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Yield Curve Update: Negative Trend Break

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What’s in Today’s Report:

  • Bottom Line: Did Something Good Happy Yesterday?
  • Yield Curve Update: Negative Trend Break

Stock futures are little changed this morning as investors digest new Fed chatter and more trade war jawboning.

Fed Chair Powell said he saw the “glass as much more than half full” regarding the current expansion and reiterated that rates will remain unchanged until inflation rises materially.

U.S. and Chinese trade negotiators spoke on the phone overnight to discuss “core issues” and reported that they have reached a “common understanding on resolving relevant problems” but no concrete progress was made and the status of phase-one remains unknown.

There are a few potential catalysts to watch today including economic releases: International Trade in Goods (E: -$70.0B), S&P Corelogic Case-Shiller HPI (E: 0.3%), New Home Sales (E: 707K), and Consumer Confidence (E: 126.8) as well as one Fed speaker: Brainard (1:00 p.m. ET).

Additionally, there is a 5-Year Treasury note auction today at 1:00 p.m. ET and with the yield curve coming back into focus, any wild swings in the belly of the curve could move stocks (remember we want to see the 10s-2s steepen due to a rising 10-year yield).

Aside from those scheduled events, speakers and reports, the market will clearly remain very sensitive to anything regarding the relationship between the U.S. and China as the trade war remains the single most important influence on this market right now.

Why Markets Are Still So Resilient

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What’s in Today’s Report:

  • Why Markets Remain So Resilient
  • Weekly Market Preview (Still All About U.S./China Trade)
  • Weekly Economic Cheat Sheet (Wednesday is the Key Day This Week)

Futures are modestly higher on more positive U.S./China trade chatter.

China increased the penalties for Intellectual Property (IP) theft, addressing part of a key U.S. trade demand, while the Global Times (a state-run Chinese paper) said the sides were “very close” to a deal.

Economically, data was mixed but better than October.  German IFO Business Expectations rose to 92.1 vs. (E) 92.5, while British Distributive Trades rose to –3 vs. (E) –10.

Today there are no notable economic reports so the focus will remain on U.S./China trade.  Any incremental positive chatter will be a tailwind for stocks, although the Hong Kong democracy bill remains a wildcard.  If Trump signs it (which he’s expected to do), that could temporarily hit U.S./China trade sentiment, although it’s not a material negative.

Finally, Fed Chair Powell speaks at 7:00 p.m. ET but he’s not expected to say anything too incremental.

Making Sense of Wednesday’s Trade Headlines (That Caused the Selloff)

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What’s in Today’s Report:

  • What to Make of Wednesday’s Trade Headline (That Caused the Selloff)
  • What Does Escalating Trade Noise Mean for Markets Into Year-End?

Futures are little changed as markets digest yesterday’s potentially negative U.S./China trade headlines along with more headlines overnight, as the trade noise grows louder.

The trade headline whiplash continued overnight as Chinese Vice Premier He said he was “cautiously optimistic” about a phase one deal being signed.  This is helping, somewhat, to counter yesterday’s headline about a deal slipping into 2020.

There were no economic reports out overnight.

Today there are some important economic reports, but the biggest issue today will be whether President Trump signs the bill passed by Congress supporting democracy in Hong Kong (if he does, that could complicate trade talks).  He is expected to sign the bill, although that’s not a high conviction expectation.

Looking at actual economic data, we have two important reports today, Jobless Claims (219K) and Philadelphia Fed (E: 7.5) and one housing number, Existing Home Sales.  As has been the case, the stronger the data, the better for stocks.  We also have two Fed speakers, Mester (8:30 a.m. ET) and Kashkari (10:10 a.m. ET), but neither should move markets.

Clearing the Trade War Fog

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What’s in Today’s Report:

  • Clearing the Fog: Where Are We on U.S.-China Trade?

U.S stock futures are trading lower and international markets saw broad declines overnight thanks to escalating trade tensions between the U.S. and China.

The Senate passed a bill late Tuesday in support of the Hong Kong protests to which the Chinese Foreign Ministry has issued a strong statement of disapproval for.

Additionally, Trump threatened higher tariffs at a cabinet meeting yesterday and the combination is weighing on sentiment.

There are no economic reports today and no Fed officials scheduled to speak but the minutes from the October FOMC Meeting are due out at 2:00 p.m. ET which will be closely watched for further clues on the Fed’s future policy plans.

The trade war is still dominating markets right now so investors will be watching for any rebuttals from the U.S. regarding China’s negative response to the “Hong Kong bill” or any additional talk of future tariff policy from either the U.S. or China.

Yield Curve Update: Critical Levels to Watch

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What’s in Today’s Report:

  • Yield Curve Update: Critical Levels to Watch
  • Housing Market Index Takeaways

Futures have steadily melted higher overnight, tracking risk-on moves in most international markets on optimism for more Chinese stimulus and improving investor sentiment towards the trade war and health of the global economy.

Over the past two weeks, the PBOC has lowered its “one-year medium-term lending facility” and its “seven-day reverse repo rate” increasing the odds that the Chinese central bank provides further stimulus in the near-term.

Looking into today’s session, the list of potential catalysts is limited as there is just one economic report due to be released: Housing Starts (E: 1.320M) and one Fed official scheduled to speak shortly before the bell: Williams (9:00 a.m. ET).

Home Depot reported underwhelming earnings this morning as they slashed their sales forecast which will likely be a topic of discussion today but so far, stock futures are largely shrugging off the sharp drop in HD shares.

