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What to Make of Yesterday’s Rally

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What’s in Today’s Report:

  • What to Make of Yesterday’s Rally
  • Jobs Report Preview
  • EIA/Oil Update (Will An OPEC Production Cut Help?)

Futures are sharply lower and they are giving back more than half of yesterday’s rally as coronavirus continues to spread throughout the U.S.  Clearly some of this morning’s decline is just normal give back from yesterday’s explosive rally, although economic fears are continuing to mount as the number of cancelled events, gatherings and conferences continues to rise.

There are now 160 coronavirus cases in the U.S. as California declared a state of emergency while another cruise ship is being held at sea due to fears of an outbreak.  But, the news wasn’t all bad as there were just 160 new coronavirus cases in China, and evidence continues to mount that Chinese officials are getting the spread of the disease under control.

Economically, there were no notable reports overnight.

Coronavirus headlines will continue to drive trading, and broadly speaking anyreports of U.S. or global economic stimulus will be a tailwind on stocks, while any reports of an acceleration of the spread will obviously be a headwind.

Outside of coronavirus, there is just one economic report, Jobless Claims (E: 215K), but we’ll be watching this closely because it’s the best real time indicator of the labor market we have.  If claims rise (say above 230k) that will fan fears of an economic fallout from coronavirus.  Outside of the jobs report we also get multiple Fed speakers (Kaplan (6:30 p.m. ET), Kashkari (8:00 p.m. ET) and Williams (E: 8:45 p.m. ET)) but none of them should move markets.

Coronavirus and the Bond Market

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What’s in Today’s Report:

  • Bond Market Update: Bull Steepening and New Record Lows in the 10-Year Yield
  • Coronavirus Facts and Fears

U.S. stock futures were volatile overnight, reversing from tentative gains to losses as global shares continued to decline amid the evolving coronavirus outbreak situation.

News regarding COVID-19 remained largely the same overnight; the outbreak in China continues to be contained but is spreading more rapidly in other regions including the EU.

The 10-Yr yield is encouragingly stabilizing this morning while the 2-Yr continues to decline as traders are now pricing in 65% odds of a Fed rate cut by April due to the coronavirus outbreak’s negative effects on the economy.

Today, coronavirus headlines will continue to dominate the news and markets however, there is one economic report to watch: New Home Sales (E: 708K) and two Fed officials are scheduled to speak: Kaplan (9:35 a.m. ET) and Kashkari (1:00 p.m. ET).

Market Multiple Update

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What’s in Today’s Report:

  • Market Multiple Update

U.S. stock futures and global equities are solidly higher this morning thanks to emerging reports of breakthrough treatments for the coronavirus outbreak however details on the potential “cure” are limited at this time.

Economic data was mixed overnight as global Composite PMI data modestly topped expectations but Eurozone Retail Sales disappointed in December (-1.6% vs. E: -0.4%).

Today, there are three economic reports to watch starting with the first release of “jobs week,” the ADP Employment Report (E: 154K) which will be followed by International Trade figures (E: -$48.1B) and the ISM Non-Manufacturing Index (E: 55.2).

There is also one Fed official scheduled to speak after the close: Brainard (4:10 p.m. ET) and a few key earnings releases to watch: MRK ($1.14), GM ($0.01), QCOM ($0.85), and MET ($1.40).

As long as there are no major surprises from those potential catalysts, the market is likely to remain focused on the coronavirus outbreak and any emerging details regarding the potential breakthroughs in treatment that were reported overnight. Given the lack of specifics and the near-term overbought status of stocks here, the risk of a “sell the news” reaction does exist today.

Earnings Season Update

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What’s in Today’s Report:

  • Earnings Season Update (Not Great, But Not Bad, Either)
  • What’s Up With Natural Gas?

Futures are flat as concern about the Wuhan coronavirus offset better than expected earnings.

Chinese authorities expanded the quarantine zone around Wuhan to limit the transmission of the disease, and that’s increasing fears of a bigger negative economic impact.

Earnings overnight were solid as TXN beat estimates,  boosting semi-conductors and tech more generally.

Today we get an ECB Announcement, but no change in rates is expected and really markets will just want to hear a dovish tone from new ECB President Lagarde (which should happen).

Away from the ECB,  Jobless Claims (E: 213K) is the key economic report, while earnings season continues to roll on.  Some reports we’re watching today include: PG (E: $1.37) and INTC (E: $1.24).

What the Wuhan Coronavirus Means for Markets

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What’s in Today’s Report:

  • What the Wuhan Coronavirus Means for Markets

S&P 500 futures rallied to new record highs overnight amid easing concerns over the deadly virus outbreak in China that weighed on risk assets Tuesday.

Chinese health officials announced plans to both screen for, and contain the Wuhan coronavirus which helped reduce fears that a SARS-like epidemic is developing.

Today, there are a few different potential catalysts for the market that warrant watching. First, there are two economic reports on the housing market: FHFA House Price Index (E: 0.3%) and Existing Home Sales (E: 5.430M) which should show a continued rebound in the sector into the end of 2019.

