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What the Strong Jobs Report Means for Markets

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What’s in Today’s Report:

  • What Friday’s Jobs Report Means for the Markets
  • Weekly Market Preview (Powell’s testimony is the big event this week)
  • Weekly Economic Cheat Sheet (Fed Minuets and CPI)

Futures are slightly lower this morning following a quiet weekend of news, as markets digest what Friday’s jobs report means for future Fed rate cuts.

Following the jobs report, investors still expect a rate cut this month, but what’s now in doubt is whether we see additional cuts after that, something the market is assuming and has already priced in.  Doubts over the number of future cuts is why stocks dipped Friday and are marginally lower this morning.

Economic data was again underwhelming as Japanese Machine Orders (-7.3% vs. (E) -3.0%) and German Industrial Production (-3.7% vs. (E) -3.2%) missed estimates, while German exports were slightly better (-1.1% vs. (E) -0.9%).

The important events this week come Wednesday via Fed Chair Powell’s testimony before Congress (will he telegraph a rate cut?), the FOMC Minutes (also out Wednesday – is there consensus for a cut?) and CPI (out Thursday).  So, today should be generally quiet as there are no economic reports or notable Fed speakers, although U.S.-China trade negotiations will re-start, so we’ll have to watch for any headlines from there.

Why The Dovish ECB Isn’t Good For Stocks

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What’s in Today’s Report:

  • Why The Dovish ECB Decision Isn’t Good for Stocks

Futures are modestly lower following more disappointing economic data.

Chinese exports badly missed expectations at –20.7% vs. (E) -6.5%, although that number was likely skewed by the Lunar New Year, so it’s not as bad as it looks.  German Manufacturers’ Orders also missed (-2.6% vs. (E) 0.5%).  So, the data overnight is just adding to the growth worries that came from the ECB projections yesterday and that’s why stocks are down again.

Today the key will be the Employment Situation Report.  Estimates are:  Jobs: 178K, UE: 3.9%, Wages: 3.4% yoy), and thankfully the range for a “Just Right” number is wide, as we said in our Jobs Report Preview.  But, given the recent soft global economic data, while the range for a “Just Right” number is wide, the penalty for a number being “Too Cold” and causing growth concerns or “Too Hot” and resulting in a hawkish Fed will be extreme, and if either one of those outcomes occur, it’ll likely be a painful day in stocks.

Outside of the jobs report we also get Housing Starts (E: 1.17M) and two Fed Speakers:  Daly (10:00 a.m. ET) and Powell (10:00 p.m. ET).

ECB Preview (Why It’s Important For U.S. Stocks)

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What’s in Today’s Report:

  • ECB Preview (This is more important to U.S. stocks than it seems)
  • Jobs Report Preview

Futures are drifting slightly lower following a quiet night as markets await the ECB decision later this morning.

Economic data generally met expectations overnight as Euro Zone Q4 GDP was 1.1% vs. (E) 1.2% while Chinese FX reserves were in line at $3.09T.

Today the key event will be the ECB Decision at 7:45 a.m. ET and then the ECB Press Conference at 8:30 a.m. ET.  For this to meet dovish expectations (and not be a disappointment for stocks) we’ll need to see 1) An extension of the promise not to raise rates until 2020 and 2) A strong hint more TLTROs are coming.  This decision will have direct impacts on Treasuries and stocks (more inside the report).

Away from the ECB we also get Jobless Claims (E: 223K) and Q4 Productivity and Costs (E: 1.6%, 1.8%) plus there’s one Fed speaker:  Brainard (12:15 p.m. ET).

Sevens Report’s Tom Essaye quoted in MarketWatch

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Sevens Report’s Tom Essaye quoted in MarketWatch on February 1, 2019.

“Under normal circumstances we would have had a negative reaction to this number, because it would cause the market to expect more rate hikes. But this won’t change the Fed’s calculus. Also, jobs are a really…” Read the full article here.

U.S./China Trade Update

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What’s in Today’s Report:

  • U.S./China Trade Update (What’s Expected Now and What It Means for Markets)

Futures are slightly lower as disappointing economic data offset U.S./China trade optimism.

Worries about global growth persist as the Caixin Chinese Manufacturing PMI fell to 48.3 vs. (E) 49.7 while European data wasn’t much better. The British Manufacturing PMI fell to 52.8 vs. (E) 53.5 while the EU reading was 50.5.

Today focus will be on the jobs report but the ultra-dovish Fed has taken some of the impact away from this report, because it’ll have to be incredibly strong to make the Fed skew more hawkish.  Expectations are: Jobs Adds of 158K, Unemployment of 3.9%,  M/M Wage gains of 0.3%.

In some ways, the ISM Manufacturing Index (E: 54.0) is the more important number today because if that’s a soft number, it’ll fan fears the Fed is reacting to a U.S. economy that’s losing momentum, so that’s the number I’m watching closely today.

Was the Fed A Bullish Gamechanger?

