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Can Gold Continue to Rally?

What’s in Today’s Report:

  • Market Multiple Price Chart: S&P 500
  • A Quick Note on Coronavirus Data
  • Can Gold Continue Higher? Yes, Here’s Why

International markets were mixed o/n and U.S. stock futures are little changed in choppy trade as investors continue to look for clarity on infection and death statistics related to COVID-19 while digesting a volatile start to the week.

Economically, Japanese Machine Orders rose 2.3% in Feb. vs. (E) -2.7, underscoring the resilience of the manufacturing sector as the coronavirus outbreak began to accelerate.

There are no economic reports due to be released today but the Treasury will hold a 30-Yr Bond Auction at 1:00 p.m. ET and then the Minutes of the most recent FOMC Meeting will be released at 2:00 p.m. ET.

With investors still primarily focused on any developments regarding the coronavirus pandemic, it is unlikely that those two catalysts will move markets today however if there are any surprises, we could see a reaction as volatility remains elevated amid an uncertain macro backdrop.

What to Make of Yesterday’s Rally

What’s in Today’s Report:

  • What to Make of Yesterday’s Rally
  • Jobs Report Preview
  • EIA/Oil Update (Will An OPEC Production Cut Help?)

Futures are sharply lower and they are giving back more than half of yesterday’s rally as coronavirus continues to spread throughout the U.S.  Clearly some of this morning’s decline is just normal give back from yesterday’s explosive rally, although economic fears are continuing to mount as the number of cancelled events, gatherings and conferences continues to rise.

There are now 160 coronavirus cases in the U.S. as California declared a state of emergency while another cruise ship is being held at sea due to fears of an outbreak.  But, the news wasn’t all bad as there were just 160 new coronavirus cases in China, and evidence continues to mount that Chinese officials are getting the spread of the disease under control.

Economically, there were no notable reports overnight.

Coronavirus headlines will continue to drive trading, and broadly speaking anyreports of U.S. or global economic stimulus will be a tailwind on stocks, while any reports of an acceleration of the spread will obviously be a headwind.

Outside of coronavirus, there is just one economic report, Jobless Claims (E: 215K), but we’ll be watching this closely because it’s the best real time indicator of the labor market we have.  If claims rise (say above 230k) that will fan fears of an economic fallout from coronavirus.  Outside of the jobs report we also get multiple Fed speakers (Kaplan (6:30 p.m. ET), Kashkari (8:00 p.m. ET) and Williams (E: 8:45 p.m. ET)) but none of them should move markets.

Tom Essaye Quoted in CNBC on January 18, 2020

“People are getting too optimistic in the short-term. We keep pricing in all this really good stuff that’s going to happen, but it has not shown up yet…” said Tom Essaye, founder of The Sevens Report. Click here to read the full article.

Stock traders

The Two Pillars Supporting Stocks

What’s in Today’s Report:

  • Staying Focused on the Two Causes of the Rally

U.S. stock futures and European shares are tracking Asian markets lower amid rising concerns about the outbreak of a newly discovered virus in China.

Chinese health officials have confirmed that the recently named “coronavirus” can be spread by human-to-human contact.

And with the Lunar New Year holiday beginning this week, fears of a SARS-like health epidemic are on the rise which saw the Shanghai Composite fall 1.41% overnight.

Looking into today’s session, there are no notable economic reports due to be released and no Fed officials are scheduled to speak.

That will leave investors largely focused on Q4 earnings season with HAL ($0.29) reporting before the bell and NFLX ($0.50), AMTD ($0.76), UAL ($2.64), and COF ($2.38) all releasing results after the close.

Tom Essaye Quoted in MarketWatch on January 6, 2020

Tom Essaye, president of the Sevens Report, said in a Monday note to clients that the near 10% rally the S&P 500 pulled off in the fourth quarter of last year was driven by the idea that “the U.S.-China trade truce combined with global central bank easing (and specifically the Fed being very dovish) will result in a rebound in global growth…” Click here to read the full article.

Trump/XI Meeting Day (Finally)

What’s in Today’s Report:

  • What’s Caused The Late Week Rally (Don’t Forget It’s Quarter End Too)
  • A Positive Sign in Housing
  • Trump and Xi meet at 10:30 p.m. ET tonight so look for I’ll be looking for headlines starting around 11:30 p.m.

Futures are modestly positive again this morning on more U.S.—China trade optimism.

President Trump said he thought talks with President Xi would be “productive” and that’s boosting futures.

Economic data largely met expectation although Japanese IP (2.3% vs. (E) 0.3%) and EU HICP (their CPI) slightly beat estimates (1.1% vs. 1.0% yoy).

Focus will clearly be on the looming Trump/Xi meeting but there’s an important economic data point to watch today:  Core PCE Price Index (E: 0.1% m/m, 1.5% y/y).  If that shows inflation that’s stronger than estimates, it’ll reduce the chances of a rate cut (bad for stocks), while a soft number will result in a “bad is good” reaction in markets.

 

Tom Essaye Quoted in Seeking Alpha on June 12, 2019

Tom Essaye quoted in Seeking Alpha. Analysts are also starting to reassess the June market comeback, with some saying it doesn’t quite make sense. “This rally is not fundamentally backed. Instead what we are seeing is a…” Click here to read the full article.

Tom Essaye Headshot

Tom Essaye Quoted in International Business Times on June 11, 2019

“This rally is not fundamentally backed. Instead what we are seeing is a bunch of people getting swung around and now they are chasing stocks higher,” said Tom Essaye. Click here to read the full article.

New York Stock Exchance

Tom Essaye Quoted in U.S. News on April 5, 2019

7 Things Need to Happen For Stocks to Move Higher

Tom Essaye, founder of Sevens Report Research, recently compiled this list of seven things that need to happen for the market to make it back to new highs this year. Click here to read the full article.

What Caused Last Week’s Rally (And Can It Continue?)

What’s in Today’s Report:

  • Justification For Last Week’s Rally?
  • Market Internals – Not As Strong As You’d Think
  • Weekly Market Preview
  • Weekly Economic Cheat Sheet

Futures are only slightly lower despite disappointing U.S./China trade headlines over the weekend and more underwhelming global economic data.

The South China Morning Post reported that a Trump/Xi trade summit (to end the trade war) might not happen until June, later than the current April expectation, as talks on key issues continue to drag out.

Global economic data remained underwhelming as Japanese exports missed expectations, falling –1.2% vs. (E) 0.7%.

Today there is only one economic report, Housing Market Index (E: 63.0), and no Fed speakers (they’re in the blackout period ahead of Wednesday’s meeting) so unless we get a surprise U.S./China trade headline (and chatter there seems to be rising following the weekend) I’d expect digestion of last week’s big rally.