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The Trade War and Market Multiples

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What’s in Today’s Report:

  • Tariff Update – What Does It Mean for Multiples
  • The “Doctor” Doesn’t Lie

The trade war continues to dominate the markets as the designation of China as a currency manipulator by the U.S. Treasury caused a sharp selloff in stock futures last night. But the PBOC intervened to “fix” the yuan back below $7/CNY which helped global markets stabilize overnight.

German Manufacturers’ Orders jumped 2.5% vs. (E) 0.6% in June but the details showed a continuation of soft demand in the Eurozone, offsetting the headline strength.

The trade war, and any further developments on the topic, will remain the market’s main focus today however there are a few other potential catalysts to watch.

Economically, the June JOLTS Report (E: 7.293M) will be released mid-morning and then shortly after lunch, there is a 3-Yr Treasury Note Auction (1:00 p.m. ET) which will be important because Treasury auctions have been moving the stock market lately.

Lastly, there is one Fed speaker: Bullard at 1:05 p.m. ET and investors will be listening closely for any clues as to what the Fed’s policy plans are into the end of the year.

What More Tariffs Mean for Markets (Lower Market Multiple)

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What’s in Today’s Report:

  • What the Tariff Threat Means for Markets (Lower Market Multiple)
  • Jobs Report Preview

Futures are modestly lower following a steep global sell-off as markets digest Thursday’s tariff threat and the “less dovish than hoped for” Fed, ahead of the jobs report.

Chinese authorities threated retaliation should the tariffs go into effect on September 1st, further escalating trade tensions, although no specifics were given.

Economically, Euro Zone retail sales beat estimates, although revisions were negative so it wasn’t a strong beat.

Today the big event is the Employment Situation Report, and expectations are as follows:  Jobs: 156K, UE Rate: 3.6%, Wages: 0.2%).  The last thing this market needs at this point is a “Too Hot” number that reduces expected Fed rate cuts, or a “Too Cold” number that increases worries about economic growth.  So, from a stock standpoint, the best case in a jobs number between 150k-200k (the higher the better) with tame wage growth and stable unemployment.  If we get that “Goldilocks” number it’ll help markets stabilize.

Fed Preview: What to Expect

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What’s in Today’s Report:

  • FOMC Preview

Asian markets rallied modestly overnight after the BOJ met expectations while Brexit angst continues to weigh on EU stocks and U.S. futures as investor focus turns to the Fed.

Economic data did not move markets overnight and trade talks between the U.S. and China don’t begin until later today so there were no material developments on the trade war front.

The FOMC Meeting, which is clearly the biggest event of the week, begins this morning and that will likely lead to a sense of “Fed paralysis” in the markets before tomorrow’s announcement and Powell’s press conference however there are still a few important catalysts to watch today.

Economically, the Fed’s preferred measure of inflation: Core PCE Price Index (E: 0.2%) within the Personal Incomes and Outlays report will be the most important report to watch (it is due out before the bell), but there are a few other releases to watch as well: S&P Case-Shiller HPI (E: 0.2%), Consumer Confidence (E: 125.0), and Pending Home Sales (E: 0.3%).

On the earnings front, we will get second quarter results from: MA ($1.82), PG ($1.06), MO ($ 1.10) before the open, and AAPL ($2.10), AMD ($0.08), ALL ($1.48), CHRW ($1.21) after the bell this afternoon.

The Most Important Week of the Year

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What’s in Today’s Report:

  • Fed Week – Why This is the Most Important Fed Decision of the Year
  • Weekly Market Preview – Will the Fed Meet Incredibly Dovish Expectations?
  • Weekly Economic Cheat Sheet – One of the Busiest Weeks of the Year (Jobs Report, Inflation Data, Global PMIs)

Futures are little changed following a quiet weekend as all eyes now turn to the Fed decision on Wednesday.

Former Fed Chair Yellen endorsed a rate cut over the weekend, but did not advocate for sustained easing.   And, this gets right to the heart of this market.  We know the Fed will cut 25 bps this week, but we don’t know if they’ll signal the start of a sustained easing campaign (i.e. 75-100 bps of cuts by year-end) and that’s something the market has already aggressively priced in at these levels.

Economic data was sparse over the weekend although Japanese Retail Sales (0.3% vs. (E) 0.1%) beat estimates.

There was no notable U.S.-China trade news over the weekend and expectations are low for any actual progress at the talks this week.

Today there are no notable economic reports nor any important central bank speak, so focus will remain on earnings (this is the last important week of earnings) and on any U.S.-China trade headlines (although none are expected).

What the ECB Decision Means for Markets (Slightly Disappointing)

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What’s in Today’s Report:

  • What the Slightly Disappointing ECB Decision Means for Markets

Futures are modestly higher thanks to better than expected earnings.

