Posts

Is the Pullback Over?

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What’s in Today’s Report:

  • Is the Pullback Over?
  • Weekly Market Preview (Can the rally keep going?)
  • Weekly Economic Cheat Sheet (Chinese data is key this week)

Futures are modestly higher on the avoidance of Mexican tariffs, although trade news was more mixed than good this weekend.

On trade, positively the 5% tariff on Mexican exports to the U.S. was avoided. Negatively, and more importantly, there was no progress on U.S.-China trade at the G-20 Finance Ministers meeting and no U.S.-China trade talks are planned before the G-20 meeting later this month.

Economic data was also mixed as Chinese exports slightly beat estimates but imports badly missed, while British GDP and Industrial Production also underwhelmed.  So, like the trade news from the weekend, there was a positive event, but on the whole the results were more mixed than good.

Today there are no material economic reports so focus will remain on the news wires and any trade related headlines.  Anything that implies renewed talks between the U.S. and China will likely extend this rally and test resistance at 2900 in the S&P 500.

Bull Steepening (Not Necessarily Good for Stocks)

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What’s in Today’s Report:

  • The Yield Curve Is Steepening, That’s Good for Stocks Right? (Not Necessarily)

Futures are moving higher on dovish optimism following soft economic data overseas ahead of today’s jobs report but trade war developments were actually negative overnight.

German data disappointed overnight as Industrial Production fell -1.9% vs. (E) -0.5% while the trade surplus narrowed to 17.0B euros, a 9-month low.

The data is fueling hopes of a dovish policy shift from the ECB, however, after Draghi cited soft manufacturing trends as a concern earlier in the week which is helping EU shares outperform this morning.

Trade news was a net negative overnight as Mexican tariffs are still expected to be implemented on Monday (hopes of a delay pushed stocks higher yesterday afternoon) while there were no material developments on the China front.

Today, investors will be primarily focused on the Employment Situation Report due out at 8:30 a.m. ET (E: +180K job adds, 3.7% UR, 3.2% wage growth YoY).

Due to the huge dovish shift in Fed policy expectations over the last week, bad news will be good news for stocks as the odds of a summer rate cut will rise and the biggest risk for stocks is a “hot” print this morning, especially on wages.

Jobs Report Preview

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What’s in Today’s Report:

  • Jobs Report Preview
  • Weekly EIA Analysis and Oil Update

S&P futures are extending this week’s “squeezy” rally in early trade as dovish optimism continues to dominate the tape ahead of this morning’s ECB announcement while economic data was better than feared overnight.

German Manufacturers’ Orders rose 0.3% vs. (E) -0.1% in April while Eurozone GDP was in –line at 0.4% in Q1. Importantly, neither report was inflationary which is allowing the global rally, driven by a notable dovish shift in sentiment, alive today.

Looking into today’s session, Europe will be in focus early as the ECB Announcement is due out at 7:45 a.m. ET and Draghi’s press conference is scheduled for 8:30 a.m. ET. As long as there are no hawkish surprises out of the ECB, money flows are likely to remain “risk-on” as the U.S. session gets underway.

Domestic focus today will be on the few data points: International Trade (E: -$50.8B), Jobless Claims (E: 215K), and Productivity and Costs (E: 3.4%, -0.8%) as well as Fed speakers: Kaplan (8:40 a.m. ET) and Williams (1:00 p.m. ET).

Again, as long as there are no hawkish surprises today, the path of least resistance is still higher for stocks, although the market has gone from deeply oversold, to near term overbought in a hurry so some consolidation or a modest pullback should not come as a surprise ahead of tomorrow’s jobs report.

Is the “Fed Put” Back?

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What’s in Today’s Report:

  • Is the “Fed Put” Back?

Futures are higher as Tuesday’s “squeezy” rally carried over into international markets overnight thanks to the dovish Fed rhetoric over the last 24 hours and a handful of incremental positive macro developments.

Mnuchin will meet with Chinese officials this weekend and there is growing support by Republican Senators to block Mexican tariffs, both of which are trade war positives.

