Posts

Trump/XI Meeting Day (Finally)

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What’s in Today’s Report:

  • What’s Caused The Late Week Rally (Don’t Forget It’s Quarter End Too)
  • A Positive Sign in Housing
  • Trump and Xi meet at 10:30 p.m. ET tonight so look for I’ll be looking for headlines starting around 11:30 p.m.

Futures are modestly positive again this morning on more U.S.—China trade optimism.

President Trump said he thought talks with President Xi would be “productive” and that’s boosting futures.

Economic data largely met expectation although Japanese IP (2.3% vs. (E) 0.3%) and EU HICP (their CPI) slightly beat estimates (1.1% vs. 1.0% yoy).

Focus will clearly be on the looming Trump/Xi meeting but there’s an important economic data point to watch today:  Core PCE Price Index (E: 0.1% m/m, 1.5% y/y).  If that shows inflation that’s stronger than estimates, it’ll reduce the chances of a rate cut (bad for stocks), while a soft number will result in a “bad is good” reaction in markets.

 

Tom Essaye Quoted in CNBC on June 27, 2019

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“For now what the bond market is doing is signaling the chances of a recession are more likely than the chances of a renewal of the expansion,” said Tom Essaye, founder of Sevens Report Research. Click here to read the full article.

Traders on stock exchange floor

Tom Essaye Quoted in CNBC on June 27, 2019

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“We’ve consistently repeated that the rally in stocks to essentially new highs has been driven by hopes of Fed rate cuts and a U.S.-China trade truce…” said Tom Essaye, founder of The Sevens Report. Click here to read the full article.

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G-20 Preview (What It Will Mean for Stocks)

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What’s in Today’s Report:

  • G-20 Preview (What’s Expected, Bullish If, Bearish If, and Market Reactions)
  • Oil Update – A Bullish Inventory Number (And a Major Gasoline Supply Disruption)

Futures are marginally higher again and this morning is largely a repeat of Wednesday morning as a news article that is positive on U.S.—China trade in tone, yet offers no new information, is causing a mild rally.

The South China Morning Post (a government media source) posted an article stating the U.S. and China will reach a temporary trade “truce” at the G-20.

Economic data was sparse and is not moving markets.

Today we do get some notable economic reports, including Final Q1 GDP (E: 3.1%), Jobless Claims (E: 218K) and Pending Home Sales (E: 0.6%).

The GDP report will get the most attention but the claims data is the most important release today, but that said none of these reports should move markets.  Instead, we will continue to be glued to the scrolling ticker for any reports or updates on what’s expected at the G-20, as that event continues to hover like a cloud over all markets this week.

Digging Deeper into the Yield Curve

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What’s in Today’s Report:

  • Digging Deeper into the Yield Curve

S&P futures are rebounding solidly this morning after Secretary Mnuchin reiterated that a U.S.-China trade deal is 90% complete while oil prices surge ahead of weekly data.

WTI crude oil futures are up nearly 2% after the API reported a weekly supply draw of over 7M bbls late on Tuesday which nearly tripled expectations (-2.6M bbls).

Economically, the German GfK Consumer Climate headline fell to 9.8 vs. (E) 10.0 in July, underscoring investor concerns about the EU economy.

After Mnuchin’s comments this morning, market focus has returned to the trade war and investors will be looking for any additional commentary out of Washington regarding the upcoming meeting between Trump and Xi or any other details on trade.

There are no Fed speakers today but there are two economic reports to watch that could potentially move markets, especially given the less dovish Fed speak yesterday: Durable Goods Orders (E: -0.1%) and International Trade in Goods (E: -$71.5B).

Mind the Fed Funds Gap

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What’s in Today’s Report:

  • Mind the Fed Funds Gap

S&P futures are slightly lower as this week’s dovish rally to new all-time highs is digested amid further escalations between the U.S. and Iran while economic data was mixed.

The U.S. reportedly called off a retaliatory strike against Iran “at the last minute” overnight which is weighing on investor sentiment but supporting oil prices (Brent +1.60%).

