Posts

Pre-Fed Technical Update

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What’s in Today’s Report:

  • Pre-Fed Technical Update: Levels to Watch
  • Why Did Tech Lag so Badly Yesterday?

Futures are drifting modestly higher this morning as investors focus on the Fed, U.S.-China trade talks, and earnings.

News flows were slow overnight although the well-received AAPL earnings from late yesterday are helping US futures rally.

Today, primary focus will be on the Fed with the FOMC Meeting Announcement at 2:00 p.m. ET followed by Chair Powell’s press conference at 2:30 p.m. ET.

There are two economic reports due out this morning: ADP Employment Report (E: 174K) and Pending Home Sales (E: 0.3%). The former will be closely watched but it is unlikely we see any sort of material move in markets ahead of the Fed.

Earnings season is reaching its peak so there are a slew of reports to watch today with: BABA ($1.65), BA ($4.52), T ($0.85) before the open and FB ($2.17), MSFT ($1.09), TSLA ($2.15), V ($1.25), and QCOM ($1.09) all due to report after the close.

Again, earnings and data will be followed today and ultimately will be digested by the market accordingly, but the Fed this afternoon will be the major focus and whether or not the outcome of the meeting is as dovish as recent Fed commentary has been will decide whether the S&P breaks higher towards 2700 or retests initial, key support at 2600.

Positive News on the U.S. Consumer (Good for Stocks)

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What’s in Today’s Report:

  • Positive Commentary on the U.S. Consumer (From Someone Who Should Know)
  • EIA and Weekly Oil Analysis

Futures are moderately higher thanks to a dovish Fed article in the WSJ and more solid earnings (SBUX).

The WSJ reported that Fed officials are considering ending their balance sheet reduction earlier than expected, and that’s helped lift futures.

Economic data underwhelmed again as the German IFO Business Expectations Survey declined to 94.2 vs. (E) 97.0.

Today there are no economic reports (Durable Goods & New Home Sales won’t be produced because of the shutdown) and the earnings calendar is relatively quiet (ABBV ($1.92) and CL ($0.73) are two names we’re watching), so focus will likely remain on political headlines as there finally appears to be hints of progress at resolving this government shutdown (although the solution may only last three weeks).  If we get any positive news on the shutdown, that’ll likely add to the early rally.

A Sector With Relative Clarity (and Opportunity)

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What’s in Today’s Report:

  • A Sector With Relative Clarity (and Opportunity)

Futures are slightly higher as momentum from yesterday’s positive earnings offset more disappointing economic data.

January flash PMIs in Japan and the EU were disappointing.  The Japanese manufacturing PMI fell to 50.0 vs. (E) 52.4 while the EU Composite PMI dropped to 50.7 vs. (E) 51.4.  But, markets haven’t traded off Japanese data in over a year, and the “Yellow Vest” disruptions are weighing on French PMIs, which dragged the composite EU PMI lower, so these disappointing numbers aren’t weighing on markets as much as they normally would.

Today the big number is the U.S. Flash Composite PMI (E: 54.2), as markets are looking for more signs of economic stabilization following the loss of momentum in December.  Anything that implies stabilization will be stock positive.

We also have an ECB Rate Decision (E: No Change to Rates) and the ECB Press Conference (8:30 a.m. ET) and the key will be whether ECB President Draghi is very dovish given more disappointing economic data (he’s not expected to be materially dovish).

Finally, earnings continue and generally the season, so far, has been better than expected.  Some results we’re watching today include: INTC ($1.22), NSC ($2.30), SBUX ($0.65), WDC ($1.50).

Dow Theory Update

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What’s in Today’s Report:

  • Dow Theory Update
  • Existing Home Sales Analysis

US futures are bouncing modestly as yesterday’s spike in volatility is digested while major averages in Europe and Asia were little changed during a quiet night of trade.

Economically, Japanese Trade figures from December missed expectations adding pressure to the Nikkei o/n.

Today, there are two economic reports due to be released in the US. First the FHFA House Price Index (E: 0.3%) which is generally not very closely watched but after yesterday’s soft Existing Home Sales report, it may get some attention today.

The other report is the Richmond Fed Manufacturing Index (E: -3.0). Again, not usually a very widely followed report but after the string of soft regional Fed survey reports last month, another big miss could add downward pressure on an already fragile market today.

There are no Fed officials speaking today which leaves earnings as the other major focus with: PG ($1.21), UTX ($1.51), and SYF ($0.93) reporting ahead of the bell and F ($0.30) after the close.

Lastly, the market will remain sensitive to any developments on relations between the U.S. and China as trade headlines and growth concerns were largely viewed as the reason behind yesterday’s heavy price action.

Time to Get More Defensive?

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What’s in Today’s Report:

  • Time to Get More Defensive?

Futures are moderately higher thanks to rising U.S./China trade optimism.

Yesterday’s WSJ article that stated U.S. officials are considering reducing China tariffs spurred a global rally, despite being disputed by administration officials.

Economic data was mildly disappointing as Japanese CPI (0.7% vs. (E) 0.8%) and UK Retail Sales (-0.9% vs. (E) -0.8%) both slightly missed estimates, although neither report is moving markets.

Today there are several earnings reports but none of the companies reporting should move the market unless the results are truly horrid.

Economically, Industrial Production (E: 0.3%) is the key report as we want to see if “hard” manufacturing activity dropped as much as the manufacturing surveys in December.  We also get an update on Consumer Sentiment (E: 97.0) and one Fed speaker, Williams (9:05 a.m. ET), who could help markets rally if he talks more about flexibility on balance sheet reduction.