With the trade war still the markets primary focus, stocks will remain sensitive to any headlines, positive or negative, regarding the phase one deal and potential for tariff relief.

Trade Hopes, Momentum, and New Highs

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What’s in Today’s Report:

  • Bottom Line: Momentum and Hope Continue to Fuel the Rally
  • Weekly Economic Cheat Sheet: Focus on Friday’s Flash PMIs

U.S. futures are modestly higher and most international markets rallied overnight thanks to more trade war optimism and unexpected stimulus by China’s central bank.

A “constructive” phone call between China’s Liu He, USTR Lighthizer and Secretary Mnuchin reportedly took place on Saturday which is helping boosting hopes for a trade deal.

Additionally, the PBOC cut a key interest rate for the first time in 4 years, offering a dovish tailwind to risk assets this morning.

Today is lining up to be a fairly quiet session as far as catalysts go as there is just one economic report: Housing Market Index (E: 71) and only one Fed official is scheduled to speak: Mester (12:00 p.m. ET).

With trade war optimism continuing to be the main driver of this most recent run to new all-time highs the markets will remain keenly focused on any new developments or news regarding the “phase one” trade deal.

Whose Telling the Truth on U.S./China Trade? Stocks or Treasuries?

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What’s in Today’s Report:

  • The Current State of U.S./China Trade Negotiations:  Whose Telling the Truth?  Stocks or Treasury Yields?
  • Why A Spike in Jobless Claims Caught Our Attention (Highest Since June)

Futures are marginally higher as the U.S./China trade saga remains the singularly dominant influence on markets.

The commentary overnight was positive as Larry Kudlow said the “mood music” of the negotiations was “pretty good” and a deal is close, although there was no actual new information presented.

Economically there were no surprises as EU HICP (their CPI) rose 1.1%, as expected.

Today there are several important economic reports including (in order of importance):  Retail Sales (E: 0.2%), Empire State Manufacturing Survey (E: 5.0) and Industrial Production (E: -0.4%).  Broadly, markets need to see strong data to imply the U.S. economy is stabilizing and starting to re-accelerate.

But, beyond the data, U.S./China trade will remain a huge influence over stocks so any more headlines that a phase one deal is imminent will likely send stocks higher (even if there is no actual news contained in the comments).

Valuation Update: Dangers of FOMO (Fear of Missing Out)

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What’s in Today’s Report:

  • Valuation Update:  Dangers of FOMO (Fear of Missing Out)

Futures are slightly lower as a potential “stall” in U.S./China trade talks and disappointing data weigh marginally on global stocks.

Chinese economic data was universally disappointing, as Fixed Asset Investment, Retail Sales and Industrial Production all missed estimates.  The soft numbers implied the global economic rebound expected by stocks isn’t a done deal just yet.

Today there are two notable economic reports, Jobless Claims (E: 215K) and PPI (E: 0.3%) and a figurative parade of Fed speakers including (in order of importance):  Powell (10:00 a.m. ET), Clarida (9:10 a.m. ET), Evans (9:10 a.m. ET), Daly (11:45 a.m. ET), Williams (12:00 p.m. ET), Bullard (12:20 p.m. ET).

But, the data points shouldn’t move markets, and neither should any of the Fed speak because Chair Powell spoke yesterday and clearly signaled the Fed is on hold, which is what the market expects and has priced in.

So, we can expect trade commentary and headlines to move markets.  Clearly the market is ignoring the phase one “stall” headlines, otherwise, stocks would be down sharply this morning.  But, headlines worsen and the stall increases the risk of a phase one breakdown, that will hit markets hard.

Is Europe a Buy?

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What’s in Today’s Report:

  • How Powerful Is the Growth to Value Rotation?
  • Is Europe a Buy?

Futures are edging higher in early trade while most international markets rallied on better-than-feared data overnight.

In Europe, the headline to the German ZEW Survey was a slight miss but business expectations rebounded to -2.1 vs. (E) -12.5 as recession fears continued to moderate.

In the U.S., the NFIB Small Business Optimism Index was 102.4 vs. (E) 102.0 another incremental economic positive.

With no economic reports today, focus will be on Trump’s midday speech in NY regarding the trade war. Additionally, there are two Fed speakers: Harker (1:00 p.m. ET) and Kashkari (6:00 p.m. ET).

The trade war is still by far the most important influence on the markets right now so whether Trump is negative or positive in his discussion regarding trade negotiations today will likely decide whether stocks rally or extend yesterday’s pullback this afternoon.

U.S./China Trade Update (What’s Priced In Now?)

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What’s in Today’s Report:

  • U.S./China Trade Update:  What’s Priced in Now?
  • One More Important Stat on Corporate Buybacks

Futures are modestly higher as the Chinese Ministry of Commerce  said the U.S. and China have agreed to existing tariff reduction in “phases.”

There were no further details on the timing or conditions that would accompany tariff reduction, however, and that’s tempering the rally somewhat.

Economically, German Industrial Production declined but slightly beat estimates (-0.6% vs. (E) -0.7%).

Today the only notable economic reports are Jobless Claims (E: 220K) while we also have two Fed speakers: Kaplan (1:05 p.m. ET), Bostic (7:10 p.m. ET), but none of that should move markets.

Instead, the focus will remain on the U.S./China trade, and if the U.S. confirms this “tariff reduction in phases” statement by the Chinese, then we could see the S&P 500 make a run at 3100.