Is the “Fed Put” Back?

What’s in Today’s Report:

  • Is the “Fed Put” Back?

Futures are higher as Tuesday’s “squeezy” rally carried over into international markets overnight thanks to the dovish Fed rhetoric over the last 24 hours and a handful of incremental positive macro developments.

Mnuchin will meet with Chinese officials this weekend and there is growing support by Republican Senators to block Mexican tariffs, both of which are trade war positives.

Economic data overnight was mixed but “goldilocks” as EU composite PMIs were largely better than feared, Eurozone Retail Sales were in line with expectations, while inflation statistics came in light.

Today, focus will be on economic data early with the ADP Employment Report (E: 175K) due out ahead of the bell while the ISM Non-Manufacturing Index (E: 55.8) will print shortly after the open.

There is also one Fed speaker: Bostic (9:45 a.m. ET) and if the general tone remains dovish, this week’s short-squeeze in stocks can continue with the S&P approaching the 2850 area.

However, because the macro backdrop has not materially improved so far this week (again the developments have just been “less bad”), it is unlikely at this point that the move is the beginning of a sustainable, longer term rally.

Good, Bad, & Ugly Market Scenarios

What’s in Today’s Report:

  • Good/Bad/Ugly Scenarios: Likely Market Reactions (Print this Table)

Stock futures are bouncing modestly as investor sentiment improved o/n amid reported progress on one front of the trade war while the markets await Fed comments today.

There were two positive headlines on U.S.-Mexico trade overnight.

First, Republicans in Congress are working to block Trump’s tariff plans and second, the Mexican government has already stepped up border security, showing cooperation on the main demands from the White House.

Meanwhile the RBA cut rates as expected, but the move is adding to the dovish tailwind that has helped markets stabilize so far this week.

Today, there are a few data points to watch: Motor Vehicle Sales (E: 16.9M) and Factory Orders (E: -0.8%), but the markets main focus will be on the Fed as there are several speakers: Williams (8:30 a.m. ET), Powell (9:55 a.m. ET), Brainard (3:45 p.m. ET).

Powell will clearly be the most closely watched, however any further hints at a potential rate cut in the near term will be received positively by the market. Conversely if Bullard’s dovish comments from yesterday are contradicted, stocks could easily turn back negative on the week.

The Four Problems Facing Stocks (Print This List)

Today’s Report is attached as a PDF.

What’s in Today’s Report:

  • Market Strategy Update:  The Four Problems Facing Stocks And Positive/Negative Outcomes for Each (I’m printing this list).
  • Weekly Market Preview (It’s Going to Be a Busy Week)
  • Weekly Economic Cheat Sheet

Futures are marginally lower following a busy weekend of news, but one that provided no significant surprises.

Global May manufacturing PMIs were mixed but a bit better than feared.  Chinese Manufacturing PMI was 50.2 vs. (E) 50.0, while the EU PMI met estimates at 47.7.  The British PMI was the disappointment at 49.4 vs. (E) 52.0.

On trade, a Mexican delegation is headed to Washington on Wednesday and there were some relatively positive comments from China, but neither situation has improved.

Today the key event will be the May ISM Manufacturing PMI (E: 52.9).  If that number meets expectations, that will alleviate some growth concerns, while a miss will only worsen the growing worries that the economy is rolling over.  From a Fed standpoint, there are two speakers today (Bullard 1:25 p.m. ET, Daly 9:45 p.m. ET) but neither should move markets as they aren’t part of Fed leadership.

What Mexican Tariffs Mean for Markets

What’s in Today’s Report:

  • What Mexican Tariffs Mean for Markets (New Worst Case Scenario)
  • Two Leading Indicators of Market Contagion We’re Watching
  • Fed Policy Update
  • EIA/Oil Outlook

Futures are down 1% as President Trump announced tariffs against Mexican imports in response to the border crisis, while Chinese economic data missed expectations.

Trump announced a 5% tariff on Mexican imports in June  and rising each month there after until they hit 25%.

The March Chinese manufacturing PMI missed estimates at 49.4 vs. (E) 49.9 adding to global growth worries.

Today the key number is the Core PCE Price Index (E: 1.6% yoy) and if that number prints stronger than estimates, expectations for a Fed rate cut will drop further and given everything else happening today, markets could get ugly.  Conversely, a soft inflation number will increase calls for a rate cut, and stocks could steady on that news.

The other key event today is a speech by New York Fed President Williams, and markets will want to see if he has a dovish tone following the tariff announcement and recent soft data (if he does, that’s a positive).

Technical Update (Important Levels to Watch)

What’s in Today’s Report:

  • Market Technical Update – Important Support and Resistance Levels To Watch
  • Have Stocks Fallen Too Far Too Fast?

Futures are enjoying a modest oversold bounce following a quiet night of news.

There was no new trade news or notable economic data overnight.

Sentiment has turned negative very quickly this week, despite the lack of any incremental bad news (so far) and this morning we’re seeing stocks attempt to bounce.

There are multiple economic reports today including (in order of importance):  Revised Q1 GDP (E: 3.0%), Jobless Claims (E: 215K), Pending Home Sales Index (E: 0.5%) and International Trade in Goods (E: -$71.9B).

But, the most important event of the day will be a speech by Fed Vice Chair Clarida at 12:00 p.m. ET, and the key here will be whether he sounds more open to a preventative rate cut, or whether he reaffirms the Fed’s “transitory” view of low inflation.  The former will be positive for stocks, the later will be negative.

