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Why The Dovish ECB Isn’t Good For Stocks

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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

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“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)

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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

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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?

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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.

A New Prognosis from Dr. Copper?

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What’s in Today’s Report:

  • Is  Dr. Copper’s Prognosis for the Markets Just Change?
  • Economic Data (Yesterday Was Not a Good Day)
  • Energy Update

Futures are recouping yesterday’s losses not because of what happened overnight (which was nothing) but instead of what might happen today.

Trump & Chinese Vice Premier He will meet at 2:30 ET and markets hope more progress on a deal is signaled.

Additionally, markets hope Fed officials (specifically Williams and Clarida) give more clarity on the end of QT at a Fed conference later this afternoon.

As mentioned, there are no economic reports or notable earnings today so focus will be on the Trump/He meeting and the various Fed speakers making comments today:  Williams (10:15 a.m. ET), Bullard (1:30 p.m. ET), Clarida (1:30 p.m. ET), Harker (1:30 p.m. ET).  For those events to power stocks meaningfully higher, we’ll need to see hints that a U.S./China deal would reduce current tariffs, and a clear indication that QT will end in 2019.

Why QT Matters to This Market

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What’s in Today’s Report:

  • Why QT Matters To This Market

Futures are flat as more reports of an impending U.S./China trade deal offset disappointing economic data.

Japanese & EU flash manufacturing PMIs both fell below 50 in February.  The Japanese PMI dropped to 48.5 while the EU reading fell to 49.2 (vs. (E) 50.4).

Multiple media outlets reported a U.S./China trade deal is almost done, but we don’t know if tariffs will be reduced.

Today focus will be on economic data as we get several potentially important reports.  They are, in order of importance:  Flash Composite PMI (E: 54.4), Philly Fed Mfg Index (E: 14.0), Durable Goods (E: 1.0%), Jobless Claims (E: 225k),  Existing Home Sales (E: 5.04M).

If the data is good, that will fuel a further rally towards 2800 in the S&P 500, although I don’t think good data today will be enough to get us through that level (it’ll take more dovish Fed commentary on the balance sheet to do that in the near term).

Technical Tipping Point

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What’s in Today’s Report:

  • Technical Update – We’ve Reached the Tipping Point
  • Why Copper Really Rallied Yesterday

Futures are slightly lower and international markets were mixed overnight as investor focus is shifting to today’s release of the January FOMC Meeting Minutes.

Japanese Exports in January were worse than feared (-8.4% vs. E: -6.1%) while the British CBI Industrial Trends Survey was 6 vs. (E) -5 but neither release moved markets o/n.

There are no economic reports in the U.S. today however the European Commission releases Flash Consumer Confidence data for February (10:00 a.m. ET) and given the recent string of underwhelming EU data points, another bad number could weigh on EU (and to a lesser extend U.S.) stocks into the European close.

The big event today will be the release of the January FOMC Meeting Minutes at 2:00 p.m. ET. Investors will be looking for any further clues as to the Fed’s plans for the balance sheet as a dovish adjustment is one of the few potentially bullish catalysts left for this stock rally right now.

Other than the Fed, U.S.-China trade negotiations continue in Washington however a deal is largely priced in and the talks are now a risk to the market as any “bad news” regarding the trade war would likely hit stocks hard.

Tom Essaye quoted in CNBC

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Sevens Report’s Tom Essaye quoted in CNBC on February 13, 2019.

“Markets always assumed the March 1 trade deadline was flexible, but this just confirmed it. Bottom line, the fundamentals are roughly balanced right now as there is…” Click here to read the full article.

Time to Chase Stocks? Not So Fast

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What’s in Today’s Report:

  • Time to Chase Stocks? Not So Fast.

Money flows were risk-on overnight thanks to continued trade-war optimism but stock futures are off the highs following more soft economic data overseas.

Trump said he would push back the March 1st tariff deadline, which was previously considered a “hard date,” if there is “good progress” towards a trade deal at that time while President Xi is now expected to attend talks on Friday. Both are incremental positives for the prospects of a successful deal.

Economic data out overnight was less optimistic however. EU Industrial Production fell –4.2% vs. (E) -3.2% Y/Y in December which is just the latest release fueling concerns about a global economic slowdown.

Today, the January CPI Report (E: 0.1%) will be watched closely ahead of the open while there are several Fed speakers before lunch: Bostic (7:15 a.m. ET), Mester (8:50 a.m. ET), Harker (12:00 p.m. ET).

The major focus of the market right now however remains the trade negotiations in Beijing and stocks will be most sensitive to any material headlines regarding the ongoing talks.