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What the U.S./China Trade Deal Means for Markets

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What’s in Today’s Report:

  • What the U.S./China Trade Deal Means for Markets
  • Weekly Market Preview (All About Earnings)
  • Weekly Economic Cheat Sheet (Important Growth Data This Week)

Futures are modestly lower following reports that China wants “more talks” before signing phase one of Friday’s “deal.”

More broadly, there is some disappointment with Friday’s announcement as it does not provide material tariff relief or trade clarity (more on that in the issue).

Economically, Chinese exports missed estimates falling –3.2% vs. (E) -3.0% and that’s also weighing on sentiment as markets still need global growth to stabilize.

Today is the Columbus Day holiday so there are no economic reports or Fed speakers while banks and the bond markets are closed.  Given that, we can expect any U.S./China trade related headlines to again drive markets until the focus shifts to earnings tomorrow.

Trade Truce

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What’s in Today’s Report:

  • Is A Trade Truce a Bullish Gamechanger?  No.  Here’s Why.

It’s green on the screen and futures are 1% higher as optimism for a U.S./China trade truce surged after the close.

President Trump said talks went “very well” yesterday and will meet Liu He in the White House at 2:45 p.m. today and a trade “truce” with no more additional tariffs is expected.

Economically, the only notable number was German CPI, which met expectations at 1.2% yoy.

Markets will be focused on any trade headlines as that’s clearly the most important topic today.  From a timing standpoint, I’d expect some sort of announcement on the outcome of the negotiations between lunchtime and the close, as Trump is meeting with He at 2:45 p.m.  At this point, a trade truce with some elimination of pending tariff increases is fully expected and anything less would be a disappointment.

Away from trade, we get Import & Export Prices (E: -0.1%, 0.0%) as well as Consumer Sentiment (E: 92.0), but unless the later is very bad, neither number should move markets.  There are also several Fed speakers today including Kashkari (8:00 a.m. ET), Rosengren (1:15 p.m. ET) and Kaplan (3:00 p.m. ET) but none of them should move markets.

Tom Essaye Interviewed with TD Ameritrade Network on October 10, 2019

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Tom Essaye Interviewed with TD Ameritrade Network on October 10, 2019, discussing the upcoming U.S.-China trade negotiations, stock market, what will be the effects of no trade truce, sectors that will benefit with tariff reductions and more…Watch the full interview here.

Tom Essaye Interviewing with Oliver Renick

Trade Meeting Preview (Good, Bad, Ugly)

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What’s in Today’s Report:

  • U.S.-China Trade Talks: Good/Bad/Ugly (and Best)

S&P 500 futures jumped as much as 1.4% in early morning trade after Bloomberg reported that China is willing to discuss a “partial U.S. trade deal despite tech blacklist.”

The risk-on rally has faded moderately however as the article pointed out that Chinese officials are not optimistic and would only accept a partial deal if the next waves of U.S. tariffs are canceled.

Furthermore, China is willing to make non-core concessions like ramping up purchases of U.S. ag products but won’t budge on key issues like intellectual property theft, issues which the White House has said are critical to a deal.

The trade war will clearly continue to dominate the markets today as we have already seen in the sizeable pre-market moves however there are a few additional potential catalysts to keep an eye on.

Economically, the August JOLTS report will be released shortly after the Wall Street open (E: 7.181M) while Powell and George are scheduled to speak at 11:00 a.m. ET (note Powell did move markets yesterday by mentioning balance sheet expansion).

In the afternoon, there is a 10-Yr Treasury Note Auction at 1:00 p.m. ET which could move the yield curve and ultimately the stock market before the FOMC Meeting Minutes will print at 2:00 p.m. ET.

A Warren Presidency and Markets

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What’s in Today’s Report:

  • What Would a Warren Presidency Mean for Markets?

Stock futures reversed from overnight gains and are now decidedly lower with EU shares after the Trump administration expanded its “blacklist” to 20 Chinese companies and Chinese officials said to “stay tuned” for retaliatory measures.

Economically, the Chinese Composite PMI firmed to a multi-month high of 51.9 last month (although the services component was mildly underwhelming) and German Industrial Production was not as bad as feared (0.3% vs. E: -0.1%), while the NFIB Small Business Optimism Index was inline.

Today, there is one economic report to watch in the morning: PPI (E: 0.1%) and then the Treasury will hold a 3-Yr Note Auction at 1:00 p.m. ET (auctions have had an impact on the yield curve recently and as a result, moved markets).