Why Downside Risks Are Building in Stocks

What’s in Today’s Report:

  • Why Downside Risks Are Building in Stocks
  • Weekly Market Preview
  • Weekly Economic Cheat Sheet (Friday is an important day)

Futures are modestly lower following a generally quiet three day weekend, as investors digest last week’s deterioration in economic data and U.S.-China trade relations.

Economic data was sparse overnight and the only notable report was German GfK Consumer Climate, which slightly missed expectations (10.1 vs. (E ) 10.4).  There was no material economic data out Monday.

On trade, Trump’s trip to Japan was a general non-event and there were no new developments (positive or negative) on U.S.-China trade.

Today we have a few housing numbers including Cash-Shiller HPI (E: 2.5% y/y) and FHFA HPI (E: 0.3% m/m) as well as Consumer Confidence (E: 129.8), but none of those should move markets materially.

Instead, focus will be on the news wires for any updates on U.S. – China trade and on support in the S&P 500 at 2800, which is becoming an increasingly important level.

The Bond Market Is Screaming For a Rate Cut

What’s in Today’s Report:

  • Why The Bond Market Is Screaming For a Rate Cut

Futures are bouncing modestly following some hopeful comments by President Trump on U.S.-China trade.

Late yesterday President Trump made comments expressing optimism about an eventual U.S.-China trade deal that includes a solution for Huawei.  No specifics or new details were provided, however.

Brexit entered a new phase as PM May announced she will resign on June 7th.  But, until a “No Deal” becomes more likely, the global markets will continue ignore Brexit.

Today focus will be on Durable Goods Orders (E: -2.0%) and support at 2800 in the S&P 500.  Yesterday that support level held and that’s a key number to watch going forward, as a violation of 2800 could open up an “air pocket” in stocks.

Regarding Durable Goods, it’d be nice if the data was solid, but it’s an April number so it won’t reflect activity following the flare up of U.S.-China trade tensions, and the headline is likely to be negatively skewed by cancellations for the 737, which started last month.

A U.S.-China Tech War Too?

What’s in Today’s Report:

  • Why the Trade War is Becoming a Tech War (And That’s Bad)
  • Brexit Update – Is a “No Deal” Brexit A Possibility (Yes)
  • EIA and Oil Update – Bearish Supply News

It’s an ugly morning as futures are down about one percent as markets digest disappointment from the week’s two big events, the FOMC Minutes and the global flash PMIs.

EU flash PMIs missed estimates at 51.6 vs. (E) 51.7 but EU and German manufacturing PMIs were especially weak (47.7 & 44.3) and that’s negative for global growth.

Yesterday’s FOMC Minutes were slightly hawkish and confirmed the Fed isn’t close to a rate cut right now.

Given the soft foreign data, the key report today is the flash Composite PMI (E: 52.4).  If that number is soft, it’ll further stoke worries about global growth and will be a negative for stocks.  Other reports today include Jobless Claims (E: 215K) and New Home Sales (E: 680K).

Bottom line, this market is facing several headwinds and support at 2800 is now important, but should likely hold unless hopes for a Trump/Xi meeting at the G-20 meeting are dashed, or U.S. growth begins to roll over.

Economic Breaker Panel Update

What’s in Today’s Report:

  • Economic Breaker Panel: May Update

U.S. stock futures are flat as investors look ahead to today’s release of the FOMC Minutes while most overseas markets bounced o/n in sympathy with the U.S. rally yesterday, although trade tensions remain elevated.

A NYT article released late yesterday revealed a modest escalation in the “tech war” as the U.S. will likely add several Chinese surveillance companies to the same “blacklist” that Huawei is on. This is an incremental negative as the odds of the broader “trade war” being resolved in the near-term continue to fall amid escalations in the U.S.-China “tech war.”

There are no major economic reports today but the calendar is relatively busy with the EIA Petroleum Status Report  due out at 10:30 a.m. ET (oil has traded with a sluggish tone this week and a selloff could drag stocks lower), while the main focus of the session will be on the release of the FOMC Meeting Minutes at 2:00 p.m. ET.

Additionally, there are multiple Fed speakers on the calendar: Williams (10:00 a.m. ET), Bostic (10:10 a.m. ET), and Kaplan (10:15 a.m. ET), however it is unlikely any of them move markets ahead of the Minutes.

Trade Update: Good/Bad/Ugly

What’s in Today’s Report:

  • Trade Update: Good/Bad/Ugly

Futures are rebounding with EU markets from yesterday’s sharp, tech-led losses thanks to some encouraging Huawei news o/n and a benign speech by Powell late Monday.

The U.S. announced some temporary exemptions will be issued for companies exporting to Huawei (mainly for existing products) which is helping ease some of yesterday’s elevated trade angst.

Overseas, there were no notable economic reports but the RBA cited risks to global growth in their most recent meeting minutes release, which pressured the aussie.

Looking into today’s U.S. session, focus will largely remain on the trade war and specifically any further information on the Huawei exemptions for U.S. exporters.

There are a few other potential catalysts however, including one economic report: Existing Home Sales (E: 5.37M) and a few Fed speakers: Bostic (7:50 a.m. ET), Evans (10:45 a.m. ET), and Rosengren (12:00 p.m. ET) but none of these are expected to materially move markets amid the most recent trade war developments.