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Why the Falling Yuan Isn’t That Big of a Threat

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What’s in Today’s Report:

  • Why The Falling Yuan Isn’t That Big of a Threat

Futures are solidly higher thanks to continued momentum following Thursday’s positive close.

Stocks were short term oversold and due for a bounce, but if there’s a “reason” behind the early rally it was a Washington Post article stating the Trump administration is getting concerned about future economic growth, which might lead to a trade deal.

There were no notable economic reports overnight.

Today the calendar is more quiet as we only have two economic reports, Housing Starts (E: 1.260M) and Consumer Sentiment (E: 97.5).  But, the Huawei waiver deadline is Monday the 19th so if there are going to be waivers given, it could happen literally at any minute (generous waivers will supercharge today’s early rally if they come).

Why the Hong Kong Protests Are Weighing on Stocks

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What’s in Today’s Report:

  • Why Did the Hong Kong Protests Cause a Drop in Stocks?

Futures are in the red and Treasury yields are extending the week’s declines amid continued unrest in Hong Kong, growing fears of a financial crisis in Argentina, and more broadly, rising concerns about the global economy.

The German ZEW Survey was terrible with Business Expectations hitting a 2011 low of -44.1 while the U.S. NFIB Small Business Optimism index was a modest upside surprise with the headline beating expectations at 104.7.

The most notable moves this morning are in the bond market where the 30-Yr Treasury is threatening to open with a record low yield below 2.10% while the 10s-2s spread fell below 5bp earlier this morning underscoring the risk-off money flows across asset classes. Gold is also notably up well over 1.5%, trading at fresh multi-year highs.

Today, the focus will remain on the crowded macro landscape as the market has been largely driven by overly cautious investor sentiment over the past few days however there is one economic report to watch ahead of the bell: CPI (E: 0.2%).

Bottom line, if headlines remain negative regarding Hong Kong, Argentina, and global growth, then it will be very difficult for stocks to rally today.

Tom Essaye Quoted in CNBC on August 7, 2019

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“Although gold futures remain near-term overbought, momentum is decidedly higher. Fundamentally, the sharp downtrends in bond yields…” said Tom Essaye, founder of the Sevens Report, in a note.

Weighing Gold

 

Tom Essaye Quoted in Fortunly

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“Although gold futures remain near-term overbought, momentum is decidedly higher. Fundamentally, the sharp downtrends in bond yields firmly support the bullish case for gold.” said Tom Essaye. Click here to read the full article.

Gold Bars

What’s Next for U.S.-China Trade?

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What’s in Today’s Report:

  • What’s Next in U.S.-China Trade

Futures have recovered from overnight losses that were spurred by a weaker than expected yuan fixing by the PBOC and are now higher with EU markets as easier than expected central bank policy overseas is helping offset trade war angst and Forex concerns.

The Reserve Banks of New Zealand and India, and the Bank of Thailand all eased policy more than expected overnight triggering dovish money flows across asset classes underscored by new highs in gold (+1% to over $1500/oz.) and a global bond rally.

Economically, German Industrial Production was -1.5% vs. (E) -0.4% which largely contradicted yesterday’s solid Manufacturers’ Orders print.

There are no economic reports to watch today but there is one Fed official scheduled to speak: Evans (9:30 a.m. ET) and there is a 10 Year Treasury Note auction at 1:00 p.m. ET which could move markets, especially considering the 10s-2s yield spread is testing the lows of the year this morning, below 10 basis points.

Aside from those events, investors will remain focused on any new developments regarding the trade war as the latest tariff announcement (last Thursday) was the main source of the recent spike in volatility.

Why the Falling Yuan is Causing a Selloff

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What’s in Today’s Report:

  • Why the Falling Yuan is Causing a Selloff
  • Weekly Market Preview
  • Weekly Economic Cheat Sheet

Futures and global markets are sharply lower as the U.S./China trade war intensified over the weekend.

China allowed the yuan to weaken below the psychologically important level of 7/dollar on Monday, signaling a likely acceptance of a long U.S./China trade war.

Economically, global July composite PMIs were better than feared and generally in-line with expectations, while the British services PMI easily beat estimates (51.4 vs. (E) 50.2).

Today, the key report is the ISM Non-Manufacturing PMI (E: 55.5) and the market will be looking for solid data.

Regarding U.S./China trade, undoubtedly there will be tweets flying today but there is a chance for some good news on U.S./China trade this week.  The Commerce Department may grant waivers for U.S. companies to do business with Huawei, and if that happens, it’ll help offset some of this recent trade escalation.

