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Economic Breaker Panel: April Update

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What’s in Today’s Report:

  • Sevens Report Economic Breaker Panel – April Update

Futures are decidedly lower with global markets this morning as optimism for a V-shaped economic recovery fades ahead of key economic data and more important earnings today.

Additionally, Trump cut funding to the WHO, raising tensions with China while WTI crude oil prices fell to fresh 18-year lows, below $20/barrel, overnight as a complete lack of demand continues to weigh on the broader energy markets right now.

Looking into today’s session, it is lining up to be a busy one from a potential catalyst standing.

First, there are several important economic reports due to be released including: Retail Sales (E: -7.0%), Empire State Manufacturing Survey (E: -35.0), Industrial Production (E: -4.2%), and the Housing Market Index (E: 60) while there is one Fed official schedule to speak: Bostic (1:00 p.m. ET).

Earnings will also be a major focus today with Q1 results due out from: BAC ($0.65), C ($1.83), GS ($2.83), PNC ($2.24), USB ($0.87), PGR ($1.44), and BBBY ($0.21).

Stocks have become near-term overbought over the last few weeks so any notably negative news flow regarding economic data, earnings, or the coronavirus pandemic could cause a potentially volatile wave of profit taking.

Technical Update (Important Support and Resistance)

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What’s in Today’s Report:

  • Technical Update (Important Support and Resistance)
  • Jobs Report Preview (It’s Going to be Ugly)

Futures are moderately lower as markets digest Thursday’s rally ahead of today’s jobs report.

Economically, global service PMIs were worse than expected and the drops were historic.  The EU service PMI plunged to 26.4 vs. (E) 28.4, down from 52.6 in Feb.

The Chinese service PMI rebounded strongly in March, rising to 43.0 from 26.5, confirming that their economy is seeing a strong bounce back in activity.  This is mildly encouraging because the Chinese data implies that once the coronavirus pandemic has passed (against sooner than later) we should see a strong bounce back in the economy.

Today focus will be on the jobs report, and the estimate are as follows: Jobs:  -150K, UE:  3.9%,  Wages:  0.2%.  But, the “worst case” estimate we saw was for -1.25 million jobs, so don’t be shocked if the number is much worse than the estimate.  Also, we get the March ISM Non-Manufacturing PMI (E: 43.0).  If that can beat that low estimate, that will be a small moral victory.

Valuation Update (Cheap, Fairly Valued, or Still Expensive?)

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What’s in Today’s Report:

  • Market Valuation Update:  Cheap, Fairly Valued, or Still Expensive?
  • Oil Update (Weekly Inventory Data)

Futures are seeing a moderate rally/bounce as the Fed acted, again, and oil bounced on comments from Trump.

The Fed said it will exclude Treasury holdings and deposits from certain leverage ratios (that essentially allows banks to lend more money which should help the economy).

On oil, Trump said he expected a Russia/Saudi oil deal within “days” but gave no specifics as to how that might happen (although it would be a positive if it does).

Today the key report is Jobless Claims (E: 3.350M), although we also get Motor Vehicle Sales (E: 14.3M) and International Trade (E: -$39.5B).

But, in reality, the real driver of markets right now is coronavirus headlines.  They were more positive in tone last week, but have turned more negative this week and that’s why stocks dropped so hard yesterday.  Any good news on 1) A pharma solution (vaccine/antibody treatment/trials) or 2) Slowing of the spread will help make this early bounce more sustainable.

What to Make of This Rally

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What’s in Today’s Report:

  • What To Make Of The Rally.
  • Coronavirus Update – Is Italy Peaking?

Futures are sharply lower (down about 2%) following a generally quiet night as markets digest the big three day rally.

The U.S. passed China in total number of coronavirus cases on Thursday, although there is some hope emerging that the spread of the virus is peaking in Italy.

Politically, there was no notable news overnight and passage of the stimulus bill will happen later today.

Today the key event is the passage of the stimulus bill in the House, but that is universally expected.  Outside of that, the key economic report will be Consumer Sentiment (E: 92.0), because that will give us some preliminary insight into how bad consumer spending might be in the coming months.  We also get the Fed’s preferred measure of inflation,  Core PCE Price Index (E: 1.8%), but at this point that number will be ignored as no one is worried about high inflation right now.

How Much Will The Stimulus Help?

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What’s in Today’s Report:

  • How Much Will the Stimulus Help?
  • Cash is King

Futures are down around 1% despite the Senate passing the stimulus bill, as markets digest the past two day’s rally.

The Senate passed the stimulus bill last night and the House has indicated it will pass the bill tomorrow, removing any lingering uncertainty.

Economic data was disappointing as German GfK Consumer Climate missed estimates (2.7 vs. (E) 7.7), as did British Retail Sales (-0.3% vs. (E) 0.2%).

