Posts

An Economic Fork in the Road

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What’s in Today’s Report:

  • Economic Breaker Panel Update: An Economy at a Fork in the Road

Global markets are trading with a moderate risk-off tone this morning as the trade war weighs on sentiment.

It remains unclear whether the U.S. will offer relief on existing tariffs as part of the “phase one” trade deal with China (which has been priced into stocks in recent weeks), or just cancel the scheduled December tariffs, which would be a disappointment.

Meanwhile, on the economic front, Eurozone Industrial Production was largely overlooked because of trade angst but the release was not as bad as feared (0.1% vs. E: -0.3%) further easing recession concerns in Europe.

There were other headlines overnight including escalating protests in Hong Kong which saw the Hang Seng underperform (down nearly 2%) and chatter about the public impeachment hearings in Washington today but neither are materially affecting U.S. stocks at this point as the market’s main focus remains the trade war.

Looking into today’s session, there is one economic report to watch: CPI (E: 0.3%) before focus will turn to Powell’s testimony before Congress on the state of the economy at 11:00 a.m. ET. Later in the day, there are two other Fed officials scheduled to speak before the closing bell: Barkin (12:30 p.m. ET) and Kashkari (1:30 p.m. ET).

Bottom line, there are a lot of headlines this morning but the trade war remains the single most important influence on this market so if expectations for tariff removal continue to fade, stocks are likely to trade with a heavy tone.

Is Europe a Buy?

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What’s in Today’s Report:

  • How Powerful Is the Growth to Value Rotation?
  • Is Europe a Buy?

Futures are edging higher in early trade while most international markets rallied on better-than-feared data overnight.

In Europe, the headline to the German ZEW Survey was a slight miss but business expectations rebounded to -2.1 vs. (E) -12.5 as recession fears continued to moderate.

In the U.S., the NFIB Small Business Optimism Index was 102.4 vs. (E) 102.0 another incremental economic positive.

With no economic reports today, focus will be on Trump’s midday speech in NY regarding the trade war. Additionally, there are two Fed speakers: Harker (1:00 p.m. ET) and Kashkari (6:00 p.m. ET).

The trade war is still by far the most important influence on the markets right now so whether Trump is negative or positive in his discussion regarding trade negotiations today will likely decide whether stocks rally or extend yesterday’s pullback this afternoon.

What’s Priced Into Stocks Now?

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What’s in Today’s Report:

  • What’s Priced into Stocks At These Levels?
  • Weekly Market Preview:  More Trade Updates Coming
  • Weekly Economic Cheat Sheet:  Key Data on Friday

Futures are modestly lower this morning thanks to disappointing U.S./China trade news and underwhelming economic data.

President Trump threw more cold water on the idea of existing tariff reduction over the weekend saying that the tariff reduction story was “over-reported.”

Economically, Chinese New Yuan Loans rose 12.4% vs. (E) 12.5%, while British IP & Q3 GDP slightly missed estimates.

Today should be relatively quiet as there are no economic reports today and no Fed speakers due to the Veteran’s Day holiday.  The bond market is also closed.

However, any trade news/commentary could cause larger than normal volatility given expected holiday trading volumes, so we’ll be watching the tape closely.

Tom Essaye Quoted in Stock Investor on November 6, 2019

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Tom Essaye (TE): Buybacks have been a factor in the market over the past couple of years. Basically, buybacks occur when a company uses cash (either its own or borrowed money) to purchase shares of stock in the open market. A company then essentially “retires” that stock, thereby taking it out of circulation, which reduces or “floats” the total number of shares outstanding…

Click here to read the full article.

Graph

Bond Yield Breakout

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What’s in Today’s Report:

  • Did Global Bond Yields Finally Breakout?

Futures are slightly lower following a quiet night as markets digest Thursday’s “tariff reduction” headlines while economic data continued to show mild improvement.  There was no new trade news overnight.

Economically, Chinese and German exports slightly beat estimates (Chinese exports down –0.9% vs. (E) -3.9%), German exports up 1.5% vs. (E) 0.3%) in another sign that global growth may be stabilizing.

Today there is just one economic report, Consumer Sentiment (E 96.0) and three Fed speakers, Daly (11:45 a.m. ET), Williams (8:00 p.m. ET) and Brainard (8:45 p.m. ET) but none of that should move markets as U.S./China trade is totally dominating the market narrative right now.

Given that, any confirmation of immediate tariff reduction with a phase one agreement will extend the rally in stocks and yields, while any contradiction of yesterday’s tariff reduction headlines will weigh on markets.