Later in the day, there are a few notable Fed speakers: Evans (1:35 p.m. ET), Powell (1:50 p.m. ET), and Kashkari (5:00 p.m. ET), and while investors will watch Powell’s speech closely, the main influence on markets remains the trade war this week and as such, traders will continue to be most sensitive to any further developments or statements released by the White House or Beijing.

Tom Essaye Quoted in Yahoo Finance on October 3, 2019

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“Bottom line, worries about the economy spiked this week, and the last thing this market needs is a soft jobs number to reinforce the idea that any trade truce next week between the U.S. and Chins is ‘too late’ to help manufacturing sentiment. So, it’s not often the case, but the stronger this jobs report, the better, as a strong report will help calm any…” says Sevens Report Research founder Tom Essaye. Click here to read the full article.

New York Stock Exchange Traders

Is a Bad ISM PMI Really Worth a 3% Pullback?

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What’s in Today’s Report:

  • Jobs Report Preview
  • Is A Bad ISM Really Worth a 3% Pullback?

Futures are enjoying a modest oversold bounce despite more trade noise and disappointing economic data.

On trade, the U.S. imposed $ 7.5 billion worth of tariffs on the EU following a WTO ruling.  But, while the headline is scary, this was widely expected and not a new negative.

Economic data was soft again as Japanese and EU composite PMIs and the UK services PMI all missed estimates.

Today the focus will be on economic data and the key report is the ISM Non-Manufacturing Index (55.4).  If it badly misses expectations, concerns about a broader economic slowdown will grow further, and that will weigh on stocks again.  We’ll also be watching Jobless Claims (E: 215K) for any signs of slowing in the labor market.

There are also several Fed speakers today, but with rate cuts expected, I doubt they will say anything too material.  Speakers today include:  Quarles (8:30 a.m. ET), Mester (12:10 p.m. ET), Clarida (6:35 p.m. ET).

Tom Essaye Quoted in MarketWatch on September 30, 2019

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“On Saturday, the Treasury Department stated it’s not considering blocking Chinese companies from listing on U.S. exchanges ‘at this time,’ refuting the Bloomberg story from Friday, which caused the declines in stocks…” wrote Tom Essaye, president of the Sevens Report, in a note to clients. Click here to read the full article.

IT person in front on multiple screens

A Gutsy Contrarian Call

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Today’s Report is attached as a PDF.

What’s in Today’s Report:

  • A Gutsy Contrarian Call

It is a mixed start to Q4 today as U.S. stock futures are modestly higher, Asian shares rallied overnight following a rate cut by the RBA (although Chinese markets are notably closed for a holiday), while European markets declined on soft economic data.

September Manufacturing PMI data remained decidedly weak in Europe with Germany’s headline index notably falling from 43.5 to 41.7, the lowest since June 2009. Inflation in the Eurozone meanwhile remains weak with the core HICP figure meeting estimates at 1.0% year-over-year.

Looking into today’s session, there are three economic reports to watch this morning: PMI Manufacturing Index (E: 51.0), ISM Manufacturing Index (E: 50.0), and Construction Spending (E: 0.3%) and a busy schedule of Fed speakers: Clarida (8:50 a.m. ET), Bullard (9:15 a.m. ET), and Bowman (9:30 a.m. ET).

Beyond those potential catalysts in the morning, markets will remain focused on the political drama surrounding the impeachment proceedings by the House against Trump as well as any further updates on the U.S.-China trade war as the latter continues to be the single most important influence on global markets right now.

Repo Market Update (Not Fixed Yet)

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What’s in Today’s Report:

  • Repo Market Update (Not Fixed Yet)

Futures are modestly higher on more U.S./China optimism following a quiet night of actual news.

U.S./China trade talks are officially scheduled for October 10th and 11th and rhetoric from both sides remains positive ahead of the event.  At this point, a pretty comprehensive U.S./China trade truce is fully expected by the market.

Economically, EU Economic Sentiment and Chinese Industrial Profits both slightly missed estimates although neither number is moving markets.

Today there are two notable economic reports, Durable Goods (E: -1.2%) and Core PCE Price Index (E: 0.2% m/m, 1.8% y/y) and we need to see a “Goldilocks” result of solid Durable Goods (to ease fears about business spending and investment) and tame inflation (Core PCE Price Index is the Fed preferred measure of inflation and it needs to print sub 2%).

There are also two Fed speakers today, Quarles (8:30 p.m. ET) and Harker (12:00 p.m. ET), but neither should move markets.