An Update from Dr. Copper

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What’s in Today’s Report:

  • An Update from Dr. Copper (Mildly Encouraging)

Futures are up modestly, but off the highs as investors digest the latest Brexit drama, Chinese stimulus, and mixed economic data ahead of more key US bank earnings.

Economically, Japanese Machine Orders badly missed expectations in November (0.0% vs. E: 3.3%) pointing to soft capital spending while European inflation data was largely inline with estimates.

Today, the government shutdown is going to start affecting the flow of economic data as the December Retail report will not be released. To that point, concerns are starting to build about the economic headwinds the shutdown will have as it drags on, and eventually those worries will begin to weigh on stocks.

U.S. economic data on Import & Export Prices (E: -1.2%, -0.3%) and the Housing Market Index (E: 57.0) will still be released as scheduled however, and there is one Fed official speaking: Kashkari (1:00 p.m. ET).

On the earnings front, focus will be on financials early with: BAC ($0.63), GS ($5.37), BLK ($6.39), and BK ($0.92) all due to report ahead of the bell while two notably growth-sensitive companies: AA ($0.49) and CSX ($1.00) will report after the close.

January Economic Breaker Panel Update

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What’s in Today’s Report:

  • Some Improvement in the Economic Breaker Panel: Three Breakers Tripped, January Update

Futures are cautiously higher this morning mostly thanks to optimism about the US-China trade situation as “mid-level” meetings concluded in Beijing overnight.

President Trump’s address to the nation last night regarding border security and the government shutdown did not have a material effect on markets.

Economically, the Eurozone Unemployment Rate fell to 7.9% vs. (E) 8.1% in November but relative to the first half of 2018, the labor market in the EU continues to show signs of losing momentum.

Oil is up over 2% in the wake of the bullish API print late Tuesday that showed a significant draw in oil stockpiles ahead of today’s official weekly EIA report.

There are no economic reports in the U.S. today but several Fed events to watch including speakers: Bostic (8:20 a.m. ET), Evans (9:00 a.m. ET), and Rosengren (11:30 a.m. ET) before the December FOMC Meeting Minutes are released midafternoon (2:00 p.m. ET).

Stocks continue to have positive momentum right now as the trade war backdrop improves and monetary policy outlook has become less hawkish over the last week but the market is becoming moderately overbought at current levels, on a near term basis, and a profit taking pullback should not come as a surprise.

Encouraging Signs from Credit

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What’s in Today’s Report:

  • Some Encouraging Signs From Credit

Futures are higher with international shares despite more soft data in the EU and a disappointing earnings report by Samsung as investors focus on U.S.-China trade progress.

China’s Vice Premier, Liu He, unexpectedly attended mid-level trade talks in Beijing overnight which was seen as a potential catalyst for legitimate progress towards a deal.

Economically, German Industrial Production fell –1.9% vs. (E) 0.3% but the NFIB Small Business Optimism Index in the U.S. was not as bad as feared with a headline of 104.4 vs. (E) 104.0.

Today, there is one economic report to watch: International Trade (E: -$53.9B) which has been more closely watched since U.S.-China trade tensions first escalated while there are no Fed officials scheduled to speak.

Momentum remains positive in risk assets including stocks right now and that could continue especially if there are more positive developments regarding the trade talks in Beijing today.

Four Keys to a Market Bottom Updated

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What’s in Today’s Report:

  • Four Keys to a Market Bottom – More Progress But Not There Yet
  • Weekly Market Preview
  • Weekly Economic Cheat Sheet

Futures are marginally lower following a quiet weekend as markets digest Friday’s big rally.

Economic data was mixed overnight as Japanese Composite PMI and German Manufacturers’ Orders missed estimates.  However, German Retail Sales (1.4% vs. (E) 0.4%) and EU Retail Sales (0.6% vs. (E) 0.2%) beat expectations.   So, the data reflects a still generally muddled global economic outlook.

Regarding trade, the next round of U.S./China trade talks began in Beijing but there were no notable headlines, although none were expected this early so the silence isn’t a negative at this point.

Today focus will be on economic data as we get the ISM Non-Manufacturing PMI (E: 58.4).  Despite Friday’s strong jobs report there are growing worries about the U.S. economy so a good ISM Non-Manufacturing (or service sector) PMI should help stocks keep most of Friday’s gains.  Finally, we also have one Fed speaker today, Bostic at 12:40 p.m. ET, but he shouldn’t move markets.

How Bad Can It Get? Valuation Worst Case Scenario

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What’s in Today’s Report:

  • How Bad Can It Get?  Valuation Worst Case Scenario

Futures are sharply higher after China took further steps to support the economy while economic data was mixed.

China announced a 1% cut to bank reserve requirements and pledged to do more to support the economy.  This announcement is the main reason stocks are bouncing back this morning.

Global composite PMIs were mixed as China beat estimates (52.2 vs. (E) 51.9) while the Euro Zone Composite PMI missed expectations (51.1 vs. (E) 51.3).

Today focus will be on two big events.  First, the jobs report.  Expectations are for 180K jobs adds, a 3.7% unemployment rate and a 3.0% annual wage increase.  The best case number is a mild miss on all three metrics, so around 150kish jobs, 3.8% unemployment (or higher) and under 3.0% wages.  The worst case scenario (a stagflation number) is a miss on jobs but firm unemployment and wages.  If that happens, it’ll likely be another ugly day.

The other major event today is the  Powell speech at 10:15 a.m. ET (he’ll be joined by Yellen and Bernanke).  The key here is Powell changing his rhetoric to look more flexible on 1) rate increases and 2) balance sheet reduction.  If he does that, especially with regards to the balance sheet, then stocks can extend this early rally.