What Makes Politics a Bearish Gamechanger

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What’s in Today’s Report:

  • Political Update (What Makes This Drama a Bearish Gamechanger)
  • Oil Outlook Updated

Futures are little changed following a quiet night as the August flash PMIs provided no big surprises.

August flash PMIs largely met expectations as the Japanese manufacturing PMI rose to 52.5 vs. previous 52.3, while the EU Composite PMI was in line at 54.4 vs. (E) 54.5.

On trade, the WSJ said odds of the 200 billion additional Chinese tariffs happening are higher than the market thinks and those tariffs remain a real risk to this rally.  But, for now, the market is focused on the on going talks and as such the headline isn’t weighing too much on futures.

There are several notable economic reports today, most important of which is the August Flash Composite PMI (E: 55.6).  But, we also get readings from housing via the FHFA House Price Index (E: 0.4%) and New Home Sales (E: 649K).  Finally we also get weekly Jobless Claims (E: 215K).

From a trading standpoint today, any trade headlines (positive or negative) will likely move markets while BABA earnings will also be important.  Earnings have quietly been strong this week and if BABA numbers are solid, it could help tech rally and that should pull markets higher.

Go Here to read the detailed report.

Tom Essaye quoted on Nasdaq – August 21, 2018

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Morning Movers: TJX Jumps, Kohl’s Drops, Toll Brothers Soars

We always need a story to tell about why the market is heading higher, and the one that’s making the rounds this morning is about the dollar. In an interview, President Donald Trump criticized the U.S. Federal Reserve for raising interest rates, and that has added uncertainty to what had been all but certain. As a result, the U.S. Dollar Index has dropped 0.2% today because one way a currency gains value against another is by being from a country where rates are anticipated to be higher. And a weaker dollar is supposed to be helping risk appetite in the U.S. and abroad. “Those comments mostly affected the dollar (pushing it lower), which on a longer time frame is bullish for stocks,” writes The Sevens Report’s Tom Essaye.

Tyler Richey cited on MarketWatch – August 21, 2018

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By Myra P. Saefong and Mark Decambre

Oil scores 4th straight gain as investors watch Iranian sanctions

“Fundamentally there have been three headwinds on the market: 1) trade angst weighing on demand expectations, 2) fears that Saudi Arabia will more aggressively act to regain market share since the policy change in June, and 3) still steadily rising U.S. production,” Tyler Richey, co-editor of the Sevens Report, told MarketWatch. “The first of those three has seen some relief so far this week and that has helped oil bounce so far this week with other risk assets.”

Good, Bad, Ugly Chart

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What’s in Today’s Report:

  • Good, Bad, Ugly Chart

Futures are modestly lower as investors digest yesterday’s failed attempt at a new all-time closing high.

Trump headlines dominated the newswires overnight although the legal developments regarding Cohen and Manafort do not alter the broader, positive backdrop for stocks.

Oil futures are up over 1% after the API reported a -5.1M bbl supply draw late yesterday, more than doubling analyst expectations of –2.0M ahead of today’s weekly EIA release.

As far as catalysts go today, the media will likely be fixated on the Cohen/Manafort drama (more on that below), but there is one economic report to watch: Existing Home Sales (E: 5.420M) and the FOMC Meeting Minutes from Aug. 1 are due out at 2:00 p.m. ET.

Regarding the Trump headlines, while they will likely dominate the media today, they are not a material headwind on stocks at this time for three reasons.

First, proof of criminal activity needs to appear (right now, it’s he-said-she-said).

Second, impeachment is a political process and even if Democrats won the House and Senate, they will not get close to the 2/3rds needed to remove a President.

And third, there’s no critical legislation that this news can derail (tax cuts already passed).

If anything, this weakens Trump’s leverage on trade and makes a compromise slightly more likely. As such, the dramatic political headlines from the last 12-18 hours will not have a material influence on the markets, at least at this point.

