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The Latest on Taiwan and China

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What’s in Today’s Report:

  • The Latest on Taiwan and China
  • JOLTS Decline But Remain Historically Elevated
  • Big One-Day Reversal in the 10-Year Yield: Chart

Stock futures are trading cautiously higher this morning as geopolitical angst is easing after Pelosi’s departure from Taiwan while economic data was mostly positive overnight.

Chinese and EU Composite PMIs for July topped estimates while Eurozone PPI was no worse than feared and that data is helping some of the hawkish fears from Tuesday unwind.

Looking into today’s session, earnings season is beginning to wind down but there are still a few notable reports due out today: MRNA ($4.50), CVS ($2.16), YUM ($1.08), HOOD (-$0.36), EBAY ($0.89), and MGM ($0.24).

However, the market’s main focus will be on economic data today with ISM Services Index (E: 53.0) and Factory Orders (E: 1.1%) both due out shortly after the open while there is one Fed speaker: Harker (10:30 a.m. ET).

Investors will want to see still solid growth numbers in the data, further easing in inflation readings, and hopefully a less hawkish tone out of the Fed if the July relief rally is going to extend into August.

What Escalating U.S.-China Tensions Mean for Markets

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What’s in Today’s Report:

  • What Escalating U.S.-China Tensions Mean for Markets
  • What’s the Fed’s Endgame With Rates?
  • How Low Could Oil Prices Go?

Stock futures are lower and the 10-year yield fell to a 4-month low overnight amid heightened tensions between the U.S. and China over Speaker Pelosi’s trip to Taiwan.

Speaker Pelosi is scheduled to land in Taiwan later this morning despite repeated and stern warnings from China about a potential military response to the visit and the elevated tensions are resulting in equity market weakness and rising demand for safe havens assets such as Treasuries.

Looking beyond geopolitics, there are a few other potential catalysts to watch today including two economic reports: Motor Vehicle Sales (E: 13.5M) and JOLTS (11.0M), as well as two Fed officials scheduled to speak: Evans (9:00 a.m. ET) and Bullard (6:45 p.m. ET).

Earnings season also continues today with results from CAT ($3.00), JBLU (-$0.11), MAR ($1.59), TSEM ($0.52), AMD ($1.03), PYPL ($0.85), and SBUX ($0.77).

Bottom line, markets are trading with a risk-off tone due to the U.S.-China tensions surrounding Taiwan however a meaningful escalation including military action between the U.S. and China remains very unlikely, and as such the pressure on equities is not expected to deepen or last very long and market focus is likely to turn back to Fed policy later in the week as the July jobs report is due out on Friday.

Technical Update: What Would Make This Bounce Sustainable?

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What’s in Today’s Report:

  • Technical Update:  What Would Make This Bounce Sustainable?
  • EIA Analysis and Oil Update

Futures are slightly lower following a busy night of mixed earnings reports and ahead of today’s ECB decision.

Politically, Italian PM Draghi formally resigned and there will be elections in Italy this fall, which is adding to general macro-economic uncertainty.

Earnings overnight were mixed although TSLA posted solid results and the stock rallied 3% after hours.

Today will be a busy day for economic data and earnings and the key event is the ECB Decision.  A 25 bps hike is expected although a 50 bps hike is very possible.  From a stock standpoint, markets will be hoping for a 50 bps hike because that will boost the euro and weigh on the dollar (the dollar being this high is a problem for U.S. corporate earnings).  Outside of the ECB we also get Jobless Claims (E: 240K) and Philadelphia Fed (E: -3.3).

On the earnings front, results continue to roll in and so far this season they are decidedly mixed (not good, but not materially worse than feared, either).  Some results we’re watching today include:  T ($0.59), FCX ($0.80), UNP ($2.38), COF ($5.09).

Three Keys to a Bottom (Updated)

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What’s in Today’s Report:

  • Three Keys to a Bottom (Updated)
  • Weekly Market Preview:  Focus Turns to Earnings
  • Weekly Economic Cheat Sheet:  Flash PMI on Friday is the Big Report to Watch

Futures are moderately higher mostly on momentum from Friday’s rally and following a generally quiet weekend.

Investors continue to hope for a near-term peak in inflation and Friday’s drop in University of Michigan inflation expectations (2.8% vs. (E) 3.0%) and multi-month lows in the Empire Manufacturing price indices fueled that hope and resulted in the rally on Friday and in futures this morning.

Today’s focus will shift to earnings, and they will dominate market action early this week as there are no Fed speakers and no market-moving economic reports till later this week.  If earnings are better than feared, they can help extend this rally in the near term while disappointing results will cause more volatility.  Some reports we’re watching today include BAC ($ 0.77), GS ($6.99), SCHW ($0.91), IBM ($ 2.29).

