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Too Much Stimulus?

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What’s in Today’s Report:

  • Is There Such a Thing As Too Much Stimulus?
  • Is the Market Starting to Price in a Future Less-Dovish Fed?

Stock futures are flat and bond markets are trading in an orderly manner this morning as investors await details on President Biden’s infrastructure plan amid end of month and quarter positioning money flows.

Economic data was mostly positive overnight as China’s CFLP Manufacturing PMI came in at 51.9 vs. (E) 51.0 while German Unemployment met estimates at 6.0% and the Eurozone HICP Flash for March was 1.3% vs. (E) 1.3%.

Today, we will get our first look at March jobs data via the ADP Employment Report (E: 500K) and the market will be looking for a number that is not “too hot” to cause another leg higher in bond yields which would weigh on tech stocks but not too underwhelming to suggest the recovery in the labor market is beginning to lose momentum.

There is one other second tiered economic report: Pending Home Sales Index (E: -3.0%) and one Fed official scheduled to speak: Bostic (10:45 a.m. ET) but neither should move markets.

The main focus of the market today will be Biden’s two-part infrastructure plan which is expected to top $4T total and how the Administration and Congress plan to pay for it (higher taxes). If the plans push yields higher, expect some pressure on equities with tech underperforming however stocks are also susceptible to volatility linked to end of month/quarter positioning today.

Stimulus Update (Why The Market Still Expects It to Pass)

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What’s in Today’s Report:

  • Stimulus Update (Why the Market Still Ultimately Expects It to Pass)
  • Economic Data – A Mixed Picture
  • EIA Analysis and Oil Market Update

Futures are marginally higher following a mostly quiet night, as the fate of the stimulus bill remains unresolved.

The stimulus bill remains up in the air as Trump has neither vetoed nor signed the bill, but while that could result in a temporary government shutdown on Monday, ultimately markets expect the bill to pass.

Regarding Brexit, the EU and UK are expected to formally announce a post Brexit trade deal later today, although as we and others have consistently said, this was always the expected outcome and as such it’s not generating much markets reaction.

There are no economic reports today and no Fed officials are scheduled to speak, so stimulus headlines will drive trading (anything that implies passage of the bill will be positive, while no news or negative news will obviously be a short term negative).

Finally, stock markets will close at 1:00 p.m. today.  Please have a safe and joyous holiday weekend.

Is Stimulus the New QE?

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What’s in Today’s Report:

  • Is Stimulus the New QE?
  • Economic Data:  Jobless Claims Hit a Low for the Recovery

Futures are moderately lower following a disappointing night of earnings.

Super cap tech earnings were fine in general but didn’t meet lofty expectations, and AAPL, AMZN, FB and TWTR all dropped after posting results after the close.  GOOGL was the only major tech stock to rally after earnings, and that tech weakness is why futures are lower this morning.

Politically, it was a quiet night and according to the polls the Blue Wave remains the likely election outcome.

Today there are a few notable economic reports, including Core PCE Price Index (E: 1.7%), which is the Fed’s preferred measure of inflation, as well as Employment Cost Index (E: 0.6%) and Consumer Sentiment (E: 81.2).  But, they shouldn’t move markets unless there’s a major surprise in the inflation data.

Instead, focus today will remain on the latest polls (does the race tighten?  If so that will weigh on stocks modestly) and coronavirus response (do we get more lockdowns?).

Market Multiple Table: August Update

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What’s in Today’s Report:

  • Market Multiple Table: August Update

Futures are rallying on optimistic comments from Secretary Mnuchin about a new stimulus deal being reached by the end of the week as well as upbeat economic data.

Composite PMIs were mostly in line with expectations overnight but EU Retail Sales notably rose 1.3% vs. (E) 0.2% Y/Y in June, a recovery to pre-pandemic levels that is rekindling hopes for a V-shaped economic recovery.

This morning, investor focus will be on economic data early as we get the first look at July jobs data via the ADP Employment Report (E: 1.888M) ahead of the bell while International Trade (E: -$50.3B) and the ISM Non-Manufacturing Index (E: 55.0) will both be released after the open.

Earnings season is still in full swing as well with several companies due to report Q2 results today including: CVS ($1.93), MRNA (-$0.36), HUM ($10.34), ROKU (-$0.55), MET ($0.96), ADT ($0.27).

Beyond economic data and earnings, the market’s main focus is clearly the stimulus bill and any news of further progress will be a tailwind for stocks while any new “roadblocks” will likely trigger some risk-off money flows across asset classes.

The Yield Curve Is Still Bullish on Stocks

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What’s in Today’s Report:

  • ISM Manufacturing Index Takeaways
  • The Yield Curve Is Still Bullish on Stocks

U.S. equity futures are churning lower this morning after a mostly quiet night of news as investors digest yesterday’s strong start to the month of August and continue to wait for details regarding the next stimulus package.

