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The Right Sectors To Own If There’s A Rebound In Growth

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Today’s Report is attached as a PDF.

What’s in Today’s Report:

  • The Right Sectors To Own If There’s A Rebound In Growth

Futures are slightly higher following a generally quiet night as markets wait for this morning’s jobs report.

President Trump said he hoped the U.S./China trade deal would be done in the next four weeks, which again generally meets markets expectations.

Economic data was sparse but German Industrial Production rose 0.7% vs. (E) 0.5%, somewhat offsetting Thursday’s disappointing German Manufacturers’ Orders report.

Today the focus will be on the jobs report and the expectations are as follows:  Jobs Adds 170K, UE Rate 3.8%,  Wages 3.4% yoy.

The best outcome for stocks today would be a jobs number in the mid 100k range (not too strong, but not too weak), positive revisions to the February data and a wage number below 3.5% yoy.  That outcome likely can spark a further rally.  Conversely, any extremes on the job adds (very good or very bad) along with another hot wage number may lead to profit taking in stocks on fears of slowing growth or a more hawkish Fed.

Bigger Picture on Economic Data

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What’s in Today’s Report:

  • Bigger Picture on Economic Data

Futures are solidly higher this morning, tracking gains in international markets led by Chinese shares thanks to strong economic data and more progress on trade.

Several news outlets reported overnight that up to 90% of a trade deal is done as China’s vice premier Liu He travels to D.C. to continue mid-high level trade talks today.

Economically, the Caixin Chinese Service PMI beat expectations jumping to 54.4 in March, a 14 month high, while the EU Service PMI rose to 53.3 vs. (E) 52.7. Both releases helped ease concerns about recently underwhelming economic data.

Looking into today’s session, there are a few catalysts to watch for. First, the ADP Employment Report (E: 165K) will be releases ahead of the open, kicking off “jobs week” in the U.S. and then the ISM Non-Manufacturing Index (E: 58.0) will hit shortly after the bell. Investors will look for both of these numbers to track the encouraging releases overseas last night.

Additionally, there is one Fed speaker before the open: Bostic (8:30 a.m. ET) and Kashkari will speak after the close (5:00 p.m. ET). Lastly, with U.S.-China trade optimism driving a good portion of the pre-market gains, any news out of Washington will have the potential to materially move markets today.

Economic Data Takeaways

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What’s in Today’s Report:

  • Bottom Line – “Pump the Breaks”
  • Retail Sales and ISM Manufacturing Takeaways

Futures are flat and international shares were mildly higher overnight as yesterday’s sizeable rally in the U.S. was digested amid a slight pullback in bond yields.

The Reserve Bank of Australia was the latest central bank to note downside risks in the global economy overnight.

Economically, Eurozone PPI was a mild miss: 0.1% vs. (E) 0.2% in February but inflation has been subdued and the report does not change the outlook for ECB policy.

Today, Motor Vehicle Sales (E: 16.8M) will begin to come in over the course of the morning while there is one notable economic report ahead of the open: Durable Goods Orders (E: -1.8%). There are no Fed speakers today.

With a lack of material catalysts between now and Friday’s jobs report, macro focus will be on U.S. – China trade negotiations and the bond market. If Treasury yields revisit last week’s lows, stocks will have a hard time holding the strong gains of the last few sessions, so watch bonds closely.

A Glass Half Full Market

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What’s in Today’s Report:

  • Why This Is a Glass Half Full Market (For Now)
  • Why GE and Chinese Economic Data Were Important Yesterday

Our regular editor is out today so my apologies for any uptick in typos.

Futures are modestly higher following more optimistic chatter on U.S./China trade and Chinese economic growth.

Chinese officials again reiterated support for their economy overnight and that, combined with renewed optimism for a U.S./China trade deal, sent futures higher.  But, I do want to point out that nothing materially new happened overnight – it was jus more of the same commentary we’ve seen for the past month or so.

There were no notable economic reports overnight.

Today focus will be on economic data as we get our first look at March activity via the Empire State Manufacturing Survey (E: 10.0) along with Industrial Production (E: 0.4%), Consumer Sentiment E: 95.0) and January JOLTS (E: 7.155M).  Again, the stronger the data, the better for stocks.

Finally, today is “Quadruple Witching” options expiration so don’t be surprised by some volatility, especially into the close.

A Make Or Break Month Ahead

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What’s in Today’s Report:

  • Why March Will Be A Make Or Break Month For The 2019 Rally
  • The Q4 GDP Report – Why It Wasn’t As Strong As It Seemed

Futures are moderately higher thanks to strength in Asia and generally in-line economic data.

Chinese shares are up 1% because index firm MSCI announced it will increase the weighing for mainland Chinese stocks to 20% from the current 5%.

Economically, global Feb manufacturing PMIs largely met estimates as the EU number rose to 49.3 vs. (E) 49.2. while the British reading was in-line at 52.0.

Today focus will be on data as we get two important economic reports.  First, the Fed’s preferred measure of inflation, the Core PCE Price Index (E: 0.2% m/m, 1.9% y/y) is released, and that year over year number needs to stay around 2% to continue the “dovish Fed” narrative.  Later, we get the Feb. ISM Manufacturing PMI (E: 55.0) and it needs to meet expectations to help offset some of the poor data from February (retail sales, etc.).

Sector Value and Performance

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What’s in Today’s Report:

  • Sector Valuations and Performance Since the Breakdown

Stock futures are trading higher again this morning thanks to ongoing improvement in US-China trade war sentiment as Brexit drama and the threat of a potential US government shutdown continue to be largely shrugged off.

