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Taper Outlook: Good, Bad, and Ugly Scenarios

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What’s in Today’s Report:

  • It’s Not When, But How the Fed Tapers That Matters

U.S. stock futures are tracking most global equity markets higher this morning as Chinese tech shares recovered from recent declines and trader focus is shifting ahead to the Fed’s Economic Policy Symposium later in the week.

Economically, German GDP rose 1.6% vs. (E) 1.5% in the second quarter, easing some concerns that the global economic recovery is losing momentum.

Today, there is one economic report due out: New Home Sales (E: 700K) but it shouldn’t materially move markets and no Fed officials are scheduled to speak.

There is a 2-Yr Treasury Note auction at 1:00 p.m. ET, and given the increased sensitivity towards taper plans and interest rates right now, the outcome could move markets in the afternoon.

Tom Essaye Qutoed in Forbes on July 30, 2021

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SEC Reportedly Halts Chinese Firm IPOs After Ride-Hailer DiDi Global’s $50 Billion Crash

In a matter of days, China introduced regulatory actions targeting both ride-hailing app…Tom Essaye, author of the Sevens Report wrote in a Tuesday note. Click here to read the full article.

FOMC Preview

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What’s in Today’s Report:

  • FOMC Preview
  • Positive COVID News?

Futures are modestly lower again for the same reasons as Monday:  Global equity pressure following another sharp decline in Chinese shares (Hang Seng was down 4% again).

There was no new regulatory news from China overnight but fears remain and sellers remained aggressive.

There were no notable economic reports overnight.

Today there are three notable economic reports, Durable Goods (E: 2.1%), Cash-Shiller Home Price Index (E: 1.5%) and U.S. Consumer Confidence (E: 124.9) but unless there’s a major surprise from one or more, I don’t expect them to move markets and with the Fed looming tomorrow and key earnings after the close, today shouldn’t be too volatile.

On the earnings front, today is probably the biggest single day of earnings of the season, and key reports (mostly after the close) include:  AAPL ($1.00), AMD ($0.54), MSFT ($1.90), GOOGL ($19.89), UPS ($ 2.75), and MMM ($2.25).

Technical Update (Levels to Watch)

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What’s in Today’s Report:

  • Technical Update – Levels to Watch

Futures are moderately higher on momentum from Thursday’s rebound combined with a drop in industrial metals’ prices, which is helping to ease some anxiety on inflation.

Iron ore prices dropped sharply overnight as Chinese officials stated they would take measures to curb price increases in various industrial metals and that headline is pushing back on the “surging inflation” narrative (although it doesn’t change the inflation outlook).

There was no notable economic data overnight nor any important central bank speak (outside of the China metals news it was a quiet night).

Today we get several notable economic reports including Retail Sales (E: 1.0%), Industrial Production (E: 1.2%), and Consumer Sentiment (E: 90.3).  In general, the stronger the better for these reports but we’ll be watching the inflation expectations component of the Consumer Sentiment Index – if it runs “hot” expect a headwind on stocks.  There’s also one Fed speaker, Kaplan (1:00 p.m. ET), but he shouldn’t move markets.

Risks to the Stimulus Driven Rally

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What’s in Today’s Report:

  • Bottom line: Risks to the Stimulus Driven Rally

Stock futures are slightly lower this morning as investors weigh a continued rise in coronavirus cases and escalating geopolitical tensions against positive economic data.

China’s CFLP Manufacturing PMI rose to 50.9 vs. (E) 50.5 in June indicating an acceleration in the economic recovery.

China’s parliament passed a new national security law for Hong Kong o/n but specific details have yet to be released.

Today, there are two economic reports to watch: S&P Case-Shiller HPI (E: 0.5%) and Consumer Confidence (E: 90.0) as well as a slew of Fed speak to monitor: Williams (7:00 & 11:00 a.m. ET), Powell (12:30 p.m. ET), Bostic (2:00 p.m. ET), and Kashkari (2:00 p.m. ET).

Powell’s testimony before Congress, alongside Treasury Secretary Mnuchin, will be the “main event” today and as long as they reiterate their plans for stimulus measures to continue for the foreseeable future, stocks should be able to end the second quarter in a relatively quiet manner this afternoon.

Tom Essaye Quoted in Barron’s on March 6, 2019

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Chinese authorities have aggressively flooded the economy with cash since the start of the year. At this week’s National People’s Congress, the government also announced tax…Click here to to read the entire article.

Tom Essaye Quoted in Bloomberg on March 6, 2019

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“The outlook for China has been steadily improving for the past two months, and this MSCI announcement is another tailwind. Clearly this isn’t a risk-free trade and a lot can still…”

Click here to read the article.

Another Reason to Buy China

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What’s in Today’s Report:

  • A New Positive for Chinese Stocks
  • A Theory on the Copper Rally

Stock futures are modestly lower this morning after another mostly quiet night of news as investors look ahead to the remaining catalysts this week including US jobs data.

The only economic report overnight was Australian GDP which missed expectations (0.2% vs. E: 0.3%) and hit the Aussie dollar (-0.76%).

Oil prices are down over 1% this morning after the API reported a weekly build of +7.3M bbls late yesterday vs. (E) +1.6M bbls. A build of this size would largely offset last week’s bullish draw and could pressure the energy space (and drag risk assets lower too) if confirmed by this morning’s EIA report (10:30 a.m. ET).

Today, we get our first look at February jobs data with the ADP Employment Report (E: 180K) due out ahead of the bell. Then, International Trade figures will be released shortly thereafter (E: -$57.6B). Either release could move markets as growth concerns and the trade war remain two of the biggest influences on stocks right now.

Other than the weekly EIA report mid-morning, there are two Fed officials scheduled to speak over the lunch hour: Mester (12:00 p.m. ET) and Williams (E: 12:10 p.m. ET).

Market Outlook (After the Bounce)

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What’s in Today’s Report:

  • Market Outlook (After the Bounce)
  • Weekly Economic Cheat Sheet (Important First Looks at January Data)
  • Weekly Market Preview (All About Earnings)

Futures are sharply lower following more disappointing global economic data.

Chinese exports badly missed expectations falling –4.4% vs. (E) 4.8%, further stoking fears of a Chinese economic slowdown.  Data in Europe wasn’t much better, as Euro Zone Industrial Production fell –1.7% vs. (E) 0.5%.

Geopolitically, it was a generally quiet weekend as markets are looking past Trump’s economic threat to Turkey.

There are no notable economic reports today so focus will be on earnings, as the Q4 season officially kicks off with C ($1.55).  The key for this report (and all reports this season) will be the guidance and management commentary – and anything that downplays a slowing global economy will be welcomed by markets.

Tom Essaye on CNBC

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“In March, we had four areas of trade uncertainty: Mexico, China, Europe and Canada. I think Canada will be resolved and Europe and Canada are already resolved,” said Tom Essaye, founder of The Sevens Report. “Basically, we’ve got three of four resolved, but China is a big one.”

Essaye also said he would be surprised if stocks keep grinding higher without a resolution to U.S.-China trade relations.

Click here to read the entire article.