What the Strong Jobs Report Means for Markets

What’s in Today’s Report:

  • What Friday’s Jobs Report Means for the Markets
  • Weekly Market Preview (Powell’s testimony is the big event this week)
  • Weekly Economic Cheat Sheet (Fed Minuets and CPI)

Futures are slightly lower this morning following a quiet weekend of news, as markets digest what Friday’s jobs report means for future Fed rate cuts.

Following the jobs report, investors still expect a rate cut this month, but what’s now in doubt is whether we see additional cuts after that, something the market is assuming and has already priced in.  Doubts over the number of future cuts is why stocks dipped Friday and are marginally lower this morning.

Economic data was again underwhelming as Japanese Machine Orders (-7.3% vs. (E) -3.0%) and German Industrial Production (-3.7% vs. (E) -3.2%) missed estimates, while German exports were slightly better (-1.1% vs. (E) -0.9%).

The important events this week come Wednesday via Fed Chair Powell’s testimony before Congress (will he telegraph a rate cut?), the FOMC Minutes (also out Wednesday – is there consensus for a cut?) and CPI (out Thursday).  So, today should be generally quiet as there are no economic reports or notable Fed speakers, although U.S.-China trade negotiations will re-start, so we’ll have to watch for any headlines from there.

Tyler Richey Quoted in Bloomberg on June 24, 2019

“Oil squeezed higher last week on tensions in the Middle East, but with so much uncertainty regarding the trade war…”said Tyler Richey, co-editor at Sevens Report Research. Click here to read the full article.

Oil Rig

Jobs Day

What’s in Today’s Report:

  • Why Collapsing Bond Yields Are Boosting Stocks (For Now)
  • Oil Market Update/EIA Analysis

Futures are marginally lower as markets digest Wednesday’s new highs ahead of the jobs report.

Trading Thursday was quiet globally as there was no notable news, and most foreign indices were little changed.

Economic data continued to disappoint, as German Factory Orders became the latest manufacturing reading to badly miss estimates (-2.2% vs. (E) 0.2%).

Today focus will be on the Employment Situation Report and estimates are as follows: Jobs (E): 165k, Unemployment Rate (E): 3.6%, Wages (E): 3.2%.  As we saw on Wednesday (and really all week) slightly disappointing or better than expected data will likely result in the S&P 500 trading above 3000, while a very strong or very weak number will likely hit stocks.

For now, markets are convinced collapsing global bond yields are just reflective of impending dovish central bank policies, and until data gets bad enough to cause worries about the economy, those lower yields will be a short term tailwind on stocks (but longer term problem, according to history).

Jobs Report Preview

What’s in Today’s Report:

  • Jobs Report Preview
  • What the OPEC+ Charter Means for Oil

Futures are rising with EU shares this morning as investors welcome news that Christine Lagarde (largely viewed as a dove) will likely succeed Mario Draghi as ECB President.

In the bond market, global yields hit new lows overnight (the 10-Yr touched 1.94%) on the dovish Lagarde news, but also as China’s June Composite PMI fell to 50.6 from 51.5 in May. The EU data was slightly better than expected, however, which has helped yields stabilize this morning.

Gold is also notably higher by 1.43% today and futures tested recently established multi-year highs overnight thanks to the dovish money flows.

Markets close at 1:00 p.m. today however there are multiple economic reports due out in the U.S. that warrant watching as they have the potential to move markets: ADP Employment Report (E: 140K), International Trade (E: -$53.4B), Jobless Claims (E: 220K), Factory Orders (E: -0.5%), and the ISM Non-Manufacturing Index (E: 55.8).

Tyler Richey Quoted in MarketWatch on July 2, 2019

“Oil did not go into free-fall [Tuesday] because of any supply side disappointment or OPEC+ developments, but because of…” Tyler Richey, co-editor of Sevens Report Research, told MarketWatch. Click here to read the full article.

Tyler Richey co-editor of Sevens Report Research Quoted in MarketWatch on July 1, 2019

“The trade truce is a positive and the policy extension by OPEC+ keeps the supply side argument in favor of the bulls, but there remain too many unknowns about…” said Tyler Richey, co-editor at Sevens Report Research. Click here to read the full article.

Building

Tom Essaye Quoted in ETF Daily News on June 27, 2019

“For now what the bond market is doing is signaling the chances of a recession are more likely than the chances of a renewal of the expansion,” said Tom Essaye, founder of Sevens Report Research. Click here to read the full article.

Graph

What’s Next for the U.S. and China?

What’s in Today’s Report:

  • What’s Next for the U.S.-China Trade Talks?
  • Dr. Copper is Not Buying the Stock Rally
  • Global PMI Analysis

U.S. stock futures are slightly lower this morning as investors continue to digest the G20 “trade truce” against further deteriorating global economic data so far this week while news flows overnight were very slow.

Economic data overnight was largely Goldilocks with German Retail Sales coming in at -0.6% vs. (E) 0.7% (but revisions were positive) while Eurozone PPI was -0.1% vs. (E) 0.0%. Additionally, the RBA cut rates, as expected.

Looking into today’s session the only economic data coming out today is Motor Vehicle Sales (E: 17.0M) while there is just one Fed official scheduled to speak: Mester (11:00 a.m. ET).

That will likely make for a quiet session as traders look ahead to U.S. jobs data due out later in the week while trading schedules are non-typical thanks to the 4th of July holiday on Thursday.

Trump/Xi Meeting Takeaways (Good, But Not That Good)

What’s in Today’s Report:

  • Trump/XI Meeting Takeaways & Updated Market Outlook
  • Weekly Market Preview
  • Weekly Economic Cheat Sheet (Lots of important data this week despite the holiday)

Futures are surging after Trump and Xi did what was widely expected at the G20 and reached a trade “truce.”  On balance, the meeting was a mild positive, but not to the extent futures are implying this morning (more on that inside the Report).

Economic data, meanwhile, was universally disappointing overnight.    Every manufacturing PMI missed expectations this morning including those from China, Germany, the EU and Great Britain.  All of those PMIs are now below 50, signaling widespread contraction in manufacturing activity.

OPEC, meanwhile, extended current production caps for six to nine months at their meeting this week, longer than was expected, and oil is rallying 2% as a result.

Today will be spent digesting the G20 “truce” and seeing if markets can hold these early gains once more details emerge.  On the economic front, the key number today is the ISM Manufacturing PMI (E: 51.2) and it needs to be “Goldilocks” to support this rally.

Trump/XI Meeting Day (Finally)

What’s in Today’s Report:

  • What’s Caused The Late Week Rally (Don’t Forget It’s Quarter End Too)
  • A Positive Sign in Housing
  • Trump and Xi meet at 10:30 p.m. ET tonight so look for I’ll be looking for headlines starting around 11:30 p.m.

Futures are modestly positive again this morning on more U.S.—China trade optimism.

President Trump said he thought talks with President Xi would be “productive” and that’s boosting futures.

Economic data largely met expectation although Japanese IP (2.3% vs. (E) 0.3%) and EU HICP (their CPI) slightly beat estimates (1.1% vs. 1.0% yoy).

Focus will clearly be on the looming Trump/Xi meeting but there’s an important economic data point to watch today:  Core PCE Price Index (E: 0.1% m/m, 1.5% y/y).  If that shows inflation that’s stronger than estimates, it’ll reduce the chances of a rate cut (bad for stocks), while a soft number will result in a “bad is good” reaction in markets.