How Much Further Can the Correction Go?

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What’s in Today’s Report:

  • How Much Further Can the Correction Go?
  • Oil Update and EIA Analysis
  • Flash PMIs:  More Signs of a Plateau in the Recovery?

Futures are little changed as markets digest Wednesday’s selloff following a quiet night of news.

Economic data was mixed as German Ifo Business Expectations slightly missed estimates (97.7 vs. (E) 98) while British Distributive Trades (retail sales) beat (10% vs. (E) -11%).

Today the key report will be weekly Jobless Claims, which are forecast to move up to 880K.  If weekly claims are worse than expectations, concerns will grow that the economic recovery is indeed plateauing (and remember we’re almost certainly not getting stimulus until late November/early December, at the earliest).  We also get the latest look at New Home Sales (E: 875K).

Finally, there is a veritable parade of Fed speakers today:  Kaplan (8:50 a.m. ET), Bullard (12:00 p.m. ET), Barkin (1:00 p.m. ET), Evans (1:00 p.m. ET), Williams (2:00 p.m. ET), Bostic (2:00 p.m. ET), Powell (10:00 a.m. ET).  Of those speaking, Powell is clearly the most important, but we don’t expect him to say anything new (and as such the market should ignore pretty much all of it).

All Clear for Tech?

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What’s in Today’s Report:

  • Does This Bounce Mean an “All-Clear” in Tech?

Futures are rallying with international shares this morning as investors digest soft economic data and look ahead to another day of Powell’s testimony before Congress.

The EU PMI Composite Flash missed estimates this month (50.1 vs. E: 51.7) due to an unexpected drop in the services index but the weakness is bolstering stimulus hopes.

Turning to the U.S. session, there are two economic reports to watch this morning: FHFA House Price Index (E: 0.6%) and the PMI Composite Flash (E: 54.5). The latter will be the important one to watch as investors will be looking to see if the service index “whiffed” as it did in Europe which would up the pressure on lawmakers to pass a new stimulus bill.

Beyond the data, there is a slew of Fed speak today including: Mester (9:00 a.m. ET), Evans (11:00 a.m. ET), Rosengren (12:00 p.m. ET), Bostic (1:00 p.m. ET), Kashkari (1:00 p.m. ET), and Daly (3:00 p.m. ET), however Chair Powell’s second day of testimony before Congress (beginning at 10:00 a.m. ET) will be the most closely watched as the market continues to look for affirmation that more accommodation and stimulus are on the way.

Tom Essaye Quoted in MoneyWeek on September 21, 2020

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The trouble is that there is still plenty of froth around, says Bloomberg. The recent mini-crash wiped $2trn off stock valuations, but trading data shows that bullish retail investors, who often buy in through apps like Robinhood, remain “unbowed”. As Tom Essaye of The Sevens Report newsletter puts it, the recent pullback was “not even close to scary…” Click here to read the full article.

Is the Pullback Over? (Technical Levels to Watch)

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What’s in Today’s Report:

  • If the Selloff Continues, Where Is Technical Support?

Stock futures are wavering between gains and losses this morning while international markets were mixed overnight amid a continued rise in COVID-19 cases clouding the outlook for the global economic recovery.

There were no market-moving economic reports overnight however new coronavirus cases topped 50,000 in the U.S. yesterday, a more than one-month high, suggesting the resurgence in the outbreak may not be limited to Europe.

Today, there is one economic report to watch: Existing Home Sales (E: 5.965M) and the Chicago Fed’s Evans will speak at 10:00 a.m. ET but the market’s main focus will be Chair Powell’s testimony before congress, alongside Treasury Secretary Mnuchin, beginning at 10:30 a.m. ET.

Powell and Mnuchin are expected to reiterate concerns about the fragile state of the economic recovery and as long as they remain extremely dovish/accommodative, it should help markets begin to stabilize following the recent, near-10% pullback in the S&P 500.

Why the Pullback Isn’t Over

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What’s in Today’s Report:

  • Why the Pullback Isn’t Over
  • Weekly Economic Cheat Sheet:  Flash PMIs the key report this week
  • Weekly Market Preview:  New Coronavirus Headwinds?

Futures are sharply lower as concerns mount that surging coronavirus cases in Europe will cause another economic lockdown.

Coronavirus cases in multiple European countries, including the UK, France, and Spain, are back near March highs, and concerns are rising those governments will re-implement economically crippling lockdown measures.

Politically, the death of Ruth Bader Ginsburg will make the election even more heated, but it should not have any direct impact on the markets.

Today there are no notable economic reports or market-moving Fed speakers, so focus will turn towards Europe as weakness in those markets drove U.S. futures lower.  If Europe can bounce into their close (11:30 a.m.) than U.S. stocks could as well.

Was the Fed Decision Negative for the Market?

