Morning Lineup – Will Jobs Keep the Rally Going?
The last day of the week is looking like it will be off to a positive start, but who is anybody kidding thinking that these moves will mean anything when we have one of the most anticipated jobs reports in months on the horizon?
Please click the link below to read today’s Bespoke Morning Lineup for our take on this morning’s encouraging pattern in European Industrial Goods sector as well as a closer look at what’s driving the weakness in German exports.
Ahead of this morning’s jobs report, we just wanted to take a quick look at market breadth to see where the S&P 500’s cumulative A/D line stands. By this measure at least, we still don’t see a whole lot of weakness underneath the service as the cumulative A/D line held up pretty well throughout the recent bout of selling and currently isn’t far off its highs from earlier in the year.
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Morning Lineup – Three in a Row?
After a shaky start to the trading month on Monday, equities have seen solid gains over the last two trading days and are on track for a third straight day of positive returns today. Treasuries are also continuing their strong rally as talks between the US and Mexico over tariffs failed to result in an agreement. In Europe, the ECB left rates unchanged (as expected) and noted that rates will remain at current levels through at least the first half of 2020.
Economic data just released showed Initial Jobless Claims and Productivity readings that were pretty much right inline with expectations, while Unit Labor Costs came in significantly weaker than expected (-1.6% vs -0.8%).
Please click the link below to read today’s Bespoke Morning Lineup for our take on the latest news driving markets overseas overnight and this morning.
After the worst May in years, June is off to a very strong start as the S&P 500 is up 2.69% after the first three trading days. As shown in the table below, that ranks as the eighth strongest start to the month in the index’s history and the best since 2000. The table below lists the eleven years where the first three trading days of June saw returns stronger than 2%. Of the seven years where June saw a stronger gain in the first three trading days, returns over the rest of the month were mixed ranging from a loss of 9.4% to a gain of 8.3% and an average decline of 0.1%. In the four months where returns were above 2% but weaker than this year, the rest of the month was consistently negative.
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Morning Lineup – ADP.U.
The bulls are out again this morning, but an ADP Private Payrolls that simply stinks has dampened the mood. While economists were expecting the headline reading to come in at 185K, the actual reading was just 27K. That was the weakest monthly print since March 2010 and the third weakest report relative to expectations since at least 2006.
Outside of the US, the World Bank lowered its global growth forecast down by 0.3 percentage points to 2.6% and said that risks to the global economy are firmly on the downside. On a similar note, the IMF lowered its growth forecasts for China slightly just as the May Services PMI for that country came in lower than expected. In Europe, Services PMI data was slightly better than expected coming in at a level of 52.9 compared to expectations of 52.5. Even if the economic outlook is cloudy, investors have been encouraged by the belief that the Fed is ready to act if needed. Whether the market and FOMC are both on the same page with regards to what “needed” means, though, is up for debate, but more data like this morning’s ADP report will likely move the FOMC closer to acting.
Please click the link below to read today’s Bespoke Morning Lineup for our take on what the rates markets are pricing, a recap of services sector PMIs, and just as important the latest data on Semiconductor sales.
As mentioned above, the ADP Private Payrolls report just came in weaker than expected, missing consensus expectations by over 150K. Using our Economic Indicator Database, we found that this month’s report was the weakest relative to expectations since January 2009 and just the third time since 2006 that the report has missed expectations by more than 100K.
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Morning Lineup – That Color You See is Called Green
Futures were already higher on little more than equities being sharply oversold and treasuries being extremely overbought, so we were due for at least a short-term bounce. The positive momentum has been aided by some dovish comments from Chicago Fed President Evans just now and somewhat conciliatory language from the Chinese regarding trade. There’s a lot more Fed commentary on the schedule for today, though, so they will likely send a message to the market either way. Either the market has it entirely wrong pricing in multiple cuts over the next several months, or they will signal they are coming around to the market’s view.
Please click the link below to read today’s Bespoke Morning Lineup for more of our recap of this morning’s market performance overseas as well as our view that stocks don’t have to plunge if the Fed doesn’t cut rates as aggressively as the market is pricing in.
Markets appear to be on pace to unwind much of the moves we saw yesterday, but we would be remiss not to point out the drubbing that the high yield market has seen in recent days. As shown in the chart below, high yield spreads (plotted on an inverse basis in the chart below) have widened out to their highest levels since early January. In just the last two days alone, spreads have widened out by more than 35 basis points, which is the biggest two-day move since December.
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Morning Lineup – Still Cloudy on the Tariff Front
There wasn’t a whole lot of news in either direction over the weekend over the escalating tariff situation between the US, China, and the ever-growing list of other countries that the current administration has threatened. As a result, US futures are moving in the path of least resistance (lower), while rates are lower. That being said, yields and equity futures are off their overnight lows.
It’s a big day for economic data to kick off the week and it’s going to be a busy week in terms of Fed speakers, so if the FOMC was looking for an opportunity to send a message to the markets that they are incorrect in pricing an 88% chance of a cut by September, now is the time to do it.
Please click the link below to read today’s Bespoke Morning Lineup for more of our thoughts on the latest from the latest international manufacturing PMI readings for the month of May as well as an early look how European auto sales are shaping up for May.
With the continued weakness in the equity market last week, the percentage of oversold US stocks is really starting to pile up. As shown in the chart below, through Friday’s close, nearly 40% of all S&P 500 stocks were trading more than one standard deviation below their 50-DMA. The last time we saw a reading this negative was on January 3rd.
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Morning Lineup – “You Get a Tariff. You Get a Tariff. You Get a Tariff.”
The good news? In less than 7.5 hours it will be all over and the weak equity performance for the month of May will be nothing more than a bad memory. We can only hope that June doesn’t provide any sort of meaningful encore.
One of the catalysts for this morning’s weakness is – you guessed it – tariffs. But this time the tariffs have nothing to do with China. Instead, it’s Mexico, as the Trump Administration announced that that it will enact new tariffs on imports if the country doesn’t do anything to stem the flow of illegal immigrants into the US. At the rate things are going, it won’t be long until the list of countries we aren’t threatening with tariffs will be shorter than the list of countries who we are threatening (or maybe it already is).
Besides the tariff announcements with Mexico, other news pressuring equities this morning include a weaker than expected Manufacturing PMI in China (49.4 vs 49.9) and weaker than expected Retail Sales in Germany. The latter has pushed the yield on the 10-year German bund down to a record low of negative 0.205%. Over here in the US, the 10-year yield has sunk to 2.16%, and the yield curve has further inverted to a new low of negative 17 basis points.
Please click the link below to read today’s Bespoke Morning Lineup for more of our thoughts on the latest tariff announcements. Also, make sure to check out our latest B.I.G. Tips report for a recap of prior down opens to end the month.
With the weak economic data across the globe, markets are increasingly betting that the FOMC will be forced to cut rates at some point in the near future. Between now and January, the futures market is pricing in a 94% chance of at least one rate cut. Even more surprising is that the market is pricing in better than a 37% chance that the Fed Funds rate will be cut by at least 75 bps! At some point, push has to come to shove. Will the market bend to the FOMC’s view or will it be the other way around.
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