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Does this Cyclical Rotation Have Legs?

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What’s in Today’s Report:

  • Does this Cyclical Rotation Have Legs?
  • Factory Orders Data Takeaways
  • Dr. Copper Update

U.S. stock futures are higher this morning and global stocks rallied overnight thanks to more positive trade headlines and mostly “Goldilocks” economic data overseas.

The Financial Times was the first to report the Trump administration is considering rolling back $112B worth of tariffs that went into effect on September 1st which would be a significant concession and first sign of real progress towards a “phase one” deal being reached.

Economically, the first composite PMI reports were released overseas and both the Chinese and British figures firmed in October, further easing concerns about the health of the global economy.

Today, there are several economic reports due to be released: International Trade (E: $52.5B), ISM Non-Manufacturing Index (E: 53.5), and JOLTS (Previous: 7.051M, while two Fed officials are scheduled to speak: Kaplan (12:40 p.m. ET) and Kashkari (6:00 p.m. ET).

Beyond the data and Fed speakers, focus will be primarily on the trade war as investors look for further insight to whether or not the Trump Administration will move forward with tariff rollbacks and delays as was reported overnight. Any confirmation would be well-received and see stocks extend this recent squeeze higher towards 3,100 in the S&P.

An Analogy To Explain This Market (Investors Loved It)

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What’s in Today’s Report:

  • An Analogy to Help Explain This Market (Investors Loved It)
  • Weekly Market Preview (Trade and Data Remain the Focus)
  • Weekly Economic Cheat Sheet (Global Growth Updates This Week)

Futures are modestly higher as global markets extended Friday’s jobs report and trade-driven rally.

On trade, U.S. and Chinese officials again repeated that substantial progress has been made on Phase One, while Wilbur Ross downplayed chances of auto tariffs (something that wasn’t ever priced into the market but was a peripheral risk).

Economically, EU and British manufacturing PMIs slightly beat estimates but remained in contraction territory (45.9 and 44.2 respectively).

Today there is one economic report, Factory Orders (E: -0.5%), and normally I don’t follow it, but it’ll give us greater insight into the current state of business spending, so a better than expected reading there will be a positive.  Additionally, there is one Fed speaker, Daly (3:05 p.m. ET) but she won’t move markets as Clarida and Powell made future Fed policy very clear last week – they’re done cutting barring an economic rollover.

ISM PMI Day (More Important than the Jobs Report)

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What’s in Today’s Report:

  • Jobs Report Preview (Minor Post Fed Adjustments)
  • Is Dr. Copper Sending Another Signal?

Futures are slightly higher following yesterday’s declines thanks to decent economic data and ahead of the jobs report and ISM Manufacturing PMI.

Global manufacturing PMIs were a bit better this morning as a private market reading of Chinese manufacturing beat estimates (51.7 vs. (E) 51.0) and that’s notable because it contradicts the soft government reading from Thursday.  Additionally, the British manufacturing PMI also beat estimates.  The Japanese reading, however, was soft (48.4 vs. (E) 48.9).

Bottom line, global manufacturing PMIs aren’t collapsing, but they aren’t showing the type of stabilization that markets have priced in, either.

Today the focus will be on economic data and while the Employment Situation report (E: 93K job adds, 3.6% UE rate, 3.0% wage growth) will dominate the headlines, the ISM Manufacturing PMI (E: 49.0) is actually going to be the more important report, because if it shows further deterioration, that will increase worries about the U.S. economy.  More broadly, as we said yesterday, with the Fed on hold, “good” data is good for stocks, and “bad” data is bad.

Finally, there are two notable Fed speakers today, Williams (12:00 p.m. and 2:30 p.m. ET) and Clarida (1:00 p.m. ET) although neither should move markets given we just heard from Powell.

FOMC Takeaway: Will Three Rate Cuts Save the Bull Market?

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What’s in Today’s Report:

  • Will Three Fed Rate Cuts Be Enough To Save the Bull Market?
  • Why Wednesday’s GDP Report is Important
  • Oil Market Update

Futures are modestly lower as weak global economic data offsets good earnings from AAPL and FB.

The Chinese October manufacturing PMI fell to 49.3 vs. (E) 49.8, the lowest level since January 2016.  German retail sales and EU unemployment also slightly missed estimates and the takeaway is that the hoped for stabilization in the global economy isn’t happening yet.

On U.S./China trade, a Bloomberg headline hit early this morning saying a long term U.S./China trade deal is unlikely, but that’s not news as it was never expected.  Instead, consensus expectations are for an ineffectual Phase One document to be signed, and then no further progress after that (the key to this whole drama remains whether there’s any tariff relief).

Today’s focus will remain on economic data as earnings begin to move towards the back burner.  Key reports to watch today, in order of importance, are:  Core PCE Price Index (E: 0.1%, 1.7%), Employment Cost Index (E: 0.7%) and Jobless Claims (E: 215K). From a data standpoint, with the Fed now on hold, “good” economic news is good for stocks, and “bad” economic news is bad.  So, the bulls are looking for good news for the remainder of the week.

Tom Essaye Quoted in CNBC on October 29, 2019

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“People had aggressively pushed cyclicals higher over the past two weeks. But in order for that to work out beyond the short term, we need to see…” said Tom Essaye, founder of the Sevens Report. Click here to read the full article.

New York Stock Exchange traders

Fed Day and Jobs Report Preview

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What’s in Today’s Report:

  • Jobs Report Preview
  • Is Natural Gas About to Surge?
  • What Constitutes a Positive Move Post Fed?

Futures are flat ahead of the Fed decision and multiple key economic releases today while int’l shares declined overnight on soft data.