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What’s in Today’s Report:

  • Fed Takeaways – Was It a Bullish Gamechanger? (Not Yet)
  • Jobs Report Preview
  • EIA/Oil Market Analysis

Futures are slightly higher as markets digest yesterday’s very dovish Fed statement and subsequent rally, while Chinese economic data beat expectations but still was weak in the absolute.

Chinese January Manufacturing PMI beat estimates at 49.5 vs. (E) 49.3, but it still signals outright contraction, so this doesn’t imply stabilization in that economy.

Other economic data from Europe, including Euro Zone GDP and German Unemployment, met expectations.

Today there are two economic reports, Jobless Claims (E: 220K) and the Employment Cost Index (E: 0.8%) but neither should materially move markets.

So, focus will move back to earnings (there are a lot of reports today and GE has started us on the right foot) and any headlines from the U.S./China trade talks.  Regarding U.S./China trade, we don’t expect a deal from this meeting, but more reports of progress will support (and likely extend) yesterday’s rally.

Jobs Report Preview

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What’s in Today’s Report:

  • Jobs Report Preview
  • Is the AAPL Decline an Opportunity for Value Stocks?

Futures are down more than 1% as AAPL sharply cut Q4 revenue guidance.

AAPL cut Q4 revenue guidance to $84 bln from the previous $89-$93 bln range, citing slowing Chinese demand as the main negative influence.

Economically UK Construction PMI and Euro Zone Money supply both slightly missed expectations.

The entire tech sector will be in focus today to see how well it can hold up in the face of the AAPL news, which wasn’t a shock as analysts and suppliers have been cutting IPhone numbers for months.  If stocks can set the lows early in the day and rally back, that would be an anecdotal sign near term selling pressure may be exhausted.

Away from AAPL, we get a lot of economic data today including (in order of importance): ISM Manufacturing Index (E: 57.9), ADP Employment Report (E: 175K), Jobless Claims (E: 217K) and Motor Vehicle Sales (E: 17.3M).  Data today could be important because if the data is firm, it should decrease the AAPL fallout.  However, if the data is weak, then it’s going to be another ugly day as the news will reinforce worries about corporate earnings and economic growth.

Technical Update (Encouraging Signals)

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What’s in Today’s Report:

  • Market Technical Update (Encouraging Signals)
  • Why Stocks Rebounded Yesterday
  • Why the Yield Curve Has Flattened SO Quickly (Blame Oil)

Futures are modestly lower as markets digest yesterday’s late day rally and look ahead to this morning’s jobs report.

Geopolitically, initial reports imply the U.S./China trade talks will continue despite the Huawei CFO arrest, which if confirmed is clearly a positive.

Global economic data was mixed again as Chinese currency reserves beat estimates while German IP missed.  But, neither number is moving markets this morning.

Today is all about the jobs report and given sudden uncertainty on Fed policy (will they pause?) this jobs report is now the most important one of the year.  Expectations are as follows:  Job Adds: (E) 190K, UE Rate: (E) 3.7%, Wages (E) 3.2% yoy), and the best outcome for stocks is a “mild miss” across all three segments.

Away from the jobs report we also get Consumer Sentiment (E: 97.4) and one Fed speakers, Brainard (12:15 p.m. ET).

Jobs Report Preview

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What’s in Today’s Report:

  • Jobs Report Preview
  • Technical Update:  Good Bounce, Poor Price Action

Futures are modestly higher on continued momentum from the Wednesday rally, as markets ignored more disappointing economic data.

For the second straight night foreign economic data disappointed, and this is a becoming a disconcerting trend.  UK Manufacturing PMI dropped to a 27 month low at 51.1 vs (E) 53.6.

AAPL reports today but after the bell, so the focus of the regular session today will be on economic data.  There are three reports to watch but the ISM Manufacturing Index (E: 59.0) is the most important one, followed by  Jobless Claims (E: 212K) and Productivity and Costs (E: 2.3%, 1.1%).  Bottom line, we need Goldilocks data (not too strong to make the Fed hawkish, not too weak to get us worried about growth) to further fuel this rebound.

Higher Rate Playbook

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What’s in Today’s Report:

  • Higher Rate Playbook Revisited
  • Was Yesterday a Reversal?

Futures are flat following a generally quiet night as markets look ahead to this morning’s jobs report.

Economic data and earnings overnight were solid as Samsung posted good numbers while German Manufacturers’ Orders handily beat expectations (2.0% vs. (E) 0.2%).

There was no notable trade news or European political news (Italy) out overnight.

Today the focus will be on the jobs report, and expectations are – Jobs: 180k, Unemployment: 3.8%, Wages: 0.3% m/m, 2.9% y/y.

The key is the wage number, and if it prints a 3.0% yoy gain, look for Treasuries and the dollar to rally.  A rally in the dollar to the mid 96 level and the 10 year yield moving into the mid to high 3.20% range will likely pressure stocks again.

Outside of the jobs report, there are two Fed speakers, Kaplan (12:30 p.m. ET) and Bostic (12:30 p.m. ET) but neither should move markets.

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