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Is the Trade War A Bearish Gamechanger Now?

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What’s in Today’s Report:

  • Updated Market Outlook
  • Weekly Market Preview (All About U.S./China Trade)
  • Weekly Economic Cheat Sheet

Futures are modestly higher after positive U.S./China trade comments by President Trump.

Trump stated early this morning that China “called” and conveyed a desire to get back to the negotiating table.

It’s unclear exactly what Trump means (Chinese officials say no call has happened between the U.S. and China today) but the generally optimistic tone is helping to reverse some of Friday’s declines.

Today any U.S./China trade-related headlines will move markets but it’ll take more than just vague commentary by officials to undo the damage done to markets and investors’ psyches on Friday.

Economically, Durable Goods (E: 1.1%) will be released later this morning and it’s an important number, as any potential economic slowdown will emanate from reduced business spending and investment.  The bottom line, a solid number here will help economic sentiment.

Tom Essaye Quoted in Yahoo Finance on August 22, 2019

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8 of the Best Investments During an Economic Slowdown

Tom Essaye, editor of the Sevens Report newsletter, says he favors being conservative with tactical investments at this time. Real estate can be a solid holding in the current…click here to read the full article.

Rising Chances of a True Yield Curve Inversion

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What’s in Today’s Report:

  • FOMC Minutes Takeaway – Increased Chances of a True Inversion
  • EIA/Oil Market Update

Futures are slightly lower as markets digest yesterday’s “not dovish” FOMC Minutes, another temporary yield curve inversion, and mixed economic data.

Global flash PMIs were better than expected but still remained below 50 (so still signaling contracting activity).  The EU flash PMI rose to 47.0 vs. (E) 46.2.

The 10’s-2’s Treasury yield spread temporarily inverted again on Wednesday but currently sits at +2 bps.

Today focus will be on the August Flash Composite PMI (E: 51.9) and as has been the case lately, a good number will be good for stocks.  We also get Jobless Claims (E: 215K) this morning.

Bottom line, bond yields should continue to lead stocks.  If the flash PMI is solid and yields rally, so can stocks, and if the PMI is soft and yields drop, then so will stocks.

Progress on U.S./China Trade?

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What’s in Today’s Report:

  • Updated Market Outlook
  • Weekly Market Preview (This Week is More Important Than It Might Seem)
  • Weekly Economic Cheat Sheet (All About Growth)

Futures are solidly higher again as the Commerce Department extended Huawei waivers for 90 days, which is a mild positive in the U.S./China trade situation.

There were a lot of trade-related headlines out over the weekend (and some of them were conflicting) but the net/net is that tensions appear to be receding somewhat, which is helping to support an extension of Friday’s rally.

The only notable economic report was Japanese exports, which met expectations at –1.6% m/m and isn’t moving markets.

There are no economic reports today and no Fed speakers, so focus will be on any trade-related headlines and while we’re sure to get conflicting messages via twitter and other mediums, the bottom line is that tensions appear to be receding – which is positive for stocks.

Looking forward to this week, it’s an important one.  Powell’s Jackson Hole speech on Friday, combined with FOMC Minutes Wednesday and the global flash PMIs will give us important updated insight into 1) Whether central banks are going to try and correct the hawkish disappointments from July, and 2) If global growth is trying to stabilize.  If the answer is “yes” to both, then stocks can extend the rally.

Tom Essaye Quoted in Benzinga on August 14, 2019

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“So, while the inversion is certainly a disconcerting signal over the medium and longer-term, it’s not a signal to necessarily ‘sell now,’ because a lot can happen between now and six months or more…” wrote Tom Essaye. Click here to read the full article.

Stock Market

Tom Essaye Quoted in CNBC on August 15, 2019

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“The yield curve inverted which created a temporary ‘pile on’ effect in the bond markets. We have absolutely not seen what we wanted to out of the Fed. We had hoped for a rally in the 10-year yield…” wrote Tom Essaye of the Sevens Report. Click here to read the full article.

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Why the Falling Yuan Isn’t That Big of a Threat

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What’s in Today’s Report:

  • Why The Falling Yuan Isn’t That Big of a Threat

Futures are solidly higher thanks to continued momentum following Thursday’s positive close.

Stocks were short term oversold and due for a bounce, but if there’s a “reason” behind the early rally it was a Washington Post article stating the Trump administration is getting concerned about future economic growth, which might lead to a trade deal.

There were no notable economic reports overnight.

Today the calendar is more quiet as we only have two economic reports, Housing Starts (E: 1.260M) and Consumer Sentiment (E: 97.5).  But, the Huawei waiver deadline is Monday the 19th so if there are going to be waivers given, it could happen literally at any minute (generous waivers will supercharge today’s early rally if they come).

Tom Essaye Quoted in Diario Financiero on August 14, 2019

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“Historically speaking the inversion of that benchmark yield curve measure means that we now must expect a recession anywhere…” said Tom Essaye in a note on Wednesday. Click here to read the full article.

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Tom Essaye Quoted in Vanity Fair on August 14, 2019

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“Historically speaking the inversion of that benchmark yield curve measure means that we now must expect a recession anywhere from 6 to 18 months from today…” said Tom Essaye in a note on Wednesday. Click here to read the full article.

Trump on a Fire Truck

The Yield Curve Just Inverted

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What’s in Today’s Report:

  • The Yield Curve Just Inverted (Chart)
  • Did the Tariff News End the Pullback?

Futures are sharply lower as investors digest historical moves in the bond market amid disappointing economic data.

The 10s-2s yield spreads in the U.S. and U.K. inverted for the first time since the financial crisis while the 30-Yr Bond yield hit fresh lows, further stoking fears of a looming recession.

Chinese Industrial Production (4.8% vs. E: 5.7%), and Retail Sales (7.6% vs. E: 8.5%) both missed expectations as did Eurozone Industrial Production (-2.6% vs. E: -1.5%), adding to the downside pressure on global equities this morning.

Today, there is one second-tiered economic report: Import and Export Prices (E: -0.1%, -0.1%) but because it can offer insight on inflation trends, the release could potentially move markets, as if it runs hot, it could further invert the 10s-2s yield curve spread which is one of the key factors weighing on markets today.

To that point, investors will be closely focused on the bond markets today as the historic inversion of the 10s-2s spread and the drop to new lows for the 30-year yield will likely weigh on risk assets as the odds of a looming recession just increased significantly.