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Fed Preview and Key Levels to Watch in Yields

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What’s in Today’s Report:

  • FOMC Preview
  • Did Dr. Copper Just Offer an All-Clear Signal?
  • Key Levels that Will Tell Us, in Real-Time, Whether Events this Week Are Positive or Negative for Stocks

Global markets are trading with a notable risk-off tone this morning as investors position into several key events later this week including the Fed and ECB announcements and next Sunday’s deadline for more U.S. tariffs on China.

Economic data overnight was positive as the Current Conditions and Business Expectations components of the German ZEW Survey were better than feared while the NFIB Small Business Optimism Index was 104.7 vs. (E) 102.9.

Looking into today’s session, thing should be quiet with the December Fed meeting getting underway however there is one economic report to watch: Productivity and Costs (E: -0.2%, 3.5%) and there is a 10 Year T-Note Auction at 1:00 p.m. ET this afternoon. If the auction triggers a significant reaction in yields, that will affect stocks.

There have not been any notable developments on the trade war this week and “no news is bad news” right now given the looming Dec. 15th deadline for the U.S. to add more tariffs to Chinese imports. As a result, the market will continue to look for any clues regarding progress towards a “phase one deal” that will avoid additional tariffs and potentially roll back existing ones.

Does this Cyclical Rotation Have Legs?

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What’s in Today’s Report:

  • Does this Cyclical Rotation Have Legs?
  • Factory Orders Data Takeaways
  • Dr. Copper Update

U.S. stock futures are higher this morning and global stocks rallied overnight thanks to more positive trade headlines and mostly “Goldilocks” economic data overseas.

The Financial Times was the first to report the Trump administration is considering rolling back $112B worth of tariffs that went into effect on September 1st which would be a significant concession and first sign of real progress towards a “phase one” deal being reached.

Economically, the first composite PMI reports were released overseas and both the Chinese and British figures firmed in October, further easing concerns about the health of the global economy.

Today, there are several economic reports due to be released: International Trade (E: $52.5B), ISM Non-Manufacturing Index (E: 53.5), and JOLTS (Previous: 7.051M, while two Fed officials are scheduled to speak: Kaplan (12:40 p.m. ET) and Kashkari (6:00 p.m. ET).

Beyond the data and Fed speakers, focus will be primarily on the trade war as investors look for further insight to whether or not the Trump Administration will move forward with tariff rollbacks and delays as was reported overnight. Any confirmation would be well-received and see stocks extend this recent squeeze higher towards 3,100 in the S&P.

ISM PMI Day (More Important than the Jobs Report)

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What’s in Today’s Report:

  • Jobs Report Preview (Minor Post Fed Adjustments)
  • Is Dr. Copper Sending Another Signal?

Futures are slightly higher following yesterday’s declines thanks to decent economic data and ahead of the jobs report and ISM Manufacturing PMI.

Global manufacturing PMIs were a bit better this morning as a private market reading of Chinese manufacturing beat estimates (51.7 vs. (E) 51.0) and that’s notable because it contradicts the soft government reading from Thursday.  Additionally, the British manufacturing PMI also beat estimates.  The Japanese reading, however, was soft (48.4 vs. (E) 48.9).

Bottom line, global manufacturing PMIs aren’t collapsing, but they aren’t showing the type of stabilization that markets have priced in, either.

Today the focus will be on economic data and while the Employment Situation report (E: 93K job adds, 3.6% UE rate, 3.0% wage growth) will dominate the headlines, the ISM Manufacturing PMI (E: 49.0) is actually going to be the more important report, because if it shows further deterioration, that will increase worries about the U.S. economy.  More broadly, as we said yesterday, with the Fed on hold, “good” data is good for stocks, and “bad” data is bad.

Finally, there are two notable Fed speakers today, Williams (12:00 p.m. and 2:30 p.m. ET) and Clarida (1:00 p.m. ET) although neither should move markets given we just heard from Powell.

What’s Next for the U.S. and China?

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What’s in Today’s Report:

  • What’s Next for the U.S.-China Trade Talks?
  • Dr. Copper is Not Buying the Stock Rally
  • Global PMI Analysis

U.S. stock futures are slightly lower this morning as investors continue to digest the G20 “trade truce” against further deteriorating global economic data so far this week while news flows overnight were very slow.

Economic data overnight was largely Goldilocks with German Retail Sales coming in at -0.6% vs. (E) 0.7% (but revisions were positive) while Eurozone PPI was -0.1% vs. (E) 0.0%. Additionally, the RBA cut rates, as expected.

Looking into today’s session the only economic data coming out today is Motor Vehicle Sales (E: 17.0M) while there is just one Fed official scheduled to speak: Mester (11:00 a.m. ET).

That will likely make for a quiet session as traders look ahead to U.S. jobs data due out later in the week while trading schedules are non-typical thanks to the 4th of July holiday on Thursday.