To read the full analysis Go Here

Contrarian View: Emerging Markets

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Pre 7:00 Look

• Stock futures are cautiously higher today as the dollar continues to pullback on Trump’s comments about the Fed while investors have doubts about the new round of trade talks between the US and China.

• The dollar is down another 30 basis points+ this morning, extending its multi-session downtrend which should continue to act as a modest tailwind for stocks this week.

• British CBI Industrial Trends Survey was a mild miss at 7 vs. (E) 10 as Brexit concerns continues to weigh on sentiment.

• There are no economic reports or Fed speakers today.

To read the full report Go Here

U.S. & China Trade Progress?

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What’s in Today’s Report:

  • Weekly Market Preview (Important Trade News & Earnings This Week)
  • Weekly Economic Cheat Sheet

Futures are slightly higher on continued momentum from Friday’s rally following a quiet weekend.

Markets rose on Friday thanks to a WSJ article stating the U.S. & China want a trade compromise by November, and nothing this weekend disputed that report.  So, cautious optimism is building a deal might get done.

Outside of the trade news the weekend was quiet.  Turkey remains a problem (lira down 1%) but there was no, new negative news out.

Today there are no economic reports and only one Fed speaker, Bostic (11:00 a.m.).

So, markets will stay focused on 1) Trade headlines, 2) The dollar and 3) the tech sector.  Trade should stay quiet into the U.S./China meetings Wed/Thursday.  The dollar is bouncing from Friday’s declines and sustained dollar weakness remains the biggest key to a breakout in stocks, so any weakness there will be welcomed by investors.  Finally, tech needs to remain stable in this environment so support stocks, and the price action there lately hasn’t been encouraging.

To read the full article: Go Here

Worried About Tech

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What’s in Today’s Report:

  • Why the Turkish Crisis Isn’t Over
  • Focus on the Tech Sector (It’s Trading Heavy Again)

Futures are slightly lower thanks to a renewed decline in the Turkish lira and disappointing tech earnings.

The lira decline resumed overnight as the currency fell 5% after Thursday’s press conference failed to reveal any meaningful reforms.

On the earnings front, both AMAT and NVDA posted solid results but underwhelming guidance, and that’s weighing on tech broadly.

Today we do have two economic reports, Consumer Sentiment (E: 97.9) and Leading Indicators (E: 0.4%), but focus will remain on 1) the tech sector and 2) the dollar.  If tech can stay stable despite recent soft earnings, and the dollar doesn’t rally, then stocks can generally hold yesterday’s gains.

To access the full report: Go Here

Updated Market Outlook: Good, Bad & Ugly

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What’s in Today’s Report:

  • Updated Scenario Analysis:  Good, Bad & Ugly
  • EIA Analysis & Oil Update

Futures are enjoying a modest bounce thanks to some mild progress on U.S./China trade and good CSCO earnings.

The WSJ reported a mild “breakthrough” occurred on U.S./China trade and low level talks will begin again shortly.  It’s not major progress, but it is the first positive motion we’ve seen on the issue in months, so that is welcomed news.

On earnings, CSCO posted strong numbers after the bell and that should help support tech and tech remains, easily, the most important sector for the broad market right now (a lot of yesterday’s selling was about tech weakness, not Turkey).

Economically, UK Retail Sales beat estimates (0.7% vs. (E) 0.2%) as European related growth this week remains good.

Today focus will remain on the geo-political (progress in Turkey?) and on U.S. economic data.   Philadelphia Fed Outlook Survey (E: 22.5) is the most important report today, but we also get Housing Starts (E: 1.271M), Jobless Claims (E: 215K).

Bottom line, if the dollar declines and tech leads the rally, then the S&P 500 can recoup yesterday’s losses.

To read the entire report Go Here

Is the Turkey Crisis Over?

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What’s in Today’s Report:

  • Is the Turkish Currency Crisis Resolved?
  • Chinese Economic Data Recap (July)
  • Is Copper Forecasting an August-2015-Style Volatility Spike?

Futures and most international markets traded lower overnight as contagion fears from Turkey’s currency crisis persist despite further gains in the lira.

