Posts

The Yield Curve and Recessions

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What’s in Today’s Report:

  • Yield Curve Update: Historically Speaking

U.S. equity futures are up more than 1% this morning, recovering the bulk of yesterday’s late afternoon declines amid continued hopes for a looming economic recovery.

Economically, Japanese Machine Orders for March declined -0.4% after rising 2.3% in February while inflation statistics in Europe were on the soft side, but none of the data materially moved markets overnight.

There are no notable economic reports today however the Treasury will hold a 20-Year Bond Auction at 1:00 p.m. ET, and as we have seen so far this year, any resulting move in yields (specifically the curve) could influence equity market trading.

There are also a few potential Fed catalysts today with two speakers on the schedule: Bostic (10:00 a.m. ET) and Bullard (12:00 p.m. ET), and the release of the FOMC meeting minutes at 2:00 p.m. ET.

The market remains primarily focused on the still very fluid coronavirus outbreak situation and economic reopening process, as well as any further developments about vaccines or treatments. Any positive headlines, specifically regarding the latter, could help power stocks to fresh multi-week highs today, while contrarily, negative news could see a repeat of yesterday’s late day selloff.

Tom Essaye Quoted in Benzinga on May 15, 2020

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While that phrase may sound pretty scary to investors, Sevens Report’s Tom Essaye said Thursday stock prices may hold up much better in 2020 than during the previous two extended U.S. recessions.

“That’s $2.6 billion in two months, compared to $3.5 trillion in six years! And, the Fed isn’t done, either, as the balance sheet will certainly eclipse $7 trillion soon. Point being, this is very, very…” Essaye said. Click here to read the full article.

Benzinga_5.18.20

Technical Update: Headwinds Building?

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What’s in Today’s Report:

  • Technical Update:  Headwinds Building?

Futures are modestly lower following mixed Chinese economic data as markets digest Thursday’s rebound.

Chinese economic data was mixed but not worse than feared, as Industrial Production beat estimates (3.9% vs. (E) 1.5%) while Retail Sales and Fixed Asset Investment both declined sharply (-7.5% and –3.8% respectively) but no worse than expected.  In sum the data was “good enough” to keep hope alive that the U.S. economy can see a substantial economic rebound in the coming months, assuming no “second wave” of virus infections.

Today will be an important day for economic data, and the reports we’re watching today (in order of importance) are: Empire State Manufacturing Survey (E: -65.0), Retail Sales (E: -11.2%), Consumer Sentiment (E: 66.0), Industrial Production (E: -11.5%), and JOLTS (E: 5.900MM).

Empire Manufacturing Report and Consumer Sentiment are May reports, so markets will want to see hints of improvement to confirm the economic “worst” will soon be behind us.  If that happens, stocks can hold Thursday’s gains.

What Happens to Markets If There’s a “Prolonged Recession?”

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What’s in Today’s Report:

  • What Happens to Markets If There’s A “Prolonged Recession?”
  • EIA & Oil Update – Can the Bounce Continue?

Futures are little changed as markets digest Wednesday’s uptick in concern about future economic growth and the subsequent market selloff.

Positively, corporate news was solid overnight as CSCO earnings were fine and Mastercard said it’s starting to see the beginning of a recovery in certain sectors.

Economic data was sparse overnight as the only notable number was German CPI, which rose 0.4% vs. (E) 0.3%.

Today, the key will again be the Jobless Claims data (E: -2.500MM).  First and foremost, claims need to continue to decline from the previous week, and if the number beats estimates that will help offset some of the concerns about future growth.  There are also two Fed speakers today, Kashkari (1:00 p.m. ET) and Kaplan (6:00 p.m. ET), but neither should move markets given we heard from Powell yesterday.

Economic Breaker Panel: May Update

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What’s in Today’s Report:

  • Economic Breaker Panel: May Update

Futures are little changed this morning while international markets were mixed overnight in quiet trade as investors assess the risk-reward of reopening global economies.

Economically, China’s April PPI headline notably fell further into deflationary territory, down -3.1% from -1.5% suggesting an ongoing lack of demand throughout China’s supply chain.

Meanwhile the April NFIB Small Business Optimism Index in the U.S. dropped by less than feared to 90.9 vs. (E) 84.8 and the forward looking “6-month outlook” jumped 24 points as business owners maintain hopes for an economic rebound in the second half of the year.

