Posts

Pullback – Why Stocks Are Down 2%

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What’s in Today’s Report:

  • Pullback – Why Stocks Are Dropping and Is This the Start of a Correction?
  • Weekly Market Preview:  Focus on politics and growth.
  • Weekly Economic Cheat Sheet:  Durable Goods and inflation will be in focus this week.

Futures are down more than 2% as an increase in COVID 19 cases in new places (South Korea and Italy), combined with a big Sanders victory in the Nevada Caucus are adding to the growth concerns following Friday’s soft flash PMI.

Politically, Sanders won the Nevada Caucus with more than 40% of the vote, implying his base is bigger than thought, meaning he might be a more formidable opponent to Trump than what the market was previously thinking.

Economic data was sparse as the German Ifo Business Expectations survey beat estimates (93.4 vs. (E ) 92.1), but that number obviously isn’t moving markets.

Today there are no economic reports and just one Fed speaker,  Mester (3:00 p.m. ET), so focus will be on any COVID 19 updates (and anything that hints at a slowing of transmission will help stocks bounce).  From a fundamental support standpoint, 3,219 is 18.5X next year’s earnings so we’ll be interested to see if that can hold in the near term.

Normal Pullback or Something Bigger?

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What’s in Today’s Report:

  • Normal Pullback or Something Bigger?
  • Weekly Market Preview
  • Weekly Economic Cheat Sheet (Three Big Reports This Week)

Futures are bouncing modestly following Friday’s selloff.  The weekend was a quiet one from a market standpoint.

The Wuhan virus situation didn’t change (the virus continues to spread) but there are reports that existing anti-viral drugs are helping to treat the disease (a small positive).

Economically, The EU and British manufacturing PMIs slightly beat estimates, but still remain weak on an absolute basis (47.9 and 50.0 respectively).

Today the key economic report is the January ISM Manufacturing PMI (E: 48.7), and following Friday’s bad Chicago PMI, the market needs a decent number to help reassure investors the U.S. economic remains on solid footing.  There’s also one Fed speaker, Bostic at 4:30 p.m. ET, but he shouldn’t move markets.

Regarding any Wuhan headlines, the key remains whether they will add more pressure to global growth.  If we hear about more plant closures/flight & travel restrictions, etc. that will pressure stocks.

The First Two Important Events of the Year (Both This Week)

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What’s in Today’s Report:

  • The First Two Important Events of 2020 (Both This Week)
  • Weekly Market Preview
  • Weekly Economic Cheat Sheet (Important Updates on Growth)

Futures are moderately higher following a quiet weekend and ahead of two important events this week:  Phase one signing ceremony (Wed) and the start of earnings season.  Futures are essentially recouping Friday’s losses.

U.S./China trade optimism is helping stocks rally as the U.S. and China will resume semi-annual meetings, something that was done in the Bush/Obama administrations.   This doesn’t impact trade directly, but just like in 2019, any generically positive U.S./China headline will result in at least a mild rally.

Economic data was soft as British GDP (-0.3% vs. (E) 0.0%) and manufacturing (-1.7% vs. (E) -0.3%) both missed estimates, although the soft data is only weighing on the Pound.

Today there are no notable economic reports and just two Fed speakers, Rosengren (10:00 a.m. ET) and Bostic (12:40 a.m. ET), and they won’t move markets.  So, investors will be looking for any hints as to what will be released at the U.S./China phase one signing ceremony on Wednesday, and the more specifics, the better.

Update on U.S./Iran Risks

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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?)

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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.

Was the Jobs Report an “All Clear” on the Economy?

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What’s in Today’s Report:

  • Was the Strong Jobs Report an “All Clear” on the Economy?
  • Weekly Market Preview:  What Happens on December 15th?
  • Weekly Economic Cheat Sheet:  A Busy Week or Reports (They Start on Wednesday)

Futures are slightly lower as markets digest Friday’s big rally following a generally quiet weekend.

On U.S./China trade, there was no new news, although China released a statement saying it wanted to make a deal “as soon as possible.”

Economic data was again mixed, as Chinese exports missed estimates (1.3% vs. (E) 1.9%) while German exports beat expectations (1.2% vs. (E) -0.3%.  But, neither number is moving markets.

Today there are no notable economic reports and no Fed speakers (they are in their blackout period ahead of Wednesday’s decision) so focus will again be on any updates on U.S./China trade.

The December 15th tariff increases are the last “big” event of 2019 and markets fully expect those to be delayed, so any confirmation of that should be a mild tailwind on stocks.  Conversely, any hints the tariffs might go into effect will hit markets, potentially hard.

What the U.S./China Trade Deal Means for Markets

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What’s in Today’s Report:

  • What the U.S./China Trade Deal Means for Markets
  • Weekly Market Preview (All About Earnings)
  • Weekly Economic Cheat Sheet (Important Growth Data This Week)

Futures are modestly lower following reports that China wants “more talks” before signing phase one of Friday’s “deal.”

More broadly, there is some disappointment with Friday’s announcement as it does not provide material tariff relief or trade clarity (more on that in the issue).

Economically, Chinese exports missed estimates falling –3.2% vs. (E) -3.0% and that’s also weighing on sentiment as markets still need global growth to stabilize.

Today is the Columbus Day holiday so there are no economic reports or Fed speakers while banks and the bond markets are closed.  Given that, we can expect any U.S./China trade related headlines to again drive markets until the focus shifts to earnings tomorrow.

Is It Too Late for a Trade Truce?

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What’s in Today’s Report:

  • Is It Too Late for a Trade Truce?
  • Weekly Market Preview (All About U.S./China trade)
  • Weekly Economic Cheat Sheet

Futures are modestly lower on digestion following Friday’s big rally, although there was also more soft economic data and a slightly negative U.S./China trade article.

German Manufacturers’ Orders missed expectations, falling -0.6% vs. (E) -0.4% and it’s yet another disappointing global manufacturing datapoint.

A Bloomberg article Sunday afternoon was a mild negative as it lowered expectations for a broad trade deal at this week’s talks, but there was no new news revealed.  To that point, we need to all brace for an avalanche of U.S./China trade headlines as we approach the Thursday start of senior-level talks, but cutting past the noise, the expectation is for a “Trade Truce” so anything that contradicts that expectation will be a negative for markets.

Today there is no notable economic data and two Fed speakers: Kashkari (10:20 a.m. ET) and Powell (1:00 p.m. ET).  Powell is clearly the more important of the two, but he’s giving opening remarks at a movie screening about the Fed (seriously) so I don’t think he’ll say anything market moving.

How Much Have Things Improved?

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What’s in Today’s Report:

  • Updated Market Outlook:  How Much Have Things Improved?
  • Weekly Market Preview (ECB Thursday is the Key)
  • Weekly Economic Cheat Sheet (Retail Sales Friday)

Futures are marginally higher following a generally quiet weekend as markets continue to digest some (very) mild progress on U.S./China trade.

Economic data was mixed as Chinese exports missed expectations (-1.0% vs. (E) 2.5%) while German exports (0.7% vs. (E) -0.5%) and British Industrial Production (0.3% vs. (E) 0.1%) both beat expectations.

But, the reports aren’t moving markets as focus is on central banks this week (specifically the ECB on Thursday).

Today there are no notable economic reports nor are there any Fed speakers (they are entering the “blackout” period ahead of next Wednesday’s meeting) so we’ll be watching for any trade related headlines, and any continued improvement in the “tone” of relations will continue to support stocks.

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

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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.