Earnings after Thursday’s close were solid as GOOGL, INTC and SBUX all beat estimates and rallied after hours.  The results are offsetting Wednesday’s underwhelming results.

There were no notable economic reports overnight and no new U.S./China trade news, so markets are continuing to digest a slightly disappointing ECB meeting and focus has now turned to the Fed meting this coming Wednesday.

Today there is only one economic report, Initial Q2 GDP (E: 1.9%), which might have more of an impact on markets than usual given Wednesday’s Fed meeting, especially if it’s a big surprise in either direction (very strong or very weak).  If it’s a strong number, that will weaken the case for sustained Fed easing (which the market has priced in) and if it’s a weak number, it’ll strengthen the case for sustained Fed easing (so stocks will likely rally on a “bad is good” reaction).

What Falling RV Sales Mean for the Economy

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What’s in Today’s Report:

  • What Falling RV Sales Mean for the Economy (Not Necessarily What You Think)
  • Oil/Energy Market Update

Futures are flat following a busy night of earnings as investors look ahead to the ECB decision later this morning.

Economic data again disappointed as the German IFO Business Expectations missed estimates (92.2 vs. (E) 94.0).

There was an earnings deluge overnight and results, on balance, were slightly negative although the Q2 earnings season remains better than feared.

Today the most important event is the ECB Decision and we get the announcement at 7:45 a.m. and the press conference at 8:30 a.m.  The key for this meeting is how definitive the ECB will be on more rate cuts and QE.

If they cut rates and announce the start of a new QE plan, that’ll be a dovish surprise (good for stocks), if they effectively promise a rate cut and more QE at the September meeting, that will meet expectations (not a big market reaction) and if they merely state both moves are possibilities if growth slows further, that will be a hawkish disappointment (stocks likely will fall).

Outside of the ECB we get two notable economic reports via Durable Goods Orders (E: 0.7%) and Jobless Claims (E: 210K).

ECB Preview (The Most Important Catalyst of the Week)

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What’s in Today’s Report:

  • ECB Preview
  • The Threat to Oil Prices and the Potential Effect on Bonds

S&P futures are down 10 points this morning after the U.S. DOJ announced an antitrust probe into big tech firms late yesterday while EU economic data badly missed estimates.

The EU PMI Composite Flash for July was 51.5 vs. (E) 52.1 but the German Manufacturing component was especially weak at 43.1 vs. (E) 45.2 rekindling fears of a further, and potentially accelerating, slowdown in the global economy.

In today’s U.S. session, there are two economic reports to watch: The PMI Composite Flash (E: 51.2) and New Home Sales (E: 655K) while no Fed officials are scheduled to speak ahead of next week’s FOMC Meeting.

There is a 5-Yr Note Auction by the Treasury at 1:00 p.m. ET today and the results could have an impact on the yield curve which could ultimately move stocks (like we saw with yesterday’s 2-Yr Auction).

Earnings season is continuing to pick up and today will be a very busy day of releases with BA (-$0.56), T ($0.89), CAT ($3.12), UPS ($1.93), NOC ($4.64), GD ($2.68), FCX (-$0.05), and NSC ($2.77) due to report before the open, and FB ($1.90), TSLA (-$0.52), PYPL ($0.73), and F ($0.30) will hit after the bell.

Tom Essaye Interviewed with TD Ameritrade on July 22, 2019

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Tom Essaye sat down with Jill Malandrino to discuss the macro picture of the market, earnings season, what the market is expecting, Federal rate cut and more. Watch the full interview below..

Tom Essaye Interview with TD Ameritrade

Key Levels To Watch in the Yield Curve

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What’s in Today’s Report:

  • Signals from the “Smart Market” – Good, Bad, and Ugly Scenarios

Stock futures are flat to slightly higher this morning as investors continue to digest mixed earnings reports, incremental progress between the U.S. and China on trade, and yesterday’s very dovish Fed chatter.

U.S. and Chinese officials held phone conversations last night and it appears more face-to-face meetings are likely in the near term, underscored by a near 2% rally in copper this morning.

Looking into today’s session, there is one economic report to watch: Consumer Sentiment (E: 98.6) and two Fed officials are scheduled to speak: Bullard (11:05 a.m. ET) and Rosengren (4:30 p.m. ET).

Earnings will remain in focus as there are several notable companies releasing Q2 results before the bell: BLK ($6.52), KSU ($1.61), AXP ($2.05), and SYF ($0.96), but yesterday’s rally was all about dovish Fed expectations so investors will be watching for any further clues as to whether the Fed will cut by 25 or 50 basis points at the July FOMC meeting.

Tom Essaye Quoted in Televisa.news on July 16, 2019

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“Si miramos esta temporada de resultados, la pregunta clave es: ¿llevará la incertidumbre en materia comercial a que las empresas frenen sus inversiones y reduzcan sus gastos…” se planteó el experto Tom Essaye, fundador de Sevens Report.