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Yield Curve Update: Negative Trend Break

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What’s in Today’s Report:

  • Bottom Line: Did Something Good Happy Yesterday?
  • Yield Curve Update: Negative Trend Break

Stock futures are little changed this morning as investors digest new Fed chatter and more trade war jawboning.

Fed Chair Powell said he saw the “glass as much more than half full” regarding the current expansion and reiterated that rates will remain unchanged until inflation rises materially.

U.S. and Chinese trade negotiators spoke on the phone overnight to discuss “core issues” and reported that they have reached a “common understanding on resolving relevant problems” but no concrete progress was made and the status of phase-one remains unknown.

There are a few potential catalysts to watch today including economic releases: International Trade in Goods (E: -$70.0B), S&P Corelogic Case-Shiller HPI (E: 0.3%), New Home Sales (E: 707K), and Consumer Confidence (E: 126.8) as well as one Fed speaker: Brainard (1:00 p.m. ET).

Additionally, there is a 5-Year Treasury note auction today at 1:00 p.m. ET and with the yield curve coming back into focus, any wild swings in the belly of the curve could move stocks (remember we want to see the 10s-2s steepen due to a rising 10-year yield).

Aside from those scheduled events, speakers and reports, the market will clearly remain very sensitive to anything regarding the relationship between the U.S. and China as the trade war remains the single most important influence on this market right now.

Tom Essaye Quoted in CCN on November 22, 2019

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Tom Essaye of Sevens Report Research told CNBC that a sizeable crash could be coming for the stock market if talks devolve: If there’s not a China trade deal, you are going to see the S&P 500 go down 10% in a heartbeat. It’s going to fall fast. If the talks collapse this time…Click here to read the full article.

Trump

Tom Essaye Quoted in CNBC on November 22, 2019

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“People are looking at the stock market that’s going straight up and it’s making them greedy. We’ve had a six-week rally where literally every piece of bad news is completely ignored and…” Tom Essaye, founder of Sevens Report Research, said in an interview. Click here to read the full article.

New York Stock Exchange Trader

Why Markets Are Still So Resilient

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What’s in Today’s Report:

  • Why Markets Remain So Resilient
  • Weekly Market Preview (Still All About U.S./China Trade)
  • Weekly Economic Cheat Sheet (Wednesday is the Key Day This Week)

Futures are modestly higher on more positive U.S./China trade chatter.

China increased the penalties for Intellectual Property (IP) theft, addressing part of a key U.S. trade demand, while the Global Times (a state-run Chinese paper) said the sides were “very close” to a deal.

Economically, data was mixed but better than October.  German IFO Business Expectations rose to 92.1 vs. (E) 92.5, while British Distributive Trades rose to –3 vs. (E) –10.

Today there are no notable economic reports so the focus will remain on U.S./China trade.  Any incremental positive chatter will be a tailwind for stocks, although the Hong Kong democracy bill remains a wildcard.  If Trump signs it (which he’s expected to do), that could temporarily hit U.S./China trade sentiment, although it’s not a material negative.

Finally, Fed Chair Powell speaks at 7:00 p.m. ET but he’s not expected to say anything too incremental.

Making Sense of Wednesday’s Trade Headlines (That Caused the Selloff)

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What’s in Today’s Report:

  • What to Make of Wednesday’s Trade Headline (That Caused the Selloff)
  • What Does Escalating Trade Noise Mean for Markets Into Year-End?

Futures are little changed as markets digest yesterday’s potentially negative U.S./China trade headlines along with more headlines overnight, as the trade noise grows louder.

The trade headline whiplash continued overnight as Chinese Vice Premier He said he was “cautiously optimistic” about a phase one deal being signed.  This is helping, somewhat, to counter yesterday’s headline about a deal slipping into 2020.

There were no economic reports out overnight.

Today there are some important economic reports, but the biggest issue today will be whether President Trump signs the bill passed by Congress supporting democracy in Hong Kong (if he does, that could complicate trade talks).  He is expected to sign the bill, although that’s not a high conviction expectation.

