Why Stocks Dropped

What’s in Today’s Report:

  • Why Stocks Dropped Friday
  • Weekly Market Preview (All About Growth)
  • Weekly Economic Cheat Sheet

Futures are slightly lower thanks to continued momentum from Friday’s sell off.  Outside of politics, it was a generally quiet weekend.

Economically, we got an upside surprise from German IFO Business Expectations, which rose to 95.6 vs. (E) 94.0 and that offsets a small part of last week’s bad PMIs (but not nearly enough to address growth concerns).

Politically, the release of the Mueller report dominated headlines over the weekend, but as has been the case for nearly two years, this topic is not an influence on markets.

There are no economic reports today and no material Fed commentary, so focus today will be on whether the S&P 500 can stabilize and hold 2800.  The Mueller report will continue to dominate media coverage, but again this simply isn’t an influence on stocks, Treasuries or the dollar.

Technical Update

What’s in Today’s Report:

  • Technical Update – What The Charts Are Saying About This Market

Futures are moderately lower following more disappointing European economic data.

EU flash PMIs were a disappointment again, as the composite EU PMI fell to 51.3 vs. (E) 51.4.  Manufacturing was especially bad as the EU flash manufacturing PMI dropped to 47.6 vs. (E) 49.5, a five year low.

Today the highlight will be the Flash Composite PMI (E: 55.2).  That number was always going to be important, but it’s even more important now following the disappointing EU economic data, as markets will need more proof the U.S. can withstand failing global growth to continue this rally.  Other events today include  Existing Home Sales (E: 5.080M), Wholesale Trade (E: 0.1%) and Fed speaker  Bostic (9:30 p.m. ET) but none of those should move markets.

Why Stocks Have Rallied

What’s in Today’s Report:

  • Why Stocks Have Rallied (FOMO)
  • An Important Gap Between Stocks and Bonds
  • EIA Analysis and Oil Market Update

Futures are slightly lower following a quiet night as markets digest more mixed economic data following the big three day rally.

Chinese economic data was mixed as Industrial Production missed estimates (5.3% vs. (E) 5.5%) while Fixed Asset Investment slightly beat and Retail Sales met expectations.

Geo-politically it was a quiet night as there were no updates to U.S./China trade.

Today focus will be on economic data via the Jobless Claims (E: 225K), Import Export Prices (E: 0.3%, 0.2%) and New Home Sales (E: 620K), as well as testimony before Congress by Treasury Secretary Mnuchin.  Finally, there’s a GE guidance update later this morning, and if that’s particularly soft, that could hit stocks.

Economic Breaker Panel: March Update

What’s in Today’s Report:

  • What’s Next for Brexit
  • Economic Breaker Panel – March Update
  • Another (Potentially Bearish) Copper Development

Stock futures are marginally higher this morning after a very quiet night of news while no major international market moved more than 1% overnight.

Asian shares declined modestly after a report that Japanese Machine Orders fell –5.4% in January vs. (E) -1.9%.

In Europe, EU Industrial Production beat expectations (1.4% vs. E: 1.0%) while focus remains on today’s “hard Brexit” vote in the U.K. (which is very unlikely to pass).

Looking into today’s U.S. session, focus will be on economic data early with two reports due ahead of the bell: Durable Goods Orders (E: -0.8%), PPI (E: 0.2%), and one shortly after the open: Construction Spending (E: 0.3%).

There are no Fed officials speaking today so investor focus will shift to the “hard Brexit” vote but it is very unlikely to pass which will result in another vote to delay the Brexit date tomorrow. This scenario is priced in however and should not materially move markets.

Leading Indicators

What’s in Today’s Report:

  • Some Leading Indicators of the 2018 Correction Are Teetering Again

U.S. futures are up small while Asian markets were notably higher overnight as the indexes continued to play “catch up” to the big gains in the US since mid-day Friday while EU markets are flat as investors eye today’s Brexit vote.

News that the EU made some last minute concessions to the Brexit agreement ahead of today’s vote in Parliament was seen as a positive o/n but a deal still remains unlikely.

The NFIB Small Business Optimism Index was 101.7 vs. (E) 102.5 in February but encouragingly some of the forward looking details did improve.

The two primary catalysts in the U.S. today both hit before the open with CPI (E: 0.2%) at 8:30 a.m. ET and then the Fed’s Brainard speaks at 8:45 a.m. ET. Focus will then return to today’s Brexit vote and while a “deal” is not likely, it will be the lack of a delay to the deadline that would hit the pound and risk assets globally.

