.

Overseas, markets were mixed but mostly little changed after a quiet night of news as a sense of “Fed Paralysis” takes hold ahead of tomorrow’s FOMC Announcement, Forecasts and Press Conference.

Today’s session is not likely to be a very exciting one with the Fed looming tomorrow but there are some housing market reports due out before the bell: S&P Corelogic Case-Shiller HPI (E: 0.1%), FHFA House Price Index (E: 0.3%) and Consumer Confidence (E: 131.7) will print at 10:00 a.m. ET.

Although it will be quiet, any new trade developments or material political headlines still have the potential to move the market intraday as investors remain very sensitive to those two issues.

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