Staying Focused on What Really Causes Bear Markets

What’s in Today’s Report:

  • Staying Focused on What Really Causes Bear Markets
  • Weekly Market Preview:  Can Oil Further Stabilize?
  • Weekly Economic Cheat Sheet:  Fed Minutes (Wednesday) Are the Key Report

Futures are slightly higher following a generally quiet weekend of news.

Geopolitically,  there are calls for more sanctions on Russia as the international community is now accusing Russia of war crimes following the discovery of a mass grave outside of Kiev. Oil, which is the key proxy for additional sanctions, is only slightly higher, however, implying the market isn’t expecting significant additional sanctions in the near term.

Economic data was sparse as the only notable report was German exports which rose solidly (up 6.4%).

Today there are no notable economic reports and no Fed speakers, so the focus will be on geopolitics, and again any hints of progress towards a ceasefire will help extend the recent rally.

A True Curve Inversion

What’s in Today’s Report:

  • When Is a Yield Curve Inversion Truly a Negative Signal
  • Consumer Confidence Takeaways (Hawkish Risks)

It is another quiet morning with mixed price action as stock futures edged higher on positive Italian political headlines while Treasury yields extend recent losses despite the lack of any material economic releases or trade headlines.

In the bond market, the benchmark 10s-2s yield curve spread hit a fresh 12 year low below -5 basis points this morning while the 30-Year yield has hit a new record low, signaling more broad market angst by the “smart market.”

Looking into today’s session, there are no economic reports although the EIA will release weekly oil and refined product inventory statistics at 10:30 a.m. ET and after last night’s 11.1M bbl draw reported by the API, we could see significant moves in the oil market today and that could affect stocks.

As far as other catalysts go, there is one Fed speaker today: Daly but not until after the closing bell (5:30 p.m. ET) while there is also a 5-Year T-Note Auction (1:00 p.m. ET) which could move yields and ultimately stocks.

Lastly, U.S.-China trade talks were scheduled for the front half of this week and so far there has not been any news on the topic. But, investors will continue to wait for any new developments on the trade war front as it is the primary influence on global markets right now.

Rising Chances of a True Yield Curve Inversion

What’s in Today’s Report:

  • FOMC Minutes Takeaway – Increased Chances of a True Inversion
  • EIA/Oil Market Update

Futures are slightly lower as markets digest yesterday’s “not dovish” FOMC Minutes, another temporary yield curve inversion, and mixed economic data.

Global flash PMIs were better than expected but still remained below 50 (so still signaling contracting activity).  The EU flash PMI rose to 47.0 vs. (E) 46.2.

The 10’s-2’s Treasury yield spread temporarily inverted again on Wednesday but currently sits at +2 bps.

Today focus will be on the August Flash Composite PMI (E: 51.9) and as has been the case lately, a good number will be good for stocks.  We also get Jobless Claims (E: 215K) this morning.

Bottom line, bond yields should continue to lead stocks.  If the flash PMI is solid and yields rally, so can stocks, and if the PMI is soft and yields drop, then so will stocks.