Today, there is one economic report to watch: CPI (E: -0.8%) while multiple Fed officials are scheduled to speak: Bullard (9:00 a.m. ET), Quarles (10:00 a.m. ET), Harker (12:00 p.m. ET), and Mester (5:00 p.m. ET).

Finally, there is a 10-Yr Treasury Note Auction at 1:00 p.m. ET and if the outcome lifts longer dated yields, the curve could further steepen out to multi-month highs which would be an encouraging development and add a tailwind to the equity markets today.

Why Are Stocks So Resilient (And Can It Continue?)

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What’s in Today’s Report:

  • Why Are Stocks So Resilient (And Can It Continue?)
  • Weekly Market Preview:  More re-openings and stimulus this week?
  • Weekly Economic Cheat Sheet:  Claims still key, but Friday’s data is also important.

Futures are modestly lower following a quiet weekend as markets digest last week’s gains.

Economic data from China continued to come in better than feared, as New Yuan Loans grew 11.5% vs. (E) 10.3% while auto sales declined just –5.5% in April compared to –40% in March.

The Chinese data continues to sew hopes for a relatively quick, “V” shaped economic recovery in the U.S., and that expectation is helping to support stocks.

Today there are no notable economic reports and just one Fed speaker, Evans (3:30 p.m. ET), so headlines on economic re-openings and a potential additional stimulus bill should drive markets (if the re-opening headlines are good and prospects for another stimulus bill continue to rise, markets should be able to continue to digest the recent rally).

Current Market Catalysts (They Changed Last Week)

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What’s in Today’s Report:

  • Current Market Catalysts:  From Reopening and Remdesivir to Normalization and Nationalism
  • Weekly Market Preview
  • Weekly Economic Cheat Sheet (Jobs Report This Friday)

Futures are moderately lower as U.S./China tensions rise while markets begin to shift their focus towards when the economy will return to normal.

U.S./China tension over the origin of the coronavirus rose over the weekend as Secretary of State Pompeo said there was “enormous” evidence that suggests the virus was created in a lab.

Economically, the EU manufacturing PMI slightly missed expectations, coming in at 33.4 vs. (E) 33.6.

Today there are no notable economic reports nor any Fed speakers, so markets will trade off any U.S./China coronavirus tension headlines, along with any hints of when the economy might return to some semblance of “normal” as those two issues have now become the main drivers of stocks in the near term.

Tom Essaye Quoted in Yahoo Finance on April 27, 2020

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“All the data is horrific. But it’s getting less bad than it was say a couple weeks ago and that’s especially true with…” said Sevens Report Research founder Tom Essaye on Yahoo Finance’s The First Trade. Click here to read the full article.

Tom Essaye Quoted in Barron’s on April 28, 2020

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“Coronavirus headlines were mostly positive overnight as there were reports of expanded testing capabilities in the U.S., the growth rate of new cases continues to…” writes The Sevens Report’s Tom Essaye. Click here to read the full article.

New York Stock Exchange

Fed Meeting Preview

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What’s in Today’s Report:

  • FOMC Preview

S&P futures are up 1% this morning, tracking European shares higher as economies around the globe begin to reopen while investor focus shifts ahead to the slew of earnings releases in the coming days as well as multiple central bank meetings this week.

Coronavirus headlines were mostly positive overnight as there were reports of expanded testing capabilities in the U.S., the growth rate of new cases continues to slow in the U.S., and states across the country are beginning the process of lifting COVID-19 containment policies.

The FOMC meeting begins today (concluding tomorrow) while there are a few notable economic reports to watch this morning: International Trade in Goods (E: -%51.5B), S&P CoreLogic Case-Shiller HPI (E: 0.4%), and Consumer Confidence (E: 95.0).

Investors will be increasingly focused on earnings this week as we approach the peak of the Q1 reporting season.

There are several major corporations, from manufacturing to tech sectors, releasing results today including: MMM ($2.02), PEP ($ 1.02), PFE ($0.71), UPS ($1.23), CAT ($1.77), MRK ($1.39), LUV (-$0.48), BP ($0.28),  AMD ($0.18), GOOGL ($10.97), F (-$0.10), CHRW ($0.71).