Posts

Technical Update (Encouraging Signals)

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).

Why Markets Are Dropping Again

What’s in Today’s Report:

  • Why Markets Are Dropping Again (And Why We Don’t Think It’s a Bearish Gamechanger)
  • What Needs to Happen in the Short Term for Markets to Stabilize
  • Jobs Report Preview
  • Bond Market Analysis (Yield Curve)

Futures are sharply lower as the arrest of the Huawei CFO in Canada has added to uncertainty on U.S./China trade, while oil is down sharply due to OPEC disappointment.

Huawei (Huawei is a giant Chinese telecom company) CFO Meng Wanzhou was arrested in Canada overnight and that is perceived as potentially complicating U.S./China trade.

Further adding to the downward pressure in markets is a 3% drop in oil, as Saudi Arabia proposed a 1 million barrel production cut, less than the 1.3 million barrel expectation.

Focus today will be on geo-political headlines, specifically any further reaction to the Huawei CFO arrest and anything that minimizes the situation will help stocks.

Away from geo-politics, we get several important economic reports including:  ADP Employment Report (E: 175K), Jobless Claims (E: 225K), Productivity and Costs (E: 2.3%, 1.1%) and ISM Non-Manufacturing index (E: 59.0).  But, even if the reports are all “Goldilocks” today’s price action will still be driven by geo-political headlines and, to a lesser extent, oil (it needs to stabilize).

Sevens Report’s Tom Essaye quoted in USA TODAY on December 4, 2018

Sevens Report’s Tom Essaye quoted in USA TODAY on December 4, 2018. Read the full article here.

OPEC’s Catch-22

What’s in Today’s Report:

  • OPEC’s Catch-22 Explained
  • ISM Manufacturing PMI Analysis

Futures are modestly lower as the Trump-Xi “trade truce” continues to be digested this morning while the yield curve flattened further overnight, underscoring growth concerns.

The major underlying story this morning is the yield curve as the 2’s-10s spread compressed to new lows overnight (13bp) and the 2’s-5’s actually inverted.

Economically, EU PPI was 4.9% vs. (E) 4.5% in Oct. but the recent plunge in energy prices has investors largely shrugging off the “hot” print.

Today is likely to be a fairly quiet day ahead of tomorrow’s National Day of Mourning for President George H.W. Bush although there are two potential catalysts to watch: Motor Vehicle Sales (E: 17.2M) and New York Fed President Williams speaks shortly after the open (10:00 a.m. ET).

What the Trade Truce Means for Markets

What’s in Today’s Report:

  • What The U.S./China Trade Truce Means for Markets
  • Four Keys to A Bottom Updated:  Getting Closer, but Not There Yet
  • Weekly Market Preview
  • Weekly Economic Cheat Sheet (All About Growth and Jobs)

Futures and global markets are surging (up more than 1%) as Trump and Xi agreed to U.S./China trade war truce.

As was generally expected, the U.S. will not raise tariffs on China to start 2019 and both sides have agreed to a three month negotiation period.

Economic data was good as EU and UK Manufacturing PMIs both beat estimates

Today there is one important economic report, the November ISM Manufacturing PMI (E: 57.2) and it needs to be a “Goldilocks” reading to help fuel this early rally.  We also get three Fed speakers (Williams (9;15 a.m. ET), Brainard (10:30 a.m. ET), Kaplan (1:00 p.m. ET)) but none of them should move markets.

Bottom line, tech and industrials are the key sectors to watch today, and outperformance from both will be needed for stocks to hold these big, early gains.

Trump/Xi Meeting Preview

What’s in Today’s Report:

  • G-20 Preview:  The Good, the Expected & the Ugly

Futures are modestly lower on positioning ahead of the G-20 and due to disappointing foreign economic data.

Regarding the G-20, there was no new news overnight, and the expectation remains for a trade war “truce.”

Economic data was disappointing.  Chinese Nov. Manufacturing PMI dropped to 50.0 vs. (E) 50.2, the lowest since mid-2016.  EU inflation also underwhelmed as the core flash HICP rose 1.0% y/y vs. (E) 1.1% y/y.  So, despite some decent data this week, “ROW” (rest of world) economic activity remains underwhelming.

There are no economic reports today and just one Fed speaker, Williams (1:00 p.m. ET), but he won’t move markets.  So, markets should be in a general holding pattern ahead of the G-20 and I’d expect a quiet day.  That said, there has been a constant flow of headlines on the potential outcome of the Trump/Xi meeting, so we’ll continue to watch the headlines for any headline surprises that could cause volatility.

Sevens Report’s Tom Essaye appeared in Yahoo Finance on November 23, 2018

Sevens Report’s Tom Essaye appeared in Yahoo Finance on November 23, 2018. His take on oil, market volatility, stocks and more. Watch the entire clip here.

Is Flat the New Inverted?

What’s in Today’s Report:

  • Is Flat the New Inverted?

Futures are trading slightly lower this morning on an uptick in trade war fears following an otherwise quiet night.

After the close yesterday, the WSJ ran an interview with Trump where he said he was ready to move forward with increasing tariff rates (from 10% to 25%) in early 2019 and delaying the hike per China’s request was “highly unlikely.”

Today, there are a few potential catalysts on the schedule. Economically, there are three reports due out: S&P CoreLogic Case-Shiller HPI (E: 0.3%), FHFA HPI (E: 0.3%) and Consumer Confidence (E: 136.5).

Meanwhile on the Fed front, Clarida speaks ahead of the open (7:45 a.m. ET) while Bostic, George, and Evans speak on a panel in NY this afternoon (2:30 p.m. ET).

With Powell’s speech later this week still a major focus of the market, the Fed chatter will be watched closely while the market will remain very sensitive to any further rhetoric on the trade front (the other big event being the G20) after Trump’s comments yesterday afternoon.

Sevens Report’s Tom Essaye quoted in Nasdaq on November 20, 2018

Sevens Report’s Tom Essaye quoted in Nasdaq on November 20, 2018. Read the full article here.

Sevens Report’s Tom Essaye quoted in CNBC on November 21, 2018

Sevens Report’s Tom Essaye quoted in CNBC on November 21, 2018. Read the full article here.