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What to Make of the Pullback

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What’s in Today’s Report:

  • What to Make of the Pullback
  • Weekly Market Preview:  Will the Fed be Dovish Enough?
  • Weekly Economic Cheat Sheet:  Fed Wednesday, but also important data Tues/Thurs

Futures are sharply higher as markets enjoy an oversold bounce following a marginally positive weekend of news.

Astra-Zenica (AZN) announced their COVID-19 vaccine trial was back on in the U.K., although it remains paused on other countries.

There was about $60 bln on pharma M&A announced, and that is also generally helping sentiment.

Economic data was sparse although EU Industrial Production slightly beat estimates (4.1% vs. (E) 4.0%.

Today there is no notable economic data nor any Fed speakers, and like both Thursday and Friday, the actual news overnight is not as positive as the rally in futures implies.  So, also like the past few days, the key will be whether stocks can hold the early gains and the Nasdaq should lead.  If it turns negative by lunchtime (as it has the past two trading days) look out for another Thursday repeat.

Are Things Really This Good?

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What’s in Today’s Report:

  • Stocks Go Up Seemingly Every Day – Are Things Really This Good?
  • Weekly Market Preview
  • Weekly Economic Cheat Sheet:  Is the Recovery Losing Strength? (Jobs Report & Global PMIs)

Futures are modestly higher following a generally quiet weekend on the economic and political fronts.

Economic data was mixed but generally “fine” as China’s manufacturing PMI slightly missed estimates (51 vs. (E) 51.2) while the service PMI beat (55.2 vs. (E) 54.2).

On stimulus, the Republicans have upped their offer to $1.3T, so the two sides are getting closer to the likely $1.5T compromise, but a deal is still not expected until mid to late September.

There are no notable economic reports today or impactful earnings, so the key event will be a speech by Fed Vice Chair Clarida (9:00 a.m. ET) to see if he echoes the dovish sentiment we got from Powell last week (and he should).  If Clarida is dovish in tone that should help markets continue the rally as otherwise, it should be a quiet day.

The Current Market Equation (How Investors Justify New All Time Highs)

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What’s in Today’s Report:

  • The Current Market Equation (How Investors Justify New All Time Highs)
  • Weekly Market Preview:  More Dovish Commitments from the Fed This Week?
  • Weekly Economic Cheat Sheet:  Important Inflation Data on Friday.

Futures are moderately higher on COVID-19 treatment optimism following the FDA’s authorization of plasma treatment for severely ill COVID patients.

President Trump announced on Sunday that the FDA has granted “Early Use Authorization” (EUA) for use of plasma from recovered COVID patients on severely ill patients.  The EUA will increase the availability of this treatment.

While the EUA for plasma is clearly a positive, from a market standpoint a vaccine remains a true “silver bullet” that could super charge a rally.  So, while positive, the plasma news is not a bullish gamechanger (although it does add to the feeling of FOMO (fear of mission out)).

Outside of the plasma news it was a quiet weekend, as there was no economic data nor any progress on stimulus.

Today will be a generally quiet day as there are no economic reports and no notable Fed speakers (the Jackson Hole conference is later in the week), so focus will remain on COVID treatment optimism.

Why Doesn’t the Market Care There’s No Stimulus?

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What’s in Today’s Report:

  • Why Doesn’t This Market Care That There’s No Stimulus?
  • Weekly Market Preview:  Watching Washington and the Data
  • Weekly Economic Cheat Sheet:  August Flash PMIs on Friday – Can the Data Hold Up?

Futures are marginally higher following some potentially positive headlines from Washington over the weekend.

Speaker Pelosi is calling the House back into session to address Postal Service funding (this was a major sticking point in the larger stimulus bill).  The hope is that if there’s a compromise on that issue, the larger stimulus bill becomes much easier to pass.

There was no notable economic data overnight.

Today’s focus will be on Washington and specifically if there’s any hint that negotiations may re-open on the larger stimulus bill.  If that’s the case, then we’ll likely see new all-time highs today in the S&P 500.

Economically, the Empire Manufacturing Index (E: 17.0) is the key report today, and the market will want to see continued progress from July (especially because the stimulus payments have stopped).  We also get the  Housing Market Index (E: 72), although that shouldn’t move markets.

Is the Rally Starting to Stall?

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What’s in Today’s Report:

  • Is the Rally Starting to Stall?
  • Weekly Market Preview:  Important Earnings and Stimulus Negotiations
  • Weekly Economic Cheat Sheet:  Fed Decision on Wednesday.

Futures are moderately higher as the Republican version of the stimulus bill is largely in-line with expectations.

The Republican stimulus bill will be released today with weekly unemployment checks cut to $200-$300/week, but one time stimulus checks roughly equivalent to the last time (in both the amount and scope, i.e. the number of people eligible to receive checks).  The weekly payment amount is mildly disappointing, but the scope of the stimulus checks is larger than expected so they basically offset one another.

On balance this version of the bill isn’t a disappointment, especially considering the amount of stimulus will likely increase modestly during negotiations with Democrats.

Looking forward, the negotiation process on the bill will now begin in earnest,  and since Washington always has a flair for the dramatic, so expect a few “scares” over the next two weeks that imply a deal won’t get done.  But, as we all know, it will get done, and likely in the next two weeks (and the sooner the better because weekly unemployment checks ended Friday, until there’s a new bill passed).