Economically, eurozone PPI rose 0.7% vs. (E) 0.5% in June helping support a modest bounce in the euro vs. the dollar this morning.

Today, there are two economic data points due to be released: Motor Vehicle Sales (14.0M) and Factory Orders (E: 5.2%) while no Fed officials are scheduled to speak today.

On the earnings front, there are a few notable reports today including: BP (-$0.99), BYND (-$0.01), ALL ($1.41), and PRU ($1.72) but none of those should materially move markets as investors will remain focused on the stimulus talks on Capitol Hill while the July labor market statistics, which begin to hit tomorrow, are also coming into focus.

Has There Been A Positive Change?

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What’s in Today’s Report:

  • Has There Been A Positive Change in Markets?
  • Jobs Day

Futures are solidly higher thanks mostly to continued momentum following Wednesday’s rally.

Economic data was sparse overnight, as the only notable report was the Eurozone Unemployment Rate, which slightly beat estimates (7.4% vs. (E) 7.7%).

Coronavirus cases continued to rise in the U.S. and hit a new daily record above 50k.

Today the focus will be on the Employment Situation Report, and the expectations are as follows: Job Adds: 3.000M, UE Rate: 12.4%, Wages: -0.8%).  As long as the number isn’t a major disappointment (say below 2.5MM) it likely won’t interrupt this week’s lift in markets.

We also get Jobless Claims (E: 1.400M) this morning, and while it’ll be overshadowed by the monthly jobs report, claims are actually more important, and if they can continue to decline towards 1MM (and beat expectations) that will be an additional tailwind on stocks.  Conversely, if claims start to move higher, that could offset even a better than expected monthly jobs report.

Technical Update: Headwinds Building?

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What’s in Today’s Report:

  • Technical Update:  Headwinds Building?

Futures are modestly lower following mixed Chinese economic data as markets digest Thursday’s rebound.

Chinese economic data was mixed but not worse than feared, as Industrial Production beat estimates (3.9% vs. (E) 1.5%) while Retail Sales and Fixed Asset Investment both declined sharply (-7.5% and –3.8% respectively) but no worse than expected.  In sum the data was “good enough” to keep hope alive that the U.S. economy can see a substantial economic rebound in the coming months, assuming no “second wave” of virus infections.

Today will be an important day for economic data, and the reports we’re watching today (in order of importance) are: Empire State Manufacturing Survey (E: -65.0), Retail Sales (E: -11.2%), Consumer Sentiment (E: 66.0), Industrial Production (E: -11.5%), and JOLTS (E: 5.900MM).

Empire Manufacturing Report and Consumer Sentiment are May reports, so markets will want to see hints of improvement to confirm the economic “worst” will soon be behind us.  If that happens, stocks can hold Thursday’s gains.

Don’t Fight the Fed (Still)?

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What’s in Today’s Report:

  • Should We Buy LQD Now that the Fed Is Buying It Too?

Futures are staging a rebound this morning after yesterday’s late day plunge in stocks as tensions between the U.S. and China simmer while investors weigh the risk-reward dynamics of reopening global economies.

Economic data remained fairly dismal overnight but not as bad as feared with U.K. Monthly GDP dropping -5.8% vs. (E) -7.0% while EU Industrial Production fell -11.3% in March vs. (E) -12.0%. Despite the data topping estimates British 2-Yr yields notably fell to a record low of –0.045%.

Today there is just one economic report due out ahead of the open: PPI (E: -0.5%) and it shouldn’t materially move markets especially with investors primarily focused on Fed Chair Powell’s virtual participation in a webcast at 9:00 a.m. ET that will include a Q&A session at the end.

The only other catalyst on the calendar is a 30-Yr. Bond auction by the Treasury at 1:00 p.m. ET. As we saw yesterday, the very strong demand for 10 Yr. Notes pressured yields and weighed on stocks in the early afternoon and we could potentially see a repeat of that today.

Are Negative Rates Coming to the U.S.?

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What’s in Today’s Report:

  • What Negative Rates Could Mean for Markets
  • Jobs Day

Futures are modestly higher following positive headlines regarding U.S./China trade discussions.

The U.S. and China held a trade call Thursday night and stated that “good progress” was being made towards implementing phase one of the trade deal, and that headline is helping to improve sentiment towards recent coronavirus related U.S./China tension.

Economic data was light and did not moving markets as focus is on this morning’s jobs report.

Today focus will be on the jobs report and the expectations are as follows: Jobs: -21.25MM, UE Rate:  16.3%, Wages:  0.3%).  As long as the numbers are close to those estimates, stocks will be able to look past the historically awful jobs report and continue the rally.

Tom Essaye Quoted in Yahoo Finance on April 27, 2020

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“All the data is horrific. But it’s getting less bad than it was say a couple weeks ago and that’s especially true with…” said Sevens Report Research founder Tom Essaye on Yahoo Finance’s The First Trade. Click here to read the full article.