Indonesia unexpectedly raised rates o/n to combat the “contagion effect” that is weighing on EM currencies, the second central bank to do so in the last week.

There was no market moving economic data o/n but the American Petroleum Institute’s weekly inventory report was bearish late Tuesday, leading to declines of more than 1% in oil prices this morning.

Looking ahead to the US session, there are a slew of economic reports due out this morning: Retail Sales (E: 0.1%), Empire State Manufacturing Survey (E: 20.0), Industrial Production (E: 0.3%), and Housing Market Index (E: 68) that will be in focus early.

There are no Fed officials speaking today, so aside from the data, focus will be on relations with Turkey and the ongoing EM currency contagion concerns.

So far, the Lira’s rebound from all time lows has been tentative at best, so renewed weakness in the Turkish currency could hit stocks today.

To access the entire article – Go Here!

Six Charts That Explain This Market from the Sevens Report

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Below you’ll find six charts, spanning asset classes and economic data.

The charts are divided up into two groups.

Group 1 is comprised of four charts that explain why stocks have rallied so nicely in 2017, and why, in the near term, the trend in markets is still higher.

Group 2 is comprised of two charts that look into the future, and show that despite a bullish set up right now, there are real, serious reasons to be worried about how long this rally can last. Point being, these indicators are telling you not to be complacent!

Group 1: Why Stocks Have Rallied

Chart 1:  Economic Data 

Chart 2:  Earnings Growth  

Earnings and Economic Data – The Unsung Heroes of 2017

We have said since the early summer that an acceleration in economic data and earnings growth have been the unsung heroes of the 2017 rally.

And, as long as both of these factors continue to trend higher, that will underpin a continued rise in U.S. stocks, regardless of noise from Washington, North Korea, Russia, etc.

Chart 3:  S&P 500 

The Trend Is Your Friend

The trend in stocks has been relentlessly higher since early in 2016, and the S&P 500 has held that trend line through multiple tests.

Bottom line, the technical outlook on this market remains powerfully positive.

Chart 4:  Commodities (Oil & Copper)

There are few better indicators of global economic growth than industrial commodities, and two or the most important (oil and copper) have been telling us for months that global growth is accelerating.

And, as long as oil and copper are grinding to new highs, that will be a tailwind not just on U.S. stocks, but on global stocks as well.

Group 2:  Risks to This Rally

While the four charts above explain why stocks have rallied and why the outlook remains, broadly, positive, there are still risks to this rally and this market.

Don’t be fooled into being complacent with risk management, because while trends in U.S. and economic growth, earnings and the stock market are all still higher, there are warning signs looming on the horizon.

Chart 5:  Inflation (Warning Sign #1)

Non-Confirmation: Why Isn’t Inflation Rising?

Inflation remains inexplicably low, considering that we’re near full employment and global economic growth is accelerating.

And, accelerating inflation remains the missing piece of a true “Reflation Rally” that can carry stocks 10%, 15% or even 20% higher over the coming quarters and years.

But, it’s not just about missed opportunity.

The lack of inflation is a big “non-confirmation” signal on this whole 2017 rally, and if we do not see inflation start to rise, and soon, that will be a major warning sign for stocks, because…

Chart 6: The Yield Curve – Will It Invert?

Yield Curve: Sending a Warning Signal? 

If the outlook for stocks is so positive, then why did the yield curve (represented here by the 10’s – 2’s Treasury yield spread) equal 2017 lows on Wednesday?

Simply put, if we’re seeing accelerating economic growth, rising earnings, potential tax cuts and all these other positive market events, the yield curve should be steepening, not flattening.

So, if this 10’s – 2’s spread continues to decline, and turns negative (inverts) then that will be a sign that investors need to begin to exit the stock market, because a serious recession is looming, and the Fed won’t have much ammunition to fight it.

If I was stuck on a desert island (with an internet connection and access to my trading accounts of course) and could only have one indicator to watch to tell me when to reduce exposure in the markets, this 10’s – 2’s spread would be it – and it’s not sending positive signals for 2018!