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Updated Market Outlook (Volatility isn’t Automatically Bearish)

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What’s in Today’s Report:

  • Updated Market Outlook – Increased Volatility Isn’t Automatically Bearish
  • Weekly Market Preview:  Do We Get More Hints of Stagflation?
  • Weekly Economic Cheat Sheet:  Friday’s Flash PMIs are Key.

Futures are modestly lower following disappointing Chinese economic data.

Chinese economic data joined recent U.S. data in hinting at a possible plateauing recovery and building inflation pressures.  Industrial Production rose 9.8% vs. (E) 10.0% while Retail Sales gained 17.7% vs. (E) 25%.  Housing Prices, meanwhile, rose 0.48% vs. (E) 0.41%.

Today the Empire Manufacturing Survey (E: 25) is the key report and markets will want to see solid data and stable prices indices.  We also get the Housing Market Index (E: 83) but that shouldn’t move markets.

From a Fed standpoint, Clarida (10:05 am ET) is the headliner today while Bostic (10:00 a.m. ET) will also provide comments.

Jobs Report Preview (Too Hot is the Risk)

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What’s in Today’s Report:

  • Jobs Report Preview (Too Hot Is the Risk)
  • EIA Analysis  and Oil Market Update

Futures are modestly higher as markets digest yesterday’s dovish Fed rhetoric while data overnight was solid.

German Manufacturers’ Orders and Euro Zone Retail Sales both beat estimates, again implying the economic recovery in Europe is gaining momentum (this is positive for European stocks).

Fed officials repeated their dovish stance yesterday with Vice Chair Clarida reinforcing it’s not time to think about tapering despite rising inflation and strong growth.

Today focus will be on weekly Jobless Claims (E: 533K) and again markets will want to see them hold the gains of the past few weeks.  We also get numerous Fed speakers including (in order of importance): Williams (9:00 a.m. ET), Mester (1:00 p.m. ET), Bostic (1:00 p.m. ET) and Kaplan (10:00 a.m. ET) but we don’t expect any of them to materially move markets.

Are Higher Taxes a Risk to the Rally?

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What’s in Today’s Report:

  • What the Capital Gains Tax Headline Means for Markets

WatFutures are modestly higher thanks to better than expected global economic data.

Economic data was good overnight as global flash manufacturing PMIs beat estimates in Japan (53.3 vs. (E) 52.7), the EU (63.3 vs. (E) 62.3) and the UK (60.7 vs. (E) 59.1).  Additionally, UK Retail Sales also beat expectations (7.2% vs. (E) 4.2%), and in sum the data implies the global economic recovery is gaining momentum (which is a positive).

Today the key report will be the April Flash Composite PMI (E: 59.5), but markets will also be looking for more clarity on proposed tax increases from the Biden administration.  We also get New Home Sales (E: 887K) but that shouldn’t move markets.

On the earnings front, some reports we’re watching today include:  AXP ($1.68), SLB ($0.19), HON ($1.80).

Why Do Indian COVID Cases Matter to Markets?

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What’s in Today’s Report:

  • Why Do Indian COVID Cases Matter to Markets?
  • S&P 500 Chart: A Long Way to the 200 DMA

Stock futures are wavering between gains and losses this morning as a spike in COVID-19 cases in several global “hot spots” is raising concerns about the future of the economic recovery while NFLX earnings disappointed yesterday.

A sharp rise in COVID cases in Japan and India caused Asian markets to decline overnight amid the threat of new lockdowns and ultimately a slower than expected economic normalization process.

There are no economic reports or Fed speakers today but there is a 20-Year T-Bond auction at 1:00 p.m. ET that could move Treasury markets.

Aside from coronavirus developments, market focus will remain on earnings today following yesterday’s disappointing results by NFLX. Notable companies releasing Q1 results today include: VZ ($1.29), NEE ($0.61), CMG ($4.88), DFS ($2.88), LVS (-$0.28), and CP ($3.46).

Earnings Season Update

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What’s in Today’s Report:

  • Earnings Season Update: Are Upside Risks Building?

U.S. stock futures are trading lower with most overseas markets as investors digest the recent run to fresh records amid rising COVID-19 cases and mostly upbeat earnings.

German PPI was hotter than expected o/n with a headline of 0.9% (E: 0.5%) but the report is not materially moving markets.

Looking into the U.S. session today, there are no economic reports and no Fed officials are scheduled to speak. There is a 52 Week T-Bill Auction at 11:30 a.m. ET, however, that could influence bond yields and ultimately stocks if the results are far from expectations.

Earnings season will continue to pick up today with JNJ ($2.31), LMT ($6.32), PG ($1.19), and TRV ($2.44) releasing Q1 results ahead of the bell while NFLX ($2.98), CSX ($0.95), and IBKR ($0.90) will report after the close.

