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Making Sense of Wednesday’s Trade Headlines (That Caused the Selloff)

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What’s in Today’s Report:

  • What to Make of Wednesday’s Trade Headline (That Caused the Selloff)
  • What Does Escalating Trade Noise Mean for Markets Into Year-End?

Futures are little changed as markets digest yesterday’s potentially negative U.S./China trade headlines along with more headlines overnight, as the trade noise grows louder.

The trade headline whiplash continued overnight as Chinese Vice Premier He said he was “cautiously optimistic” about a phase one deal being signed.  This is helping, somewhat, to counter yesterday’s headline about a deal slipping into 2020.

There were no economic reports out overnight.

Today there are some important economic reports, but the biggest issue today will be whether President Trump signs the bill passed by Congress supporting democracy in Hong Kong (if he does, that could complicate trade talks).  He is expected to sign the bill, although that’s not a high conviction expectation.

Looking at actual economic data, we have two important reports today, Jobless Claims (219K) and Philadelphia Fed (E: 7.5) and one housing number, Existing Home Sales.  As has been the case, the stronger the data, the better for stocks.  We also have two Fed speakers, Mester (8:30 a.m. ET) and Kashkari (10:10 a.m. ET), but neither should move markets.

Tom Essaye Interviewed with TD Ameritrade Network on November 20, 2019

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Tom Essaye interviewed with Oliver Renick from TD Ameritrade, discussing Bonds vs Equities, trade war, yield curve, reflation and more…Click here to watch the full interview.

Tom Essaye with TD Ameritrade

Clearing the Trade War Fog

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What’s in Today’s Report:

  • Clearing the Fog: Where Are We on U.S.-China Trade?

U.S stock futures are trading lower and international markets saw broad declines overnight thanks to escalating trade tensions between the U.S. and China.

The Senate passed a bill late Tuesday in support of the Hong Kong protests to which the Chinese Foreign Ministry has issued a strong statement of disapproval for.

Additionally, Trump threatened higher tariffs at a cabinet meeting yesterday and the combination is weighing on sentiment.

There are no economic reports today and no Fed officials scheduled to speak but the minutes from the October FOMC Meeting are due out at 2:00 p.m. ET which will be closely watched for further clues on the Fed’s future policy plans.

The trade war is still dominating markets right now so investors will be watching for any rebuttals from the U.S. regarding China’s negative response to the “Hong Kong bill” or any additional talk of future tariff policy from either the U.S. or China.

Is Europe a Buy?

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What’s in Today’s Report:

  • How Powerful Is the Growth to Value Rotation?
  • Is Europe a Buy?

Futures are edging higher in early trade while most international markets rallied on better-than-feared data overnight.

In Europe, the headline to the German ZEW Survey was a slight miss but business expectations rebounded to -2.1 vs. (E) -12.5 as recession fears continued to moderate.

In the U.S., the NFIB Small Business Optimism Index was 102.4 vs. (E) 102.0 another incremental economic positive.

With no economic reports today, focus will be on Trump’s midday speech in NY regarding the trade war. Additionally, there are two Fed speakers: Harker (1:00 p.m. ET) and Kashkari (6:00 p.m. ET).

The trade war is still by far the most important influence on the markets right now so whether Trump is negative or positive in his discussion regarding trade negotiations today will likely decide whether stocks rally or extend yesterday’s pullback this afternoon.

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.

Did Things Get Better Last Week?

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What’s in Today’s Report:

  • Bottom Line: Did Things Get Better Last Week?

Stock futures are in the red this morning and international markets were mostly lower overnight thanks to on-going trade tensions and more political drama in Europe.

The latest set of U.S. tariffs on Chinese goods went into effect over the weekend as expected however there were no updates regarding this month’s scheduled trade talks which is weighing on risk assets this morning.

Brexit concerns continue to simmer as the odds of a no-deal exit from the EU creep higher ahead of the October deadline but for now, the situation is largely isolated to Europe and not having a significant impact on U.S. equity markets.

Economic data was mixed overnight but there were no material, market moving surprises.

Today, there are two economic reports to watch: ISM/PMI Manufacturing Indexes (E: 49.9) and Construction Spending (E: 0.3%) while the Fed’s Rosengren is scheduled to speak shortly after the close (5:00 p.m. ET).

Investor focus will primarily remain on the trade war however, so any positive headlines regarding the planned, in-person negotiations this month will be well received while a continued lack of clarity on the topic will be a headwind for stocks.

Updated Market Multiples

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What’s in Today’s Report:

  • Market Multiple Table Updated

Futures are drifting higher this morning, tracking gains in overseas markets as the recent rally in global equities is digested amid a much quieter macro backdrop this week.

Sentiment towards the trade war has been improving since Friday as the Trump administration appears increasingly concerned with the impact of tariffs on the U.S. economy, and that is continuing to act as a mild tailwind on stocks.

There were no material economic reports or other market-moving headlines overnight.

Looking into today’s session, there are no economic reports in the U.S. however there are two more Fed officials scheduled to speak before Powell’s Jackson Hole speech on Friday: Daly (4:30 p.m. ET) and Quarles (6:00 p.m. ET).

If Daly and Quarles have a similar tone to Rosengren from yesterday, which was “less dovish” that could weigh on stocks in the after-hours session (both speakers are after the bell) as expectations for Powell to deliver a more well-defined, dovish policy outlook on Friday will be dialed back.

The Trade War and Market Multiples

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What’s in Today’s Report:

  • Tariff Update – What Does It Mean for Multiples
  • The “Doctor” Doesn’t Lie

The trade war continues to dominate the markets as the designation of China as a currency manipulator by the U.S. Treasury caused a sharp selloff in stock futures last night. But the PBOC intervened to “fix” the yuan back below $7/CNY which helped global markets stabilize overnight.

German Manufacturers’ Orders jumped 2.5% vs. (E) 0.6% in June but the details showed a continuation of soft demand in the Eurozone, offsetting the headline strength.

The trade war, and any further developments on the topic, will remain the market’s main focus today however there are a few other potential catalysts to watch.

Economically, the June JOLTS Report (E: 7.293M) will be released mid-morning and then shortly after lunch, there is a 3-Yr Treasury Note Auction (1:00 p.m. ET) which will be important because Treasury auctions have been moving the stock market lately.

Lastly, there is one Fed speaker: Bullard at 1:05 p.m. ET and investors will be listening closely for any clues as to what the Fed’s policy plans are into the end of the year.

Tom Essaye Quoted in The Bulletin on July 22, 2019

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Investors look ahead to earnings

“We will start to get results from some of the big multi-national industrials and tech firms, which should shed more light on the effects of the trade war…” Tom Essaye, a former Merrill Lynch trader who founded “The Sevens Report” newsletter, wrote in a note to clients. Click here to read the full article.

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Tom Essaye Quoted in SwissInfo.ch on July 22, 2019

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Tech Shares Lead Gains Before Earnings; Oil Rises: Markets Wrap

“We will start to get results from some of the big multi-national industrials and tech firms, which should shed more light on the effects of…” Tom Essaye, a former Merrill Lynch trader who founded “The Sevens Report” newsletter, wrote in a note to clients. Click here to read the full article.

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