How Far Are Investors Willing to Stretch?

What’s in Today’s Report:

  • How Far Are Investors Willing to Stretch?
  • Weekly Market Preview:  Wuhan virus updates, Fed testimony.
  • Weekly Economic Cheat Sheet:  An Important Look at Consumer Spending This Week

Futures are slightly higher following a quiet weekend of news.

Wuhan virus related fears receded further over the weekend as the virus continued to spread, but at a slower pace than before and experts think the transmission rate of the disease has peaked.  Additionally, factories in China will gradually reopen this week, potentially limiting any economic fallout.

Economic data was sparse overnight although Chinese CPI rose 5.4% vs. (E) 4.9%, which should reduce hopes of any additional, large scale stimulus from Chinese authorities.

Today there are no economic reports and no Fed speakers, so focus will remain on any Wuhan virus headlines.  The key right now is the factory re-openings in China.  As long as there isn’t any news that implies factory re-openings will be delayed beyond this week (and in doing so put more pressure on the economy) than Wuhan virus related fears should continue to decline.

Update on U.S./Iran Risks

What’s in Today’s Report:

  • Geo-Political Update:  Was There More Negative News Over the Weekend?
  • The Two Reasons Markets Remain Resilient
  • Weekly Market Preview
  • Weekly Economic Cheat Sheet (Jobs Report Friday)

Futures are moderately lower on rising general concerns about the geo-political fallout from the Soleimani killing.

Geo-political headlines over the weekend were incrementally negative, but none of them were specific or material enough to imply a material drop in stocks is more likely, and the dip in futures is driven by just general concerns (more on that inside the Report).

Economic data, meanwhile, was positive as Dec. German Retail Sales, EU Services PMI (52.8 vs. (E) 52.4, and UK Services PMI (50.0 vs. (E ) 49.0) all beat estimates.

Today geo-political headlines will continue to dominate trading, and any implication of further deterioration in the U.S./Iran situation will weigh on futures.  Economically, the  key number to watch it the December Markit Services PMI (E: 52.2) and, as remains the case, the stronger the number, the better.

What’s Driving the Melt Up (And How Long Can It Last?)

What’s in Today’s Report:

  • What’s Driving the Melt Up, And How Long Can It Last?
  • Weekly Market Preview
  • Weekly Economic Cheat Sheet – The Big Number of the Week Is Today

Futures are slightly higher thanks mostly to momentum from last week’s rally as the weekend was a quiet one.

On trade, the WSJ reported China has reduced additional tariffs on some goods, but this is all part of the existing phase one deal and it’s not an incremental positive.

Economic data was sparse overnight, and none of the numbers are moving markets.

Today we get the most important economic report of the week, New Orders for Non-Defense Capital Goods ex-Aircraft (E: 0.0%), which is a proxy for business spending – something that should start to rise now that we have a phase one trade deal.  As has been the case, the stronger this number, the better for stocks.

Beyond today, this week would have been a quiet one even if there wasn’t a holiday, but it should be even more so as the economic calendar is very sparse.  Geo-politically, North Korea could launch a missile or test a nuclear bomb this week, but while it might cause temporary volatility, that won’t derail this rally.  So, as long as there are no negative trade surprises, the path of least resistance for stocks remains higher into year-end.

Trump/Xi Meeting Takeaways (Good, But Not That Good)

What’s in Today’s Report:

  • Trump/XI Meeting Takeaways & Updated Market Outlook
  • Weekly Market Preview
  • Weekly Economic Cheat Sheet (Lots of important data this week despite the holiday)

Futures are surging after Trump and Xi did what was widely expected at the G20 and reached a trade “truce.”  On balance, the meeting was a mild positive, but not to the extent futures are implying this morning (more on that inside the Report).

Economic data, meanwhile, was universally disappointing overnight.    Every manufacturing PMI missed expectations this morning including those from China, Germany, the EU and Great Britain.  All of those PMIs are now below 50, signaling widespread contraction in manufacturing activity.

OPEC, meanwhile, extended current production caps for six to nine months at their meeting this week, longer than was expected, and oil is rallying 2% as a result.

Today will be spent digesting the G20 “truce” and seeing if markets can hold these early gains once more details emerge.  On the economic front, the key number today is the ISM Manufacturing PMI (E: 51.2) and it needs to be “Goldilocks” to support this rally.

It’s G-20 Week (Trump/XI Meeting Friday)

What’s in Today’s Report:

  • Weekly Market Preview:  G-20 Looms But There Are Important Events Before That This Week
  • Weekly Economic Cheat Sheet:  All About Inflation (It Needs to Stay Low)

Futures are modestly higher following a generally quiet weekend as markets look ahead to the Trump/Xi meeting at the G-20 later this week.

News from the weekend focused on geo-political tensions between the U.S. and Iran but for now that situation isn’t impacting markets outside of oil (which is higher again).

The only notable economic report was German Ifo Business Expectations and it slightly missed estimates (94.2 vs. (E) 94.6).

There are no economic reports today nor are there any Fed speakers, so markets will be driven by any headlines on U.S./China trade (leaks about the upcoming Trump/Xi meeting) or Iran/U.S. tensions (the U.S. is anticipated to announce major new sanctions against Iran).

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

What’s in Today’s Report:

  • Why Are Stocks So Resilient (And Can It Last?)
  • Last Week’s Key Event (It Wasn’t Mexican Tariffs)
  • Weekly Market Preview (Four Big Events This Week, Not Just the Fed)
  • Weekly Economic Cheat Sheet (All About the Fed)

Futures are fractionally higher following a weekend full of  articles on trade and the Fed but none of them shifted the current market outlook.

There were multiple stories on U.S./China trade and they were mixed (some positive, some negative).  The bottom line remains that the best hope for the G-20 summit is a resumption of negotiations and promises of no new tariffs.

There was no notable economic data over the weekend.

The Fed meeting is just over 48 hours away so barring any major surprises on U.S./China trade, markets should be relatively calm into that meeting.

But, that said, there is an important economic report today, Empire Manufacturing (E: 10.0), which will give us the first look at economic activity in June and this report could confirm or deny the U.S. economy is again losing positive momentum, although it’ll take a big miss or beat vs. expectation to materially move stocks.