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A Gutsy Contrarian Call

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Today’s Report is attached as a PDF.

What’s in Today’s Report:

  • A Gutsy Contrarian Call

It is a mixed start to Q4 today as U.S. stock futures are modestly higher, Asian shares rallied overnight following a rate cut by the RBA (although Chinese markets are notably closed for a holiday), while European markets declined on soft economic data.

September Manufacturing PMI data remained decidedly weak in Europe with Germany’s headline index notably falling from 43.5 to 41.7, the lowest since June 2009. Inflation in the Eurozone meanwhile remains weak with the core HICP figure meeting estimates at 1.0% year-over-year.

Looking into today’s session, there are three economic reports to watch this morning: PMI Manufacturing Index (E: 51.0), ISM Manufacturing Index (E: 50.0), and Construction Spending (E: 0.3%) and a busy schedule of Fed speakers: Clarida (8:50 a.m. ET), Bullard (9:15 a.m. ET), and Bowman (9:30 a.m. ET).

Beyond those potential catalysts in the morning, markets will remain focused on the political drama surrounding the impeachment proceedings by the House against Trump as well as any further updates on the U.S.-China trade war as the latter continues to be the single most important influence on global markets right now.

What’s Next for U.S.-China Trade?

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What’s in Today’s Report:

  • What’s Next for U.S.-China Trade?
  • Durable Goods Report Takeaways

It’s a mixed morning in the global financial markets as equity indexes are largely directionless while safe-haven assets have a mild bid after a mostly quiet night of news.

Longer duration Treasuries are outperforming so far today which is resulting in the 10s-2s Treasury yield spread inverting to new cycle lows, below –2 basis points as of this writing.

Economically, Chinese Industrial Profits rose +2.6% in July from –2.4% in June while Q2 German GDP met estimates at +0.4% year/year, but neither release materially moved markets.

Looking into today’s session, there are no Fed speakers, but several economic reports to watch: S&P CoreLogic Case-Shiller HPI (E: 2.3%), FHFA House Price Index (E: 0.3%), and Consumer Confidence (E: 130.0).

There is also a 2-Yr Treasury Note auction today (1:00 p.m. ET) and if demand is soft (so yields rise), it could further invert the yield curve and cause another wave of recession fears as we saw earlier this month.

Lastly, another round of U.S. – China trade talks were scheduled for today although there have been no updates on the topic. So any positive news regarding those talks will be well received by investors, while if they end up not actually taking place, that will weigh on stocks and other risk assets today.

Is the Pullback Over?

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What’s in Today’s Report:

  • Is the Pullback Over?
  • Weekly Market Preview (Can the rally keep going?)
  • Weekly Economic Cheat Sheet (Chinese data is key this week)

Futures are modestly higher on the avoidance of Mexican tariffs, although trade news was more mixed than good this weekend.

On trade, positively the 5% tariff on Mexican exports to the U.S. was avoided. Negatively, and more importantly, there was no progress on U.S.-China trade at the G-20 Finance Ministers meeting and no U.S.-China trade talks are planned before the G-20 meeting later this month.

Economic data was also mixed as Chinese exports slightly beat estimates but imports badly missed, while British GDP and Industrial Production also underwhelmed.  So, like the trade news from the weekend, there was a positive event, but on the whole the results were more mixed than good.

Today there are no material economic reports so focus will remain on the news wires and any trade related headlines.  Anything that implies renewed talks between the U.S. and China will likely extend this rally and test resistance at 2900 in the S&P 500.