The Market Today
Another ISM Report; U.S. – China Trade Talks
by Craig Dismuke, Dudley Carter
Another ISM Report, Hopefully a Better Result; U.S. – China Trade Talks: Today’s calendar brings the December ISM Non-Manufacturing Index at 9:00 a.m. CT, a particularly important report following the collapse of the manufacturing report last week. Going back to September, the non-manufacturing data has held in a bit better than the manufacturing report. Today’s report is expected to pull back from 60.7 to 59.0 If the index disappoints expectations, it could spark another round of angst over future growth prospects. Any news out of the ongoing U.S. – China trade talks could also be a catalyst for the markets. The two sides have until April 1 to work out a deal or extend the current truce.
Overnight – Global Markets Mixed after U.S. Stocks’ Friday Surge as Trade Talks Resume: Global markets have moved in different directions so far Monday as shares in Asia gained at the outset of the most recent trade talks between the U.S. and China while U.S. futures weakened slightly after impressive gains last Friday closed out another week of volatility. Japanese equities rose more than 2% to lead gains across Asia as China’s CSI 300 tacked on a more modest 0.6%. Momentum from last week’s U.S. gains, powered by a blowout payroll report and more patient-sounding Powell (more below), seemed to lift spirits. Adding further support was the next round of trade talks between the U.S. and China that kicked off Monday in Beijing and will wrap up tomorrow. The vice-ministerial level conversations, the first face-to-face meeting since the December 1 truce, are expected to push the ball forward and set the stage for talks between more senior officials later this month. Equity markets in Europe, however, quickly turned away from opening gains and the Stoxx Europe 600 traded down 0.3%. Safer European yields also rose then fell as stocks receded, with both bouncing briefly on a stronger-than-expected retail sales report (+0.6% vs 0.2% expected) for the Eurozone. Earlier, Germany factory orders fell more than expected (-1.0% vs -0.1% expected). Oil prices are higher for a sixth consecutive session marking the longest positive streak since July 2017. Even after the most recent run higher, U.S. WTI was trading around $49 per barrel. In the U.S., equity futures were most recently mixed and hovering around unchanged while Treasury yields flattened lower. The 2-year yield was down 2 bps to 2.47% while the 5-year (2.47%) and 10-year (2.63%) yields both slipped 3.4. bps.
ICYMI – January 4, 2019 Weekly Market Recap: The major themes from late last year were pervasive in last week’s most prominent market moves. Investors were again confronted by signs the ongoing trade dispute between the U.S. and China has caused major disruptions for global manufacturing. A downgrade to revenue guidance pummeled shares of Apple and was seen as a possible canary in a coal mine, just ahead of the corporate earnings season, warning of a greater risk global economic activity was slowing. Through Thursday, it looked as if stocks, fresh off their worst December since the Great Depression, would fall further and yields would extend their impressive post-October downtrend. But three separate events Friday combined to create the perfect prescription for a positive turn into the weekend. After China confirmed a trade meeting of mid-level officials from its country and the U.S., the December jobs report blew away expectations for total payroll growth (312k +58k in revisions) and included an unexpected new cycle-high for earnings growth. Still, a tick up in the unemployment rate on a pick-up in participation should give the doves ammunition to say rate hikes should be on hold to allow the labor market to continue removing unforeseen slack. Combined with comments from Fed Chair Powell that wage growth wasn’t necessarily inflationary and muted inflation meant the Fed could be patient and see how the data evolves, these events gave investors reason to pour back into stocks. On Friday, the S&P 500 jolted 3.43% higher and the 10-year yield jumped more than 11 bps. Click here the view the full recap.