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What’s in Today’s Report:

  • Was Yesterday’s FOMC Decision A Negative for the Market?
  • Why Did Stocks Fall After the Fed?
  • Oil Market Update and Outlook (Back above $40/bbl).

Futures are moderately lower on momentum from Wednesday’s post-Fed fade in stocks.

Economically, EU HICP (their CPI) was the only notable release, and it met expectations (core HICP rose 0.2% y/y).

On the stimulus front, “chatter” is turning a bit more positive as Trump and Pelosi both made slightly positive comments on the process yesterday, but a stimulus bill before the election remains very unlikely.

Today the key number is Jobless Claims (E: 850K) and markets will want to see a solid number near the expectation of 850k.  If claims tick back towards 1MM, that should add downside pressure to stocks as worries will begin to rise about another “Pause” in the economic recovery.  We also get Housing Starts (E: 1.486M) and  Philadelphia Fed Manufacturing Index (E: 15.5), although they’d have to be big misses to move markets.

Economic Breaker Panel: September Update

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What’s in Today’s Report:

  • Economic Breaker Panel – September Update
  • Empire Manufacturing Index and Industrial Production Takeaways
  • Levels to Watch in the Dollar and 10-Yr Yield, Post-FOMC

Stock futures are trading modestly higher this morning following a positive revision to this year’s global economic outlook by the OECD and largely dovish Fed expectations.

The Organization for Economic Cooperation and Development said the global economy will likely contract by -4.5% this year; improved from the -6.5% expectation in June. The more upbeat economic outlook paired with hopes for more monetary and fiscal accommodation are helping fuel risk-on money flows in early trade this morning.

Looking into today’s session, focus will be on economic data early as the Retail Sales report (E: 1.0%) will shed some light on the health of the U.S. consumer since the initial coronavirus relief measures began to run out in July, and a bad number could hit stocks in early trade. Additionally, there are two lesser followed reports due out shortly after the bell: Business Inventories (E: 0.1%) and Housing Market Index (E: 78) but neither should materially move markets.

After the economic data, focus will shift to the Fed and markets will likely settle in for a typical and choppy session into the FOMC Meeting Announcement (2:00 p.m. ET) and Fed Chair Powell’s Press Conference (2:30 p.m. ET) in the afternoon.

Market expectations for the Fed today remain rather dovish so if Powell and company can meet expectations, stocks should be able to hold the week-to-date gains or potentially extend them, but the risk is to the downside as a hawkish disappointment is far from priced in and could trigger a test of last week’s lows.

FOMC Preview (What Makes It Dovish Enough?)

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What’s in Today’s Report:

  • FOMC Preview (What Will Make It Dovish Enough for the Market?)
  • Why Did Stocks Rally on Monday?

Futures are moderately higher again following better than expected economic data overnight.

Chinese economic data was solid as August Retail Sales (0.5% vs. (E) 0.1%) and Industrial Production (5.6% vs. (E) 5.1%) both beat estimates.  In Europe, the German ZEW expectations index also beat estimates (77.4 vs. (E) 69.5).  Bottom line, the data implies the global economic recovery is still on going.

On the vaccine front, headlines were more mixed as the resumption of the AZN trial in the U.S. isn’t expected until the middle of this week, at the earliest.  But, markets still very much expect a vaccine to be approved by Election Day and distributed by year-end (and that remains a very optimistic assumption).

Today the looming Fed meeting (tomorrow) should keep the markets generally quiet, although we do get the September Empire Manufacturing Survey (E: 6.5), which is the first data point for September.  If it’s stronger than expected, that will further confirm the U.S. economy remains resilient despite no more stimulus, and that will help support the early rally in futures.

What to Make of the Pullback

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What’s in Today’s Report:

  • What to Make of the Pullback
  • Weekly Market Preview:  Will the Fed be Dovish Enough?
  • Weekly Economic Cheat Sheet:  Fed Wednesday, but also important data Tues/Thurs

Futures are sharply higher as markets enjoy an oversold bounce following a marginally positive weekend of news.

Astra-Zenica (AZN) announced their COVID-19 vaccine trial was back on in the U.K., although it remains paused on other countries.

There was about $60 bln on pharma M&A announced, and that is also generally helping sentiment.

Economic data was sparse although EU Industrial Production slightly beat estimates (4.1% vs. (E) 4.0%.

Today there is no notable economic data nor any Fed speakers, and like both Thursday and Friday, the actual news overnight is not as positive as the rally in futures implies.  So, also like the past few days, the key will be whether stocks can hold the early gains and the Nasdaq should lead.  If it turns negative by lunchtime (as it has the past two trading days) look out for another Thursday repeat.

Tom Essaye Quoted in Arkansas Democrat Gazette on September 9, 2020

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“Some froth has come off the market which is a good thing, but keep in mind that we still remain well over levels…” Tom Essaye, a former Merrill Lynch trader who founded The Sevens Report newsletter, wrote in a note. Click here to read the full article.