Short and Long Term Implications of the Fed Meeting

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What’s in Today’s Report:

  • Short and Long Term Implications of the Fed’s “Hawkish” Decision
  • The sector winners (and the biggest loser) after the Fed decision
  • Oil/Energy market update

Futures are bouncing marginally as markets digest the Fed’s “hawkish cut” rate decision.

Economic data overnight was not as bad as feared, although it wasn’t good, either.  EU (46.5 vs. (E) 46.4), British (48.0 vs. (E) 47.7) and Chinese (49.9 vs. (E) 49.5) July manufacturing PMIs all beat estimates, although they also remain below 50, signaling contraction.

Today we have an important economic report, ISM Manufacturing Index (E: 51.9) and we also get weekly Jobless Claims (E: 213K), and those numbers (especially the former) could move markets.  But, beyond the data, and following the Fed’s “hawkish” decision, the keys to focus on will be the U.S. Dollar and the Treasury yield curve.  If the dollar continues to grind higher and the yield curve flattens, that will be another headwind on stocks.  Yesterday’s lows in the S&P 500 at 2959 are an important support level to watch if this market rolls over mid-day.

ECB Preview (The Most Important Catalyst of the Week)

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What’s in Today’s Report:

  • ECB Preview
  • The Threat to Oil Prices and the Potential Effect on Bonds

S&P futures are down 10 points this morning after the U.S. DOJ announced an antitrust probe into big tech firms late yesterday while EU economic data badly missed estimates.

The EU PMI Composite Flash for July was 51.5 vs. (E) 52.1 but the German Manufacturing component was especially weak at 43.1 vs. (E) 45.2 rekindling fears of a further, and potentially accelerating, slowdown in the global economy.

In today’s U.S. session, there are two economic reports to watch: The PMI Composite Flash (E: 51.2) and New Home Sales (E: 655K) while no Fed officials are scheduled to speak ahead of next week’s FOMC Meeting.

There is a 5-Yr Note Auction by the Treasury at 1:00 p.m. ET today and the results could have an impact on the yield curve which could ultimately move stocks (like we saw with yesterday’s 2-Yr Auction).

Earnings season is continuing to pick up and today will be a very busy day of releases with BA (-$0.56), T ($0.89), CAT ($3.12), UPS ($1.93), NOC ($4.64), GD ($2.68), FCX (-$0.05), and NSC ($2.77) due to report before the open, and FB ($1.90), TSLA (-$0.52), PYPL ($0.73), and F ($0.30) will hit after the bell.

A Game of Multiples

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What’s in Today’s Report:

  • A Game of Multiples
  • Why the ECB Decision Is the Most Important Event this Week

S&P futures are climbing this morning, tracking gains in overseas markets as investors digest positive trade war headlines from Monday and better-than-feared earnings to kick off a very busy week of the Q2 reporting season.

There were no notable economic reports overnight and macro news was limited.

Looking into today’s session, focus will be on the micro as earnings season picks up however there are two economic data points on the housing market: FHFA House Price Index (E: 0.3%) and Existing Home Sales (E: 5.340M). Meanwhile there are no Fed officials scheduled to speak.

In the bond market, there is a 2-Year T-Note Auction today at 1:00 p.m. ET which could affect the yield curve. If we see the curve flatten further as it did last week, that could weigh on stocks again but contrarily, if we see the 10s-2s widen back out towards 30 basis points, that should support stocks broadly.

Earnings remain in the spotlight this week with notable reports coming from: KO ($0.62), LMT ($4.74), BIIB ($7.58), UTX ($2.04), JBLU ($0.57), and TRV ($2.32) ahead of the bell, while SNAP (-$0.10) and V ($1.33) will report after the close.

 

Key Levels To Watch in the Yield Curve

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What’s in Today’s Report:

  • Signals from the “Smart Market” – Good, Bad, and Ugly Scenarios

Stock futures are flat to slightly higher this morning as investors continue to digest mixed earnings reports, incremental progress between the U.S. and China on trade, and yesterday’s very dovish Fed chatter.

U.S. and Chinese officials held phone conversations last night and it appears more face-to-face meetings are likely in the near term, underscored by a near 2% rally in copper this morning.

Looking into today’s session, there is one economic report to watch: Consumer Sentiment (E: 98.6) and two Fed officials are scheduled to speak: Bullard (11:05 a.m. ET) and Rosengren (4:30 p.m. ET).

Earnings will remain in focus as there are several notable companies releasing Q2 results before the bell: BLK ($6.52), KSU ($1.61), AXP ($2.05), and SYF ($0.96), but yesterday’s rally was all about dovish Fed expectations so investors will be watching for any further clues as to whether the Fed will cut by 25 or 50 basis points at the July FOMC meeting.