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Tom Essaye Quoted in Barron’s on August 9th, 2023

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Stocks Pause Ahead of Inflation Data

“The Italian government clarified that a windfall tax on bank profits would be capped, sparking a relief rally in European financials and general risk-on trade in global markets,” Essaye writes. “There are no notable economic reports and no Fed officials are scheduled to speak today which is setting the session up to be fairly quiet as traders await tomorrow’s CPI release.” Click here to read the full article.

Did the Yield Curve Actually Invert?

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What’s in Today’s Report:

  • Why Italian Political Drama Matters to You
  • Did the Yield Curve Actually Invert? Only Sort Of

Futures are solidly higher this morning, rising in sympathy with EU shares as Italian political concerns ease while a German Bond auction was unexpectedly weak, both of which are helping bolster stocks.

In Italy, odds of a coalition government being formed are rising materially, reducing fears and general uncertainties surrounding new elections this fall.

Economic data was thin o/n however there was a soft 30-Year Bond auction in Germany this morning which is helping yields rise and fueling general risk-on money flows.

After a choppy start to the trading week, the list of market catalysts picks up today as there is one economic report: Existing Home Sales (E: 5.380M) but investors will be primarily focused on the July FOMC Meeting Minutes (2:00 p.m. ET).

If the Minutes release is another “hawkish disappointment” like the announcement and Powell’s press conference were in late July, we could see another wave of volatility as investors’ dovish hopes are elevated going into the Jackson Hole Economic Symposium later this week.

Why Italy’s Budget Matters

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What’s in Today’s Report:

  • Italian Political Primer

Futures are modestly higher and European shares stabilized overnight thanks to positive developments in Italy.

News broke overnight that while Italy still plans on a 2.4% budget deficit for 2019, it will reduce that figure by 0.2% in each of the following two years, resulting in 2.0% in 2021.

Italian yields pulled back from multi-year highs and the euro found support, weighing slightly on the dollar overnight which is a slight positive for US markets.

Today, jobs week kicks off with the ADP Employment Report before the bell (E: 179K) and then the ISM Non-Manufacturing Index (E: 58.0) is due out at 10:00 a.m. ET.

Aside from economic data, there are a slew of Fed speakers today: Barkin (8:05 a.m. ET), Harker (12:00 p.m. ET), Brainard (1:00 p.m. ET), Mester (2:15 p.m. ET), Powell (4:00 p.m. ET), and Kaplan after the close (8:00 p.m. ET).

Europe will remain the primary focus today and as long as the overnight progress on the Italian budget plans is not forfeited in morning trade (before the Euro close) then risk on money flows and an easing dollar should support some upward momentum in US stocks today.

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Is Canada the Biggest Trade Winner?

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What’s in Today’s Report:

  • Is Canada the Clear Winner from the New NAFTA?

S&P futures are decidedly lower while most international markets were down overnight thanks to Italian political/budget fears.

The 2.4% budget deficit Italy proposed to the EU was not well received yesterday and the mention of “Italy’s own currency” by a notable law maker overnight sent Italian bond yields to more than four year highs.

Meanwhile safe haven money flows are pushing Treasury and Bund yields lower and the dollar is up to fresh multi-week highs which will quickly become a headwind on US shares again in the near term.

Today, there are no notable US economic reports but there are two Fed speakers to watch: Quarles (10:00 a.m. ET), and more importantly Chair Powell (12:00 p.m. ET). Otherwise, focus will be on Europe and any developments with Italy’s budget or further discussions of Italy’s “own currency.”

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