Economic data overnight was mixed but “goldilocks” as EU composite PMIs were largely better than feared, Eurozone Retail Sales were in line with expectations, while inflation statistics came in light.

Today, focus will be on economic data early with the ADP Employment Report (E: 175K) due out ahead of the bell while the ISM Non-Manufacturing Index (E: 55.8) will print shortly after the open.

There is also one Fed speaker: Bostic (9:45 a.m. ET) and if the general tone remains dovish, this week’s short-squeeze in stocks can continue with the S&P approaching the 2850 area.

However, because the macro backdrop has not materially improved so far this week (again the developments have just been “less bad”), it is unlikely at this point that the move is the beginning of a sustainable, longer term rally.

Tom Essaye Quoted in Newsmax on June 4, 2019

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“The market was blindsided by this — this is not good for the markets,” Tom Essaye, president of Sevens Report Research, told Yahoo Finance. This was shared on Newsmax.com

Read the full article here.

Tom Essaye Quoted in Yahoo Finance on Jun 3, 2019

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“The market was blindsided by this — this is not good for the markets,” Tom Essaye, president of Sevens Report Research, said on Yahoo Finance’s The First Trade.

Click here to read the full article.

Tom Essaye Headshot

Good, Bad, & Ugly Market Scenarios

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What’s in Today’s Report:

  • Good/Bad/Ugly Scenarios: Likely Market Reactions (Print this Table)

Stock futures are bouncing modestly as investor sentiment improved o/n amid reported progress on one front of the trade war while the markets await Fed comments today.

There were two positive headlines on U.S.-Mexico trade overnight.

First, Republicans in Congress are working to block Trump’s tariff plans and second, the Mexican government has already stepped up border security, showing cooperation on the main demands from the White House.

Meanwhile the RBA cut rates as expected, but the move is adding to the dovish tailwind that has helped markets stabilize so far this week.

Today, there are a few data points to watch: Motor Vehicle Sales (E: 16.9M) and Factory Orders (E: -0.8%), but the markets main focus will be on the Fed as there are several speakers: Williams (8:30 a.m. ET), Powell (9:55 a.m. ET), Brainard (3:45 p.m. ET).

Powell will clearly be the most closely watched, however any further hints at a potential rate cut in the near term will be received positively by the market. Conversely if Bullard’s dovish comments from yesterday are contradicted, stocks could easily turn back negative on the week.

The Four Problems Facing Stocks (Print This List)

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Today’s Report is attached as a PDF.

What’s in Today’s Report:

  • Market Strategy Update:  The Four Problems Facing Stocks And Positive/Negative Outcomes for Each (I’m printing this list).
  • Weekly Market Preview (It’s Going to Be a Busy Week)
  • Weekly Economic Cheat Sheet

Futures are marginally lower following a busy weekend of news, but one that provided no significant surprises.

Global May manufacturing PMIs were mixed but a bit better than feared.  Chinese Manufacturing PMI was 50.2 vs. (E) 50.0, while the EU PMI met estimates at 47.7.  The British PMI was the disappointment at 49.4 vs. (E) 52.0.

On trade, a Mexican delegation is headed to Washington on Wednesday and there were some relatively positive comments from China, but neither situation has improved.

Today the key event will be the May ISM Manufacturing PMI (E: 52.9).  If that number meets expectations, that will alleviate some growth concerns, while a miss will only worsen the growing worries that the economy is rolling over.  From a Fed standpoint, there are two speakers today (Bullard 1:25 p.m. ET, Daly 9:45 p.m. ET) but neither should move markets as they aren’t part of Fed leadership.

Tom Essaye Quoted in Barron’s on May 31, 2019

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Tom Essaye Quoted in Barron’s on May 31, 2019.

Investors have to consider what  Tom Essaye calls the “worst case scenario.” In this case, the governments of Mexico and China decide to wait until the next election…click here to read the full article.

Tom Essaye Interviewed with Yahoo Finance on May 31, 2019

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Tom Essaye Interviewed with Yahoo Finance on May 31, 2019. A lot of important topics to talk about lately. Watch the full video here.