Flash PMIs were mixed o/n with Asian data slightly underwhelming while European data slightly beat expectations. But none of the releases were too far from estimates so the data is not materially affecting markets this morning as investors remain focused on this week’s dovish shift in central bank policies and look ahead to the G20.

Today, there are two economic releases to watch: Flash Composite PMI (E: 50.9) and Existing Home Sales (E: 5.28M). It will be important for the former to remain soft to keep the “Fed Put” alive, but not so bad that the data stokes fears that the Fed is “too far behind the curve.”

Speaking of the Fed, Brainard and Mester speak on a panel together at 12:00 p.m. ET and Daly is scheduled to speak at 12:30 p.m. ET. Given the market’s significant dovish shift in policy expectations this week, investors will be watching closely for any further clues as to when the Fed plans to cut (July?) or by how much (25 or 50 bp?).

Tyler Richey Co-editor at Sevens Report Quoted in WorkBoat on June 20, 2019

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As of June 20, oil prices have settled a bit lower after an uptick following a larger-than-expected drawdown of U.S. crude stockpiles in early June. That drawdown “helped ease some of the supply side concerns in the energy market…but U.S. supply data is a secondary influence on the market…” according to Tyler Richey, co-editor at Sevens Report Research. Click here to read the full article.

Off Shore drilling boat

Perspective on Yesterday’s Rally

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What’s in Today’s Report:

  • Perspective on Yesterday’s Bullish Catalysts (Draghi’s QE reference, Trump’s tweet)
  • Is ECB QE Bullish for European Stocks?

Futures are little changed following a quiet night as markets digest yesterday’s events (Draghi dovish, Trump’s positive U.S./China tweet) ahead of the Fed later today.

In contrast to the suddenly positive mood on the Street, economic data again was disappointing.  German PPI missed expectations (1.9% yoy vs. (E) 2.2% yoy) as did British Industrial Trends (-15 vs. (E) -12), but neither number is moving markets.

Today is clearly all about the FOMC Decision at 2:00 p.m. ET.  There’s virtually zero chance of a rate cut at this meeting, so the keys to watch will be 1) Whether the word “patient” is removed from the end of the second paragraph (signaling a looming rate cut) and do 2) The dots show no rate hikes in 2020 and 3) A cut in 2019.

If the answer to each of these is “yes” the meeting will be dovish and likely extend the rally. If the answer is “no” to all three it’ll be hawkish and stocks will get hit, and if we get a mixed bag, the reaction from markets shouldn’t be too drastic.

 

Sevens Report Quarterly Letter

Next week is the final week of the quarter, and we’ve already begun working on the Q2’19 Sevens Report Quarterly Letter.

The Q2 Quarterly Letter will be delivered to subscribers on July 1st.

Volatility returned and investors are now facing multiple risks including: 1) Trade uncertainty, 2) Worries about economic growth, 3) Geopolitical concerns and 4) Shifting Fed policy.

Investors I speak with want to hear from their advisor in this environment. That’s why we’re producing the letter on the 1st business day of the quarter, because we want you to be able to impress clients by sending them your quarterly letter before your competition (and with little-to-no work from you).

Tom Essaye Quoted in MoneyWeek on June 14, 2019

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“You had a market that became very pessimistic and then all of a sudden we had the Fed’s dovish rhetoric and no…” says Tom Essaye. Click here to read the full MoneyWeek article.

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FOMC Preview (Will the Fed Confirm the Rally?)

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What’s in Today’s Report:

  • FOMC Preview – Will the Fed Confirm the Rally?

Futures are modestly higher as stocks rally off dovish comments by ECB President Draghi and again ignore more ugly economic data.

In a speech Draghi said the APP (the EU QE program) had a lot more “room” implying it could be re-started, and that helped global equities rally modestly.

Economic data, meanwhile, was again ugly.  German ZEW Business Expectations collapsed to –21.1 vs. (E) -9.3 while Euro Zone exports missed estimates at –2.5% vs. (E) -1.2%.

Today will likely be dominated by pre-Fed positioning and trading should be quiet, although there’s always the chance we get a U.S. – China trade update as the G-20 draws closer.  Economically there is just one report, Housing Starts (E: 1.240M), and it shouldn’t move markets.