Trade Truce

What’s in Today’s Report:

  • Is A Trade Truce a Bullish Gamechanger?  No.  Here’s Why.

It’s green on the screen and futures are 1% higher as optimism for a U.S./China trade truce surged after the close.

President Trump said talks went “very well” yesterday and will meet Liu He in the White House at 2:45 p.m. today and a trade “truce” with no more additional tariffs is expected.

Economically, the only notable number was German CPI, which met expectations at 1.2% yoy.

Markets will be focused on any trade headlines as that’s clearly the most important topic today.  From a timing standpoint, I’d expect some sort of announcement on the outcome of the negotiations between lunchtime and the close, as Trump is meeting with He at 2:45 p.m.  At this point, a trade truce with some elimination of pending tariff increases is fully expected and anything less would be a disappointment.

Away from trade, we get Import & Export Prices (E: -0.1%, 0.0%) as well as Consumer Sentiment (E: 92.0), but unless the later is very bad, neither number should move markets.  There are also several Fed speakers today including Kashkari (8:00 a.m. ET), Rosengren (1:15 p.m. ET) and Kaplan (3:00 p.m. ET) but none of them should move markets.

Is the Tariff Delay Bullish?

Today’s Report is attached as a PDF.

What’s in Today’s Report:

  • Why Isn’t the Tariff Delay Causing a Bigger Rally?
  • Bond Market Update:  Not Confirming 3000 in the S&P 500

Futures are marginally higher ahead of the ECB decision and following a short tariff delay by President Trump.

Trump announced that the October 1 tariff increases (25% to 30% on 250 bln of imports) will be delayed till October 15th as a gesture of “goodwill.”

Economic data was again soft as German Industrial Production dropped –0.4% vs. (E) -0.1%, continuing the trend of disappointing EU manufacturing data.

Today the key event is the ECB Meeting.  The decision is at 7:45 a.m. and the Press Conference will be held at 8:30 a.m.  For the ECB to meet expectations we need to see 1) A rate cut, 2) More QE and 3) A “Tiered” deposit system.  Outside of the ECB we also get two important economic reports,  CPI (E: 0.1%) and Jobless Claims (E: 215K) and they could move markets if they are surprises (especially is CPI runs hot).

ECB Preview

What’s in Today’s Report:

  • ECB Preview
  • Have Treasury Yields Bottomed?

Stock futures are flat while most international markets rallied overnight thanks to incremental progress on trade amid a continuation of the recent rotation into cyclicals.

There were no notable economic reports overnight.

China announced tariff exemptions for multiple U.S. imports o/n which is an incremental positive as both sides have made modest concessions in recent weeks.

The rotation from momentum to cyclicals is continuing overseas, a theme that will remain in focus today. Remember that because of the heavy weighting of big tech stocks in the major indexes, this rotation could remain a headwind on the broader stock market in the near term.

Today, there is one economic report to watch: PPI (E: 0.1%) and no Fed officials are scheduled to speak.

There is a 10-Yr Treasury Note Auction at 1:00 p.m. ET and depending on the reaction from the bond market, there could be an impact on stocks however investor focus has largely shifted forward to the ECB tomorrow which will likely keep stocks largely paralyzed for the next 24 hours.

Tom Essaye Quoted in Business Insider on June 4, 2019

“The unpredictability of the administration regarding tariffs/trade combined with a late cycle economy and a Fed seemingly on hold makes a 16x multiple…” says Tom Tom Essaye. Click here to read the full article.

The Four Problems Facing Stocks (Print This List)

Today’s Report is attached as a PDF.

What’s in Today’s Report:

  • Market Strategy Update:  The Four Problems Facing Stocks And Positive/Negative Outcomes for Each (I’m printing this list).
  • Weekly Market Preview (It’s Going to Be a Busy Week)
  • Weekly Economic Cheat Sheet

Futures are marginally lower following a busy weekend of news, but one that provided no significant surprises.

Global May manufacturing PMIs were mixed but a bit better than feared.  Chinese Manufacturing PMI was 50.2 vs. (E) 50.0, while the EU PMI met estimates at 47.7.  The British PMI was the disappointment at 49.4 vs. (E) 52.0.

On trade, a Mexican delegation is headed to Washington on Wednesday and there were some relatively positive comments from China, but neither situation has improved.

Today the key event will be the May ISM Manufacturing PMI (E: 52.9).  If that number meets expectations, that will alleviate some growth concerns, while a miss will only worsen the growing worries that the economy is rolling over.  From a Fed standpoint, there are two speakers today (Bullard 1:25 p.m. ET, Daly 9:45 p.m. ET) but neither should move markets as they aren’t part of Fed leadership.

Tom Essaye Interviewed with Yahoo Finance on May 13, 2019

Tom Essaye interviewed with Yahoo Finance. A very timely chat on tariffs, fear within the market, what to expect with this market volatility and more…Watch the full interview here.

Tom Essaye Interview with Yahoo Finance


Latest on Trade (Why Are Stocks Down?)

What’s in Today’s Report:

  • Latest on Trade – Why Are Stocks Down This Morning?
  • Market Set Up Beyond Trade (Two Problems)
  • Weekly Market Preview
  • Weekly Economic Cheat Sheet (Wednesday is an Important Day)

Futures are down more than 1% as markets digest the U.S./China trade situation.

Nothing specifically bad happened over the weekend on U.S./China trade, but Friday’s talks ended without a clear next step and that’s weighing on markets.

Additionally, Friday’s afternoon rally came despite any concrete,  positive catalyst, so we are seeing those gains reversed and then some.

There are no economic reports today and just two Fed speakers, Rosengren (9:05 a.m. ET) and Clarida (9;10 a.m. ET), and neither should reveal anything new.

So, focus will be on the trade headlines and tea leaves.  Anything that points to a specific next step (a date or event) in the U.S./China trade negotiation should help stocks rebound, while a continued lack of a concrete next step will increase market anxiety the longer it goes on.

Tom Essaye Interviewed with Yahoo Finance on May 6, 2019

Tom Essaye joined Yahoo Finance’s Zack Guzman and Heidi Chung to discuss how Trump’s tariff threat could influence global markets. Click here or the video below to watch the full interview.

Yahoo Finance video clip


Time to Chase Stocks? Not So Fast

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.

Tariffs and Valuation

What’s in Today’s Report:

  • Tariffs and Valuation

US futures are modestly higher and most overseas markets were little changed to higher overnight as the latest announcement of tariffs on China were largely shrugged off.

Late yesterday, the Trump Administration released the details of the next wave of tariffs on China: 10% on $200B worth of imports going into effect on 9/24/18 increasing to 25% at year-end.

The tariffs go into effect sooner than expected but the 10% rate into year-end leaves plenty of room/time for constructive negotiations which is why global shares are trading “ok” today.

Today, the market focus will be dominated by the new tariffs and what’s next in the trade war. As far as other catalysts go, there is just one economic report: Housing Market Index (E: 67.0) and no Fed officials are scheduled to speak.

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