Market Multiple Table

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What’s in Today’s Report:

  • July Market Multiple Table (Important Changes)
  • Weekly Market Preview:  All About Inflation (and CPI on Wednesday)
  • Weekly Economic Cheat Sheet: Important Inflation and Growth Data This Week

Futures are modestly lower following new COVID-related shutdowns in China.

Macau will close most businesses, including casinos, for one week following a COVID outbreak while Shanghai will continue with massive testing, in what is a signal that the “Zero COVID” policy is at least partially still in effect.

Geo-politically, Canada released a turbine to Gazprom (a Russian energy company) and the hope is that will result in increased natural gas flows to Europe in the coming weeks, putting more pressure on commodity prices.

Today there are no notable economic reports and just one Fed speaker, Williams at 2:00 p.m. ET.  Futures are taking the new lockdowns in China somewhat in stride but if headlines imply anything like a repeat of the Shanghai lockdowns of March-May, expect stocks to drop as a result.

Jobs Report Preview

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What’s in Today’s Report:

  • Jobs Report Preview

Futures are slightly higher despite negative COVID news from China and after British Prime Minister Boris Johnson announced he intends to resign.

COVID cases rose in Shanghai to the highest level since late May, prompting mass testing and increasing concerns of another lockdown.

Politically, British Prime Minister Boris Johnson will announce his resignation, but this shouldn’t impact stocks.

Today’s focus will be on Jobless Claims (E: 230K) and a continued slow drift higher will imply the jobs market is softening, which is needed if the Fed is going to get to “Peak Hawkishness” sooner than later.  We also have two Fed speakers, Bullard (1:00 p.m. ET) and Waller (1:00 p.m. ET) and we should expect their commentary to be hawkish (they’re two of the louder hawks on the Fed).

What Would A Recession Mean for Markets?

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What’s in Today’s Report:

  • What Would A Recession Mean for Markets?

Futures are moderately higher thanks mostly to momentum from Thursday’s close and despite more underwhelming economic data.

Economically, UK Retail Sales met expectations but fell sharply (–4.7% yoy) while the German Ifo Business Expectations Index missed estimates (85.8 vs. (E) 87.3).

Geo-politically, Russia continues to advance in the Donbas as Ukraine has withdrawn from the city of Severodonetsk.

Today focus will be on the inflation expectations in the University of Michigan Consumer Sentiment Index, and if we see a decline below 3.3% that could further the idea that inflation is peaking (and extend the rally in stocks).  Other data today includes New Home Sales (E: 587K) and one Fed speaker, Daly at 4:00 p.m. ET, but they shouldn’t move markets.

Tom Essaye Quoted in CNBC on June 6, 2022

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Nasdaq rises slightly to start week, shaking off jump in bond yields

Since those lows near 3,800 in the S&P 500 there has been real progress: China is reopening and hopefully the economy will be close to operating at near-full capacity within a month. That will add a large tail-wind to the global economy, and perhaps most importantly, ease supply chain stress…Tom Essaye of the Sevens Report said in a note. Click here to read the full article. 

 

Bounce or Bottom? A Key Level to Watch

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What’s in Today’s Report:

  • Bounce or Bottom?  A Key Level to Watch

Futures are slightly higher following a night of mixed earnings and continued reopening in China.

Shanghai continued to reopen and Beijing is still avoiding the most draconian lockdowns and that’s helping broader market sentiment.

Economic data was sparse as the only notable report was Euro Zone M3 (6.2% vs. (E) 6.3%) but that’s not moving markets.

Today the key report is the Core PCE Price Index (E: 0.3%, 4.9%) and if it underwhelms vs. expectations and furthers the idea that inflation has peaked, look for a continuation of this week’s rally.  We also get Consumer Sentiment (E: 59.1) and the key there will be the five-year inflation expectations.  If they drop below 3.0%, that’ll be an additional positive for stocks today.

Value vs. Growth Technical Outlook

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What’s in Today’s Report:

  • Value vs. Growth Technical Outlook

Futures are moderately higher following a surprise rate cut by Chinese authorities.

Officials in China announced a larger than expected rate cut to the 5-year Loan Prime Rate (15 bps vs. (E) 5 bps) in a move that potentially signals greater ongoing support for the economy (if China can reopen and authorities substantially support the economy that would remove a big headwind on stocks).

Economic data was mixed overnight as German PPI remained hot (2.8% vs. (E) 1.2% m/m) while UK Retail Sales modestly beat estimates (rising 1.4% vs. (E) 0.2%) but neither number is altering the rate hike outlooks for the ECB or BOE (both are expected to continue to hike rates over the summer).

Today there are no notable economic reports and no Fed speakers scheduled so look for momentum and shorter-term technicals to drive trading.