Today there are two important events, both of which come early in the day.

First, Fed Chair Powell will appear on the Today Show at 7:05 a.m. ET, and while he won’t reveal any new policies, markets will be watching for a generally positive tone.

Second, the most important economic number of the week comes this morning via weekly jobless claims, which are estimated to be 1 million.  That is a figure I never thought I would see, considering claims peaked below 700k at the depths of the financial crisis.  If claims blast through that 1 MM estimate and move towards 2 MM that could be a headwind, while anything below 1MM will be a mild positive.

Additional Fed QE Takeaways

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What’s in Today’s Report:

  • Additional Fed QE Takeaways

Futures are limit up this morning and money flows were decidedly risk-on overnight as several sources, including individual Senators, suggested that the near $2T stimulus package will be passed today.

Additionally, the spread of the coronavirus showed signs of slowing in the last 24 hours while economically, global Flash PMI data was not as bad as feared overnight with manufacturing components universally topping estimates.

Today, there are two economic reports due to be released: PMI Composite Flash (E: 44.2) and New Home Sales (E: 743K), and one Fed official scheduled to speak: Bullard (9:45 a.m. ET). There is also a 2-Yr Treasury Note Auction at 1:00 p.m. ET.

With two of the three “keys to market stabilization” either accomplished (Fed stimulus) or in progress (slowing spread of the virus), all eyes will remain on Capitol Hill today. And if the massive economic stimulus package passes a vote in the Senate, expect a relief rally to follow as investor sentiment should become decidedly less gloomy.

Corporate Bond Market Update

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What’s in Today’s Report:

  • Corporate Bond Market Update

Futures are sharply higher this morning as global governments move forward with more economic stimulus.

The Senate formally released the third economic stimulus bill, valued over 1 trillion (and likely rising).  While not a done deal yet, the speed at which Washington is operating has quickened this week and markets are reacting positively to that change.

On the coronavirus front, all of California is now under a “stay at home” order as cases continue to rise.

Today all eyes will remain on Washington and any positive commentary on the stimulus bill will further help stocks, while signs of a political battle will likely reverse these early gains.  Economically, there’s one report,  Existing Home Sales (E: 5.50M) and today is a “Quad Witch” quarterly options expiration so watch for big volumes on the close.

Why The Fed Needs To Do More

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What’s in Today’s Report:

  • Why The Fed Needs to Do More
  • Is It Time to Go To Cash?

Futures are down just under 2% which is an improvement as they were nearly down limit at the lows overnight, so there’s been a good rebound.

On the stimulus front, governments continue to act.  Stimulus bill 2 was passed last night and the ECB dramatically increased its QE program by 750 bln euros. and will buy government bonds, corporates and commercial paper. Australia also launched its first ever QE program.  All these measures are helping markets and sentiment.

All eyes today will be on Washington for signs of progress on stimulus bill three, and the sooner it passes, the better.  From an economic standpoint, Jobless Claims (E: 220K) are the key report and we’re expecting a big increase, while Philadelphia Fed (E: 14.0) will also be important as we want to see more March data.

Reasonable Valuation Targets

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What’s in Today’s Report:

  • Where Is a Reasonable Valuation for this Market?
  • Two Reasons Gold Is Losing Its Luster

Futures were “limit up” for much of the night following Monday’s rout but have since pulled back to flat as fears of a coronavirus induced recession to continue to grip markets.

Overnight, the German ZEW Survey was dismal with the Current Conditions Index crashing to -43.1 vs. (E) -25.0 underscoring the rapid deterioration in investor sentiment due to the COVID-19 outbreak.

The Fed Meeting has been canceled following Sunday’s intermeeting actions and there are no Fed speakers today.

There are a few notable economic releases to watch this morning, however. In order of importance they are: Retail Sales (E: 0.1%), Industrial Production (E: 0.4%), Business Inventories (E: -0.1%), Housing Market Index (E: 74), and January JOLTS (E: 6.500M).

The first two are especially important as if the data points confirm that economic growth materially slowed in February as a result of the coronavirus outbreak, it could cause more fear-induced selling today as hopes for a swift rebound in growth will continue to fade.

 

Of course, any noteworthy updates on the COVID-19 pandemic, positive or negative, will continue to have a significant influence on the market and volatility is likely to remain elevated.

Sevens Report co-editor Tyler Richey Quoted in MarketWatch on March 10, 2020

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Tuesday’s rebound for oil is “relatively modest” compared to Monday’s plunge, said Tyler Richey, co-editor at Sevens Report Research. “We could easily see a retracement higher in prices in the days and weeks ahead…” Click here to read the full article.

Oil Rig