Looking at actual economic data, we have two important reports today, Jobless Claims (219K) and Philadelphia Fed (E: 7.5) and one housing number, Existing Home Sales.  As has been the case, the stronger the data, the better for stocks.  We also have two Fed speakers, Mester (8:30 a.m. ET) and Kashkari (10:10 a.m. ET), but neither should move markets.

Tom Essaye Interviewed with TD Ameritrade Network on November 20, 2019

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Tom Essaye interviewed with Oliver Renick from TD Ameritrade, discussing Bonds vs Equities, trade war, yield curve, reflation and more…Click here to watch the full interview.

Tom Essaye with TD Ameritrade

Clearing the Trade War Fog

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What’s in Today’s Report:

  • Clearing the Fog: Where Are We on U.S.-China Trade?

U.S stock futures are trading lower and international markets saw broad declines overnight thanks to escalating trade tensions between the U.S. and China.

The Senate passed a bill late Tuesday in support of the Hong Kong protests to which the Chinese Foreign Ministry has issued a strong statement of disapproval for.

Additionally, Trump threatened higher tariffs at a cabinet meeting yesterday and the combination is weighing on sentiment.

There are no economic reports today and no Fed officials scheduled to speak but the minutes from the October FOMC Meeting are due out at 2:00 p.m. ET which will be closely watched for further clues on the Fed’s future policy plans.

The trade war is still dominating markets right now so investors will be watching for any rebuttals from the U.S. regarding China’s negative response to the “Hong Kong bill” or any additional talk of future tariff policy from either the U.S. or China.

Tom Essaye Quoted in Invest Records on November 11, 2019

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“Stocks hit fresh new highs last week on a familiar theme: Positive chatter/headlines on phase one of a U.S./China trade deal, while earnings and global data…” wrote Tom Essaye, president of the Sevens Report, in a Monday note to clients. Click here to read the full article.

Tom Essaye

An Economic Fork in the Road

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What’s in Today’s Report:

  • Economic Breaker Panel Update: An Economy at a Fork in the Road

Global markets are trading with a moderate risk-off tone this morning as the trade war weighs on sentiment.

It remains unclear whether the U.S. will offer relief on existing tariffs as part of the “phase one” trade deal with China (which has been priced into stocks in recent weeks), or just cancel the scheduled December tariffs, which would be a disappointment.

Meanwhile, on the economic front, Eurozone Industrial Production was largely overlooked because of trade angst but the release was not as bad as feared (0.1% vs. E: -0.3%) further easing recession concerns in Europe.

There were other headlines overnight including escalating protests in Hong Kong which saw the Hang Seng underperform (down nearly 2%) and chatter about the public impeachment hearings in Washington today but neither are materially affecting U.S. stocks at this point as the market’s main focus remains the trade war.

Looking into today’s session, there is one economic report to watch: CPI (E: 0.3%) before focus will turn to Powell’s testimony before Congress on the state of the economy at 11:00 a.m. ET. Later in the day, there are two other Fed officials scheduled to speak before the closing bell: Barkin (12:30 p.m. ET) and Kashkari (1:30 p.m. ET).

Bottom line, there are a lot of headlines this morning but the trade war remains the single most important influence on this market so if expectations for tariff removal continue to fade, stocks are likely to trade with a heavy tone.

Is Europe a Buy?

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What’s in Today’s Report:

  • How Powerful Is the Growth to Value Rotation?
  • Is Europe a Buy?

Futures are edging higher in early trade while most international markets rallied on better-than-feared data overnight.

In Europe, the headline to the German ZEW Survey was a slight miss but business expectations rebounded to -2.1 vs. (E) -12.5 as recession fears continued to moderate.

In the U.S., the NFIB Small Business Optimism Index was 102.4 vs. (E) 102.0 another incremental economic positive.

With no economic reports today, focus will be on Trump’s midday speech in NY regarding the trade war. Additionally, there are two Fed speakers: Harker (1:00 p.m. ET) and Kashkari (6:00 p.m. ET).

The trade war is still by far the most important influence on the markets right now so whether Trump is negative or positive in his discussion regarding trade negotiations today will likely decide whether stocks rally or extend yesterday’s pullback this afternoon.