Today stimulus chatter will dominate the news wires, and beyond that there’s one notable economic report, June Durable Goods (E: 6.5%).  But, it shouldn’t move markets as investors know June was a solid month for data, and instead the weekly jobless claims are the key report for this week (out Thursday).

Why This Week Is More Important Than It Seems

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What’s in Today’s Report:

  • Why This Week Is More Important Than It Seems
  • Weekly Market Preview:  Still About Vaccines and Stimulus
  • Weekly Economic Cheat

Futures are marginally lower following a mostly quiet weekend, although there was mild disappointment regarding future EU stimulus.

The EU bailout fund saw the amount of direct grants reduced to 390B from 500B euros at this weekend’s EU summit, and that’s weighing marginally on stocks.

Economically, the only notable number was German PPI, which slightly missed estimates (flat vs. (E) 0.2%).

Today there are no notable economic reports and just two important earnings, HAL (-$0.11) and IBM ($2.14), but it’s unlikely either will move markets.

Instead, negotiations will begin on the new stimulus bill and that will be the major market influence today (that or any new vaccine headline).  If negotiations start poorly, expect stocks to sink moderately in response (although markets still very much expect a deal to get done, and that needs to happen as the $600/week stimulus checks end this week).

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What Market Bulls Are Assuming

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What’s in Today’s Report:

  • What Market Bulls Are Assuming
  • Weekly Market Preview
  • Weekly Economic Cheat Sheet (Are Jobless Claims About to Rise Again?)

Futures are sharply higher thanks mostly to momentum from a big rally in Chinese stocks.

The Shanghai Composite surged nearly 6% on Monday, despite the lack of a discernable, positive catalyst.  Growing confidence in the economic recovery combined with a flood of retail investment fueled the stock gains.

In the U.S., coronavirus cases continued to rise over the weekend, although there was no material acceleration from the pace of the past several days.

Today the key economic report is the June ISM Non-Manufacturing PMI (E: 49.0), and if that can break above 50 that will be further confirmation that the economic recovery is happening faster than most thought possible (and it should be a tailwind on stocks).  Additionally, the White House has teased an announcement today of positive developments in treatment of the coronavirus, although the exact timing of this announcement, and what exactly it entails, is unclear.

Are Rising COVID Cases A Reason to De-Risk?

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What’s in Today’s Report:

  • Is the Increase in COVID Cases a Reason to De-Risk?
  • Weekly Market Preview (Can the S&P 500 Hold 3000?)
  • Weekly Economic Cheat Sheet (Jobs Report on Thursday)

Futures are slightly higher following a quiet weekend as markets attempt to bounce following Friday’s selloff.

Coronavirus cases continued to rise, with new U.S. cases topping 40k for Friday, Saturday and Sunday.  More states (including California) are pausing re-openings, although none have re-imposed economic restrictions yet.

Economic data was sparse overnight as Euro Zone Economic Sentiment slightly missed expectations (75.7 vs. (E) 80).

Today there is just one economic report, Pending Home Sales (E: 11.3%) and one Fed speaker, Williams (3:00 p.m. ET) and neither should move markets.

Instead, focus will remain on the coronavirus and specifically whether more states pause, and potentially rollback, economic re-openings. Technically, the S&P 500 is sitting on support at 3,000, and if that’s broken, we could see a uptick in selling by programs and algos.

The Current Tug of War in this Market

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What’s in Today’s Report:

  • The Current Tug Of War in this Market
  • Weekly Market Preview:  Do Rising Coronavirus Cases Matter?
  • Weekly Economic Cheat Sheet:  Tomorrow’s Global Flash PMIs Are The Key Report This Week

Futures are moderately higher despite generally negative news over the weekend (the news wasn’t terrible, but it wasn’t good either, and certainly not worth a 75 bps rally in futures).

Coronavirus cases continue to move higher, as new cases rose above 30k in the U.S. for the first time since early May.

Politically, President Trump’s Tulsa rally undershot expectations, highlighting a still challenging path to re-election (the market still views the Trump administration is more business friendly than a Biden administration, yet despite the polls, markets are not pricing in virtually any chance of a Biden win in November, and we think that’s a risk going forward).

Today the calendar is quiet as there is only one economic report, Existing Home Sales (E: 4.29M).  So, incremental coronavirus headlines will likely move markets, and if we get any more headlines about companies closing stores/businesses in Florida/Arizona/Texas/California, that should weigh on markets.

What Comes Next? Three Catalysts to Watch

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What’s in Today’s Report:

  • What Comes Next?  Three Catalysts To Watch
  • Weekly Market Preview:  Fed Speak and Important Data This Week
  • Weekly Economic Cheat Sheet:  Empire and Philly Manufacturing Surveys This Week (Both June Data)

Futures are sharply lower on rising coronavirus concerns, as cases continued to rise in the U.S. over the weekend.

Certain states (CA/TX/FL/AZ) continue to see an acceleration in new coronavirus cases, although national new cases remain around 20k (where they’ve been for weeks).

Chinese economic data was slightly disappointing as Industrial Production (4.4% vs. (E) 5%), Retail Sales (-2.8% vs. (E) -2.33%) and Fixed Asset Investment all missed expectations.

Today focus will be on that 3,002 low in the S&P 500 from Thursday.  If that’s broken, a run down towards 2900 becomes much more likely.  Economically, the June Empire Manufacturing Survey (E: 30) is the key number today because it is the first look at June data, and the market will want to see continued improvement from May.  There’s also one Fed speaker today, Kaplan (11:00 am E.T.), but he’s unlikely to move markets given Powell is speaking tomorrow.