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Sevens Report’s Tom Essaye quoted in MarketWatch on February 11, 2019

A lot of the good news out there is already priced into stocks at these levels,” wrote Tom Essaye, president of the Sevens Report, in a Monday note to clients. “At 2,700 or higher, the S&P 500 isn’t priced for perfection, but…”  Read the full article here.

U.S./China Trade Update

What’s in Today’s Report:

  • U.S./China Trade Update (What’s Expected Now and What It Means for Markets)

Futures are slightly lower as disappointing economic data offset U.S./China trade optimism.

Worries about global growth persist as the Caixin Chinese Manufacturing PMI fell to 48.3 vs. (E) 49.7 while European data wasn’t much better. The British Manufacturing PMI fell to 52.8 vs. (E) 53.5 while the EU reading was 50.5.

Today focus will be on the jobs report but the ultra-dovish Fed has taken some of the impact away from this report, because it’ll have to be incredibly strong to make the Fed skew more hawkish.  Expectations are: Jobs Adds of 158K, Unemployment of 3.9%,  M/M Wage gains of 0.3%.

In some ways, the ISM Manufacturing Index (E: 54.0) is the more important number today because if that’s a soft number, it’ll fan fears the Fed is reacting to a U.S. economy that’s losing momentum, so that’s the number I’m watching closely today.

Technical Update (Bounce or Bottom?)

What’s in Today’s Report:

  • Technical Market Update – Bounce or Bottom?
  • U.S./China Trade Update (What’s Next and What Sectors Benefit)

Futures are modestly lower as markets digest the recent rally following a quiet night of news.

Economically, Chinese inflation underwhelmed as CPI rose 1.9% vs. (E) 2.0% and PPI gained just 0.9% vs. (E) 2.7%.  However, those soft numbers give Chinese authorities more room to further stimulate their economy, so low inflation isn’t a negative.

On trade, there were no further comments from either side (a slight negative) as some were hoping for some optimistic official statement from the Chinese.

Today focus will remain on the Fed as we get multiple Fed speakers, highlighted by Fed Chair Powell (1:00 PM) and Vice Chair Clarida (5:30 PM).  We expect more dovish language from virtually all the speakers today, but at this point most of the benefit from dovish Fed speak is priced in, so don’t expect the comments to be a major positive catalyst unless there’s a surprise.

Economically, the calendar is quiet although we do get Jobless Claims (E: 224k) and we want to see those move back towards 200k and away from 250k.

What the Trade Truce Means for Markets

What’s in Today’s Report:

  • What The U.S./China Trade Truce Means for Markets
  • Four Keys to A Bottom Updated:  Getting Closer, but Not There Yet
  • Weekly Market Preview
  • Weekly Economic Cheat Sheet (All About Growth and Jobs)

Futures and global markets are surging (up more than 1%) as Trump and Xi agreed to U.S./China trade war truce.

As was generally expected, the U.S. will not raise tariffs on China to start 2019 and both sides have agreed to a three month negotiation period.

Economic data was good as EU and UK Manufacturing PMIs both beat estimates

Today there is one important economic report, the November ISM Manufacturing PMI (E: 57.2) and it needs to be a “Goldilocks” reading to help fuel this early rally.  We also get three Fed speakers (Williams (9;15 a.m. ET), Brainard (10:30 a.m. ET), Kaplan (1:00 p.m. ET)) but none of them should move markets.

Bottom line, tech and industrials are the key sectors to watch today, and outperformance from both will be needed for stocks to hold these big, early gains.