Tom Essaye Quoted in MarketWatch on November 5, 2019

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“Right now, markets are strong, and momentum is clearly higher, as the market is seizing on any positive trade utterance or economic data point…” wrote Tom Essaye, president of the Sevens Report, in a Monday note to clients. Click here to read the full article.

U.S./China Trade Update (What’s Priced In Now?)

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What’s in Today’s Report:

  • U.S./China Trade Update:  What’s Priced in Now?
  • One More Important Stat on Corporate Buybacks

Futures are modestly higher as the Chinese Ministry of Commerce  said the U.S. and China have agreed to existing tariff reduction in “phases.”

There were no further details on the timing or conditions that would accompany tariff reduction, however, and that’s tempering the rally somewhat.

Economically, German Industrial Production declined but slightly beat estimates (-0.6% vs. (E) -0.7%).

Today the only notable economic reports are Jobless Claims (E: 220K) while we also have two Fed speakers: Kaplan (1:05 p.m. ET), Bostic (7:10 p.m. ET), but none of that should move markets.

Instead, the focus will remain on the U.S./China trade, and if the U.S. confirms this “tariff reduction in phases” statement by the Chinese, then we could see the S&P 500 make a run at 3100.

How Corporate Buybacks Are Skewing EPS Statistics

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What’s in Today’s Report:

  • How Share Buybacks Are Skewing EPS Statistics

S&P futures are flat after a quiet night of mixed trading overseas as investors digest mostly positive economic data.

The Japanese PMI Composite was the only report to miss overnight as German Manufacturers’ Orders jumped 1.3% vs. (E) 0.2% while the EU Composite PMI edged up to 50.6 vs. (E) 50.2 and EU Retail Sales rose 3.1% vs. (E) 2.7% year over year.

On balance, the data was slightly hawkish from a monetary policy standpoint but is importantly easing global growth concerns.

Today, there is one economic report to watch: Productivity and Costs (E: 1.1%, 2.2%) and three Fed officials are scheduled to speak: Evans (8:00 a.m. ET), Williams (9:30 a.m. and 6:30 p.m. ET), and Harker (3:15 p.m. ET).

With limited catalysts on the calendar, the market will likely remain focused on the trade war and any incremental developments, negative or positive, will move stocks today.

Does this Cyclical Rotation Have Legs?

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What’s in Today’s Report:

  • Does this Cyclical Rotation Have Legs?
  • Factory Orders Data Takeaways
  • Dr. Copper Update

U.S. stock futures are higher this morning and global stocks rallied overnight thanks to more positive trade headlines and mostly “Goldilocks” economic data overseas.

The Financial Times was the first to report the Trump administration is considering rolling back $112B worth of tariffs that went into effect on September 1st which would be a significant concession and first sign of real progress towards a “phase one” deal being reached.

Economically, the first composite PMI reports were released overseas and both the Chinese and British figures firmed in October, further easing concerns about the health of the global economy.

Today, there are several economic reports due to be released: International Trade (E: $52.5B), ISM Non-Manufacturing Index (E: 53.5), and JOLTS (Previous: 7.051M, while two Fed officials are scheduled to speak: Kaplan (12:40 p.m. ET) and Kashkari (6:00 p.m. ET).

Beyond the data and Fed speakers, focus will be primarily on the trade war as investors look for further insight to whether or not the Trump Administration will move forward with tariff rollbacks and delays as was reported overnight. Any confirmation would be well-received and see stocks extend this recent squeeze higher towards 3,100 in the S&P.

An Analogy To Explain This Market (Investors Loved It)

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What’s in Today’s Report:

  • An Analogy to Help Explain This Market (Investors Loved It)
  • Weekly Market Preview (Trade and Data Remain the Focus)
  • Weekly Economic Cheat Sheet (Global Growth Updates This Week)

Futures are modestly higher as global markets extended Friday’s jobs report and trade-driven rally.

On trade, U.S. and Chinese officials again repeated that substantial progress has been made on Phase One, while Wilbur Ross downplayed chances of auto tariffs (something that wasn’t ever priced into the market but was a peripheral risk).

Economically, EU and British manufacturing PMIs slightly beat estimates but remained in contraction territory (45.9 and 44.2 respectively).

Today there is one economic report, Factory Orders (E: -0.5%), and normally I don’t follow it, but it’ll give us greater insight into the current state of business spending, so a better than expected reading there will be a positive.  Additionally, there is one Fed speaker, Daly (3:05 p.m. ET) but she won’t move markets as Clarida and Powell made future Fed policy very clear last week – they’re done cutting barring an economic rollover.