Second, earnings season is in full swing and investors will continue to sift through the releases closely. Notable corporations reporting today include: JNJ ($1.87), ABT ($0.95), ALLY ($0.95), TXN ($1.02), KMI ($0.26), LVS ($0.80), and RJF ($1.90).

Lastly, any new developments on the spread, or containment of, the Wuhan coronavirus will likely get a reaction from markets as it was the primary focus of traders across asset classes yesterday.

The Two Pillars Supporting Stocks

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What’s in Today’s Report:

  • Staying Focused on the Two Causes of the Rally

U.S. stock futures and European shares are tracking Asian markets lower amid rising concerns about the outbreak of a newly discovered virus in China.

Chinese health officials have confirmed that the recently named “coronavirus” can be spread by human-to-human contact.

And with the Lunar New Year holiday beginning this week, fears of a SARS-like health epidemic are on the rise which saw the Shanghai Composite fall 1.41% overnight.

Looking into today’s session, there are no notable economic reports due to be released and no Fed officials are scheduled to speak.

That will leave investors largely focused on Q4 earnings season with HAL ($0.29) reporting before the bell and NFLX ($0.50), AMTD ($0.76), UAL ($2.64), and COF ($2.38) all releasing results after the close.

The First Two Important Events of the Year (Both This Week)

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What’s in Today’s Report:

  • The First Two Important Events of 2020 (Both This Week)
  • Weekly Market Preview
  • Weekly Economic Cheat Sheet (Important Updates on Growth)

Futures are moderately higher following a quiet weekend and ahead of two important events this week:  Phase one signing ceremony (Wed) and the start of earnings season.  Futures are essentially recouping Friday’s losses.

U.S./China trade optimism is helping stocks rally as the U.S. and China will resume semi-annual meetings, something that was done in the Bush/Obama administrations.   This doesn’t impact trade directly, but just like in 2019, any generically positive U.S./China headline will result in at least a mild rally.

Economic data was soft as British GDP (-0.3% vs. (E) 0.0%) and manufacturing (-1.7% vs. (E) -0.3%) both missed estimates, although the soft data is only weighing on the Pound.

Today there are no notable economic reports and just two Fed speakers, Rosengren (10:00 a.m. ET) and Bostic (12:40 a.m. ET), and they won’t move markets.  So, investors will be looking for any hints as to what will be released at the U.S./China phase one signing ceremony on Wednesday, and the more specifics, the better.

Jobs Day

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What’s in Today’s Report:

  • Key Levels To Watch in the Dollar Index and 10 Year Yield (Post Jobs Report)
  • Jobs Report Preview (Abbreviated Version)

Futures are solidly higher again following another quiet night as momentum continues to push the market to fresh highs, ahead of the jobs report.

There was no new geopolitical news overnight and international focus has now turned to whether the Ukrainian flight was hit by an Iranian missile.  That shift in focus is helping tensions to recede further.

Economic data was sparse as Japanese Household Spending missed estimates while Aussie Retail Sales beat expectations, but neither number is moving markets.

Today the key number is the Jobs Report, and expectations are as follows:  Jobs 158K, UE Rate 3.5%, Wages 0.3%/3.1%.  The key number is the wage data, but unless we see wages spike close to, or above 3.5% y/y, then the jobs report shouldn’t derail the rally.

Four Events that Could Cause a Correction

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What’s in Today’s Report:

  • Four Events that Could Cause a Correction

Futures are drifting cautiously higher this morning while international markets rallied overnight thanks to more upbeat economic data amid a static geopolitical backdrop.

There were no material developments regarding tensions between the U.S. and Iran overnight.

Economically, a Eurozone inflation reading (HICP) met expectations for the month of December while EU Retail Sales rose 1.0% in November, topping estimates of 0.6%.

Today, there are three economic reports to watch: International Trade (E: -$43.9B), Factory Orders (E: -0.7%), and the ISM Non-Manufacturing Index (E: 54.5). No Fed officials are scheduled to speak.

As far as other catalysts go, the Treasury will hold a 3-Yr. Note Auction at 1:00 p.m. ET and the results could move bond yields and have an impact on the yield curve. And if the curve compresses further (it has narrowed by more than 10 basis points over the last week), it could begin to pressure stocks.

Lastly, tensions between the U.S. and Iran remain a major market focus right now and further escalation could also weigh on risk assets, however, no news is good news regarding the situation right now, so if things continue to calm down in the Middle East, stocks could continue to drift back towards all-time highs.

Melt Up

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What’s in Today’s Report:

  • Year-End Melt Up:  Why Stocks Are Rallying Off Recycled Headlines
  • Weekly Jobless Claims:  Retracing the Thanksgiving Spike

Futures are modestly higher yet again following another quiet night of news as the melt-up continues into year-end.

Chinese Industrial Profits rose 5.4% in November, the first gain in three months, and this headline is mostly responsible for the gain in futures this morning.

Other economic data was mixed, as Japanese Industrial Production (-0.9% vs. (E) -1.4%) and Unemployment (2.2% vs. (E) 2.4%) beat estimates, while Retail Sales slightly missed (-2.1% vs. (E) -1.7%).

Today there are no notable economic reports nor any Fed speakers, and if should be a generally quiet day.