Bottom line, markets have been trading with a risk-off tone so far this week amid a resurgence in COVID-19 cases in several global hotspots. And if the news flow regarding the latest regional outbreaks continues to deteriorate, stocks could continue to decline, potentially sharply, as the health of the recovery will come into question.

How Does the S&P 500 Get to 4500?

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What’s in Today’s Report:

  • How Does the S&P 500 Get to 4500?
  • Weekly Market Preview:  Important inflation data, bank earnings, and Treasury auctions.
  • Weekly Economic Cheat Sheet:  Inflation Wednesday, April Data Starts Thursday.

Futures are slightly lower following a “not as dovish as expected” 60 Minutes interview of Fed Chair Powell.

Fed Chair Powell was more optimistic on near-term economic growth during a 60 Minutes interview on Sunday, and while he was by no means “hawkish,” his tone was taken as less dovish than expected and that’s weighing slightly on futures.

Economically, the only notable number was EU Retail Sales which beat expectations, rising 3.0% vs. (E) 1.2%.

Today there are no economic reports and only one Fed speaker, Rosengren (1:00 p.m. ET), so focus will remain on the 10 year yield.  Today there’s a 10 year Treasury auction and tomorrow there’s a 30 year Treasury auction.  If yields can remain stable amidst this stock rally, then the S&P 500 can continue to move higher.  But, if we see a resumption of the rise in yields, expect a headwind on stocks.

What Would Make the Fed Less Dovish?

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What’s in Today’s Report:

  • What Would Make the Fed Less Dovish?

Futures are little changed following mixed economic data that showed higher inflation and underwhelming growth.

Inflation stats could be set to rise as Chinese PPI surged 4.4% vs. (E) 1.7%, and this could be the first of several higher than expected global inflation readings.

Economically, German Industrial Production missed estimates (-1.6% vs. (E) 1.5%)  but the reading isn’t moving markets.

Today the key number is the Core PPI (E: 0.2% m/m, 2.7% y/y).  Markets are expecting an uptick in inflation metrics so a slightly hot number shouldn’t move markets too much, although a much stronger than expected PPI reading will likely send the 10 year yield higher and that would be a headwind on stocks. There is also one Fed speaker, Kaplan (10:00 & 12:00 p.m. ET), but he shouldn’t move markets.

Why Did Stocks Drop Again?

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What’s in Today’s Report:

  • Why Did Stocks Drop Again?
  • The VIX Has Approached a Tipping Point

U.S. equity futures are trading higher this morning as upbeat economic data is helping offset renewed fears about COVID-19 lockdowns and the global economic recovery.

PMI Composite Flash data was better than expected overnight, especially in the EU (52.5 vs. E: 49.1) where economic lockdown concerns have weighed heavily on stocks this week.

Looking into today’s session, there are two economic releases that will be in focus early: Durable Goods Orders (E: 0.9%) and the PMI Composite Flash (E: 59.0), and it is important that we see more positive trends in the data or concerns about a slowing recovery could become a stronger headwind on risk assets in the near term.

From there, focus will shift to this week’s busy Fed circuit with several more central bank officials speaking today: Barkin (8:50 a.m. ET), Powell (10:00 a.m. ET), Williams (1:35 p.m. ET), and Daly (3:00 p.m. ET). Powell and Yellen’s continued testimony before Congress today will be the most important for stocks as investors look for further reiteration of easy policy measures for the foreseeable future.

Finally, there is a 5-Yr Treasury Note Auction at 1:00 p.m. ET and as we saw last month, a surprise outcome can shake bond markets which ultimately tends to reverberate through to equities.

Bottom line, as long as there are no surprises in the auction or in the morning economic data, and policy makers stick to their accommodative message, volatility should begin to ease, but all of the possible catalysts listed above have the potential to weigh on stocks and other risk assets today.

What Trump’s COVID-19 Diagnosis Means for Markets

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What’s in Today’s Report:

  • What the Trump COVID-19 Diagnosis Means for Markets

Futures are sharply lower following the Trump COVID-19 diagnosis.

President Trump and the First Lady tested positive for COVID-19 on Thursday, and have begin their quarantine process.  However, the White House has said it expects the President to continue in his duties as he recovers.

There was minimal economic data overnight.

For the next several days reports of President Trump’s health will drive markets, and obviously if he becomes very sick that will hit stocks in the short term.

Beyond the COVID diagnosis, we still have the jobs report today, and estimates are as follows:  Job adds:  894K, UE Rate: 8.2%.

Finally, we also get Consumer Sentiment (E: 79.0) and have two Fed speakers, Harker (9:00 a.m. ET) and Kashkari (1:00 p.m. ET), but none of that should move markets.

Tom Essaye Interviewed with Yahoo Finance on September 29, 2020

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Tom Essaye, Sevens Report Research Founder, joins Yahoo Finance’s The First Trade with Alexis Christoforous and Brian Sozzi to discuss what’s moving the markets on Monday morning. Click here to watch the full interview.