Tom Essaye Quoted in Barron’s on December 29, 2020

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Was that the Bottom? (Technical Update)

What’s in Today’s Report:

  • Technical Update: Was that the Bottom?

Futures are lower and giving back about 1/3 of yesterday’s massive rally on digestion and potentially negative U.S./China headlines.  There was no notable economic data overnight.

The Trump administration is considering an executive order banning U.S. companies from using Huawei and ZTE products (both Chinese firms).  This represents a potential escalation in ongoing U.S,/China tech/trade conflict, although so far China has viewed the trade and tech issues separately, and that needs to continue otherwise this market will face additional headwinds.

Today markets will try and digest yesterday’s massive rally with the best case scenario being a continued rally that sees the Dow and S&P 500 close above near resistance levels.  Economically, we do get multiple reports including  Jobless Claims (E: 217K), FHFA House Price Index (E: 0.2%), New Home Sales (E: 560K) and Consumer Confidence (E: 134.0) although none of those should move markets materially.

Why Markets Are Dropping Again

What’s in Today’s Report:

  • Why Markets Are Dropping Again (And Why We Don’t Think It’s a Bearish Gamechanger)
  • What Needs to Happen in the Short Term for Markets to Stabilize
  • Jobs Report Preview
  • Bond Market Analysis (Yield Curve)

Futures are sharply lower as the arrest of the Huawei CFO in Canada has added to uncertainty on U.S./China trade, while oil is down sharply due to OPEC disappointment.

Huawei (Huawei is a giant Chinese telecom company) CFO Meng Wanzhou was arrested in Canada overnight and that is perceived as potentially complicating U.S./China trade.

Further adding to the downward pressure in markets is a 3% drop in oil, as Saudi Arabia proposed a 1 million barrel production cut, less than the 1.3 million barrel expectation.

Focus today will be on geo-political headlines, specifically any further reaction to the Huawei CFO arrest and anything that minimizes the situation will help stocks.

Away from geo-politics, we get several important economic reports including:  ADP Employment Report (E: 175K), Jobless Claims (E: 225K), Productivity and Costs (E: 2.3%, 1.1%) and ISM Non-Manufacturing index (E: 59.0).  But, even if the reports are all “Goldilocks” today’s price action will still be driven by geo-political headlines and, to a lesser extent, oil (it needs to stabilize).

Buy the Dip or Fade the Bounce?

What’s in Today’s Report:

  • Buy the Dip or Fade the Bounce?

US stock futures are down roughly 10 points this morning as yesterday’s big rally and notable post-market gains thanks to strong NFLX earnings are digested and investors look ahead to the Fed Minutes today.

Economically, EU HICP (their CPI equivalent) was in-line with expectations at 2.1% yoy but the core figure was soft, slipping to 0.9% from 1.0% which is mildly dovish for ECB policy outlook.

Looking into today’s session, there is just one economic report due out: Housing Starts (E: 1.221M) which will leave investors primarily focused on the FOMC Minutes due out at 2:00 p.m. ET. Earnings season takes a breather today as there are no major releases.

On that note, the huge beat by NFLX after the close yesterday should help tech shares continue to trade well this morning which could see this rebound extend higher into the Fed release this afternoon.

Sell Off: Why It Happened and What’s Next

What’s in Today’s Report:

  • Sell Off Takeaways: Why We Don’t View It as a Bearish Gamechanger (Yet).
  • Technical Update:  Key Support Levels to Watch
  • Why Didn’t Bond Rally Yesterday? (Important)

Futures are sharply lower as global markets dropped following the Wednesday rout in U.S. stocks.

Nothing new occurred overnight to cause the additional selling this morning and this is all momentum driven.

There was no notable economic data or geo-political news out overnight and the sell-off itself was the focus of most of the financial media.

Today the key event is the Core CPI report (E : 0.2% m/m, 2.3% y/y) out this morning.  This release is even more important than before because if it prints “hot” (core CPI above .4% m/m) that will add to the concern that the Fed is going to get more hawkish and that will add another source of pressure on stocks, which we obviously don’t need right now.  Conversely, if this number is inline of a little light, that could provide a catalyst for markets to try and stabilize.