The Eurozone EC Economic Sentiment Index dropped to 100.8 vs. (E) 101.4 in October, a fresh 3+ year low as recession concerns continue to weigh on growth expectations.

The FOMC Meeting Announcement at 2:00 p.m. ET and Fed Chair Powell’s Press Conference at 2:30 p.m. ET will clearly be the main events for the markets today however there are two key economic reports that warrant attention before the bell this morning: Econ Today: ADP Employment Report (E: 139K) and Q3 GDP (E: 1.7%).

Meanwhile, earnings season remains in full swing with multiple important reports due out today: GE ($0.12), SNE ($1.08), YUM ($0.94), AAPL ($2.84), FB ($1.91), SBUX ($0.70), WDC ($0.28), SU ($0.54).

Bottom line, economic data and earnings will be able to influence early price action across asset classes today but where equity and bond markets close will almost exclusively rely on whether the Fed meets expectations, comes across as dovish, or offers another hawkish (and bearish stocks) surprise like we saw back in late July.

Fed Meeting Preview

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What’s in Today’s Report:

  • FOMC Preview

Stock futures are slightly lower and bonds are rising modestly as investors digest yesterday’s new all-time highs in the S&P, eye Brexit developments, and position ahead of the week’s long list of catalysts.

British PM Boris Johnson is making a new push for a general election in early December, increasing the odds of a no-deal Brexit which is weighing on stocks this morning.

There are a few economic reports to watch this morning including S&P Case-Shiller HPI (-0.1%), Consumer Confidence (E: 128.6), and Pending Home Sales (E: -0.2%) but the market’s reaction is expected to be limited as the FOMC meeting begins which will likely lead to a degree of “trader paralysis” today.

Meanwhile, earnings season remains in full swing and there are several notable reports due today which could influence sector trading:  MA ($2.01), MRK ($1.25), PFE ($0.63), GM ($1.31), AMD ($0.18), and AMGN ($3.51).

Why Markets Are Ignoring Bad Data

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What’s in Today’s Report:

  • Why Markets Are Ignoring Bad Economic Data

Futures are slightly higher following a generally quiet night of mixed earnings.

On the earnings front, AMZN missed earnings badly but INTC posted strong numbers and the two are largely offsetting one another.

Regarding U.S./China trade, there is a phone call between the two countries today where China will ask for the December tariff increases to be formally scrapped and the 9/1 tariff increases to be rescinded. If this happens, it’s a positive surprise.

Today the calendar is quiet as we have just one economic report, Consumer Sentiment (E: 96.0) and only a few notable earnings reports, VZ ($1.24) and BUD ($1.36).

So, focus will be on that U.S./China trade call, and if we see the September tariff increases rolled back, that will likely send the S&P 500 to new all-time highs.

Print This Table (Updated Market Roadmap)

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What’s in Today’s Report:

  • Print This Table:  Updated Market Roadmap into Year-End
  • If you want a PDF copy of the updated Market Multiples table, please email info@sevensreport.com

Futures are slightly higher as better than feared earnings offset more disappointing economic data.

Global flash PMIs universally disappointed this morning as the Japanese (49.8 vs. (E) 51.5), German (48.6 vs. (E) 48.7) and EU ( 50.2 vs. (E) 50.4) numbers missed estimates, reminding us again that we still don’t have stabilization in the global economy.

Today there is a lot of economic data and numerous notable earnings reports, but the most important event of the day is the Pence speech on China (11:00) a.m.  Pence is expected to be tough on China, but nothing so drastic that it imperils Phase One.  However, last year’s speech sparked volatility, so this remains something to watch.

Economically there are several notable reports including, in order of importance: Flash Composite PMI (E: 50.9), Durable Goods (E: -0.7%), Jobless Claims (E: 214K), and New Home Sales (E: 698K). Additionally, there is one Fed speaker today, Williams (7:00 p.m. ET).

On the earnings front, the reports will continue to roll in, and here are the report we’re watching today: MMM ($2.47), NOC ($4.74), AMZN ($4.46), V ($1.43), INTC ($1.24), COF ($2.87).

Finally, today is the final ECB press conference for ECB President Mario Draghi.  There shouldn’t be any surprises and it won’t move markets.  But, I did want to note it for history’s sake, as this man literally saved the euro currency and the EU more broadly with these speeches and actions back in 2012 and 2013, although I’m skeptical he will ever get that credit.

Where Will the S&P End the Year?

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What’s in Today’s Report:

  • What Brexit Means for Markets
  • Where Will the S&P End the Year? (A Market Multiples Update)

Stock futures are flat amid continued Brexit uncertainty ahead of a very busy day of earnings in the U.S.

Economically, the French Business Climate Indicator fell to a more than 4 year low of 99 vs. (E) 102, underscoring the recent trend of weakness in the EU manufacturing sector.

Looking into today’s session there we will get one more data point on the housing market: FHFA House Price Index (E: 0.4%) while no Fed officials are scheduled to speak.

On the earnings front, the Q3 reporting season is nearing its peak with notable reports from: BA ($2.04), CAT ($2.83), FCX (-$0.01), GD ($3.06), WGO ($0.98), and NSC ($2.57) due out before the bell while TSLA (-$0.41), MSFT ($1.25), PYPL ($0.66), F ($0.26), and EBAY ($0.64) will release after the close.

Bottom line, markets will remain sensitive to any material developments regarding Brexit or the Trade War but investor focus is increasingly shifting to earnings, and if reports remain healthy, the S&P could reclaim 3,000 and potentially drift towards the all-time highs.