Why The Dovish ECB Isn’t Good For Stocks

What’s in Today’s Report:

  • Why The Dovish ECB Decision Isn’t Good for Stocks

Futures are modestly lower following more disappointing economic data.

Chinese exports badly missed expectations at –20.7% vs. (E) -6.5%, although that number was likely skewed by the Lunar New Year, so it’s not as bad as it looks.  German Manufacturers’ Orders also missed (-2.6% vs. (E) 0.5%).  So, the data overnight is just adding to the growth worries that came from the ECB projections yesterday and that’s why stocks are down again.

Today the key will be the Employment Situation Report.  Estimates are:  Jobs: 178K, UE: 3.9%, Wages: 3.4% yoy), and thankfully the range for a “Just Right” number is wide, as we said in our Jobs Report Preview.  But, given the recent soft global economic data, while the range for a “Just Right” number is wide, the penalty for a number being “Too Cold” and causing growth concerns or “Too Hot” and resulting in a hawkish Fed will be extreme, and if either one of those outcomes occur, it’ll likely be a painful day in stocks.

Outside of the jobs report we also get Housing Starts (E: 1.17M) and two Fed Speakers:  Daly (10:00 a.m. ET) and Powell (10:00 p.m. ET).

Tom Essaye Quoted in Bloomberg on March 6, 2019

“The outlook for China has been steadily improving for the past two months, and this MSCI announcement is another tailwind. Clearly this isn’t a risk-free trade and a lot can still…”

Click here to read the article.

ECB Preview (Why It’s Important For U.S. Stocks)

What’s in Today’s Report:

  • ECB Preview (This is more important to U.S. stocks than it seems)
  • Jobs Report Preview

Futures are drifting slightly lower following a quiet night as markets await the ECB decision later this morning.

Economic data generally met expectations overnight as Euro Zone Q4 GDP was 1.1% vs. (E) 1.2% while Chinese FX reserves were in line at $3.09T.

Today the key event will be the ECB Decision at 7:45 a.m. ET and then the ECB Press Conference at 8:30 a.m. ET.  For this to meet dovish expectations (and not be a disappointment for stocks) we’ll need to see 1) An extension of the promise not to raise rates until 2020 and 2) A strong hint more TLTROs are coming.  This decision will have direct impacts on Treasuries and stocks (more inside the report).

Away from the ECB we also get Jobless Claims (E: 223K) and Q4 Productivity and Costs (E: 1.6%, 1.8%) plus there’s one Fed speaker:  Brainard (12:15 p.m. ET).

Another Reason to Buy China

What’s in Today’s Report:

  • A New Positive for Chinese Stocks
  • A Theory on the Copper Rally

Stock futures are modestly lower this morning after another mostly quiet night of news as investors look ahead to the remaining catalysts this week including US jobs data.

The only economic report overnight was Australian GDP which missed expectations (0.2% vs. E: 0.3%) and hit the Aussie dollar (-0.76%).

Oil prices are down over 1% this morning after the API reported a weekly build of +7.3M bbls late yesterday vs. (E) +1.6M bbls. A build of this size would largely offset last week’s bullish draw and could pressure the energy space (and drag risk assets lower too) if confirmed by this morning’s EIA report (10:30 a.m. ET).

Today, we get our first look at February jobs data with the ADP Employment Report (E: 180K) due out ahead of the bell. Then, International Trade figures will be released shortly thereafter (E: -$57.6B). Either release could move markets as growth concerns and the trade war remain two of the biggest influences on stocks right now.

Other than the weekly EIA report mid-morning, there are two Fed officials scheduled to speak over the lunch hour: Mester (12:00 p.m. ET) and Williams (E: 12:10 p.m. ET).

A New Risk For Bond Portfolios?

What’s in Today’s Report:

  • Powell’s Senate Testimony Takeaways (Not a Dovish Catalyst Near Term)
  • Did the Fed Quietly Make A Long Term Policy Change? (It Means Higher Inflation Could Be Coming)

Futures are marginally lower following the escalation of tensions between India and Pakistan.  Outside of geo-politics, it was a quiet night.

Pakistan reportedly shot down two Indian fighter jets and carried out air strikes in Kashmir in the biggest uptick in tensions between the two nuclear nations in decades.

Economic data was spare as Euro Zone money supply slightly missed estimates (3.9% vs. (E) 4.0%).

Today the media headlines will focus on the Cohen testimony and the Trump/Kim summit in Vietnam, but neither event will impact markets.

So, we’ll remain focused on Powell’s House Financial Services Committee Testimony (10:00 a.m. ET) to see if there are any more clues about balance sheet reduction, and we’ll also watch Pending Home Sales (E: 0.9%) for any signs of stabilization in housing.