Huawei’s CFO was released on bail in Canada which was a market positive and Trump also told Reuters he may intervene in the case if it would help with a trade deal.

Economic data overnight was mixed but did not move markets as focus remained on trade.

Looking into today’s Wall Street session, focus will be on U.S. inflation data early with CPI due out ahead of the bell (E: 0.0%).

Beyond that release, the list of scheduled catalysts is thin as there are no Fed officials speaking or other economic reports which will leave traders focused on any further trade war developments.

Updated Market Outlook Post Pullback

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What’s in Today’s Report:

  • Putting the Pullback In Context (We’ve Seen Something Similar Twice This Year)
  • Weekly Market Preview (All About Earnings and Data)
  • Weekly Economic Cheat Sheet (Market Needs a Confidence Boost)

Futures are moderately lower following a generally quiet weekend, as markets digest Friday’s bounce.

Nothing outright negative occurred over the weekend to cause the resumption of selling. But, there was no improvement in any macro headwinds either and as such markets are digesting Friday’s gains.

There were no notable economic reports overnight.

Today focus will turn towards economic data and we get two important reports: Retail Sales (E: 0.6%) and Oct. Empire Manufacturing Survey (E: 19.3).  Strong readings will give the market a needed boost of confidence as they’ll remind investors the economic remains strong.

On the earnings front, activity picks up starting tomorrow but there are two notable reports today:  BAC (E: $0.62), SCHW (E: $0.64).

A Big Week for Economic Data (And It Needs to Be Good)

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What’s in Today’s Report:

  • Weekly Market Preview (All About Economic Data – And It Needs to Be Good)
  • Weekly Economic Cheat Sheet

Futures are modestly higher after the U.S. and Canada agreed on a new trade deal late Sunday night.

A new three way NAFTA deal is in place as Canada joined the U.S./Mexico trade framework, further reducing non-China trade uncertainty.  Notably, though, U.S./China relations deteriorated further as a security meeting between the U.S. and China was cancelled.

Economic data was disappointing as Chinese Sept. Manufacturing PMI fell to 50.8 vs. (E) 51.2, EU Manufacturing PMI slightly missed at 53.2 vs. (E) 53.3 and German Retail Sales dropped –0.1% vs. (E) 0.5%.

Today the key economic report is the September ISM Manufacturing PMI (E: 59.9).  That number needs to remain firm to help support stocks.

More broadly, while futures are higher on the U.S./Canada trade news, that’s unlikely to spur a sustainable rally for two reasons:  First, a U.S./Canada deal was always expected, so this isn’t a real surprise.  Second, the big trade wildcard, China, saw things get incrementally worse over the weekend with the cancellation of the security meeting.  Bottom line, I’ll be surprised and impressed if this early Canada related rally can hold throughout the day.

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Emerging Market Update (Positive Risk/Reward)

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What’s in Today’s Report:

  • Emerging Market Update (Finally A Positive Risk/Reward?)
  • A Path to Higher Bond Yields?

Futures are slightly higher as Chinese economic data was mixed but didn’t contain any negative surprises.

Chinese Fixed Asset Investment (5.3% vs. (E) 5.5%) and Industrial Production (6.0% vs. (E) 6.1%) missed estimates while Retail Sales (9.0% vs. (E) 8.8%) beat expectations.  So, while results were mixed, the data wasn’t weak enough to offset the positive EM news yesterday so momentum remains positive.

Today focus will be on economic data, and specifically the Retail Sales report (E: 0.4%), as strong consumer spending remains a critical part of U.S. economic growth.  We also get Industrial Production (E: 0.4%) and Consumer Sentiment (E: 97.0) and there is one Fed speaker, Evans (9:00 a.m. ET).

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ECB Announcement Takeaways, July 21, 2017

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ECB Announcement Takeaways

  • The ECB left key interest rates unchanged.
  • The monthly QE program remains 60B euros
  • Forward guidance was left unchanged from the June statement.

Takeaway

As expected, the ECB left all major policy decisions as they were at the July meeting, including interest rates, QE and a lack of any material new forward guidance. The initial reaction to the statement was dovish, as policymakers appeared to simple “kick the can” toward the September meeting.

But, Draghi’s press conference following the statement offered more mixed signals. First, the ECB President reiterated his upbeat view of the European economy, which is slightly hawkish, but did mention that he and other policymakers remain cautious about the lack of inflation. To that point, Draghi repeated his pledge to increase QE in both size and duration should the economy falter or financial conditions worsen. This was largely expected, but it offered a dovish reminder. At this point in the press conference, the release was still a wash.

The catalyst for the surge in the euro, which gained well over 1% in intraday trade, was actually due to the lack of attention Draghi gave to the recent strength in the currency. He had several opportunities to address the recent gains in the euro, which hit multi-year highs earlier this week.

Yet the failure to do so was enough for currency traders to chase the shared currency up to new highs.

Bottom line, the ECB effectively “kicked the taper can” to the September meeting, which means unless Draghi verbally suggests otherwise between now and then, any changes will likely be very subtle (i.e. modest taper to QE but extended duration). That was underscored by the fact that the 10-year bund was essentially unchanged yesterday. Looking ahead, the ECB still is a long way off from actually tightening policy (as they are technically still actively easing with their QE program) and as such, the rally in the euro is getting a bit extended. Nonetheless, the trend remains bullish for the euro, and until there is a catalyst such as blunt, less-dovish commentary from Draghi or a spike in EU inflation, then the path of least resistance will remain higher for the euro.

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