The Market Today

THIS WEEK’S CALENDAR

Growth Uncertainty to Be Answered with Avalanche of Economic Data: Perhaps the busiest economic calendar ever kicks off slowly today with two regional Fed reports (Chicago and Dallas).  The more important news starts tomorrow with reports on trade (Nov.), home prices (Nov.), and consumer confidence (Jan.).

 

Wednesday will bring the ADP Employment report (Jan.) and the first estimate of 4Q GDP (e2.6%).  More importantly, the Fed will announce its latest policy decision Wednesday afternoon, the first announcement after officials adopted the mantra of “patience.”  Just as important, rumors are circulating that they may alter the path of their balance sheet roll-off, something that was completely off the radar in December.  According to a WSJ article posted Friday, “Federal Reserve officials are close to deciding they will maintain a larger portfolio of Treasury securities than they’d expected when they began shrinking those holdings two years ago, putting an end to the central bank’s portfolio wind-down closer into sight.”

 

On Thursday, the PCE inflation report (Dec.) is expected to show another month of soft price gains.  December’s personal income and spending will also be released.

 

Then on Friday, nonfarm payroll growth is expected to slow (e160k) while the unemployment rate is expected to remain elevated at 3.9%.  On a side note, the payroll report should be minimally affected by the shutdown (Congress voted to give furloughed workers backpay which means they should remain on the payroll tallies).  However, the unemployment report is likely to be affected.  Also Friday, we will see the ISM Manufacturing Index (Jan.), construction spending (Dec.), consumer confidence (Jan.), and auto sales (Jan).

 

Add to this flurry of data the shutdown-delayed reports which could be released at any time this week.  Delayed reports include readings on consumer spending (Dec. retail sales), business investment (Nov. and Dec. durable goods orders), housing activity (Nov. and Dec. new home sales; Dec. housing starts and building permits), and trade (Nov. trade balance).  Bottom line – economists and investors are uncertain about how well the economy has weathered the uncertainty of the government shutdown, and this data could prove its resilience or its fragility.

 

TRADING ACTIVITY

Overnight – Concerned About a Potentially Treacherous Week for Headlines, Investors Kick Off the Week with Caution: Against a backdrop of heightened uncertainty, and considering the endless opportunities for investors to get tripped up this week, it’s not too surprising to see global risk assets off to a slow start Monday. The quarterly corporate earnings season remains in full swing, with investors keen to see if company executives are equally concerned about growing global uncertainties and if they are impacting bottom lines and forward guidance. The schedule of U.S. economic data is the heaviest in recent memory. Another important parliament vote is expected soon in the UK and could have significant implications for the next step in the ongoing Brexit saga; the Article 50 clock runs out on March 29. The Fed will meet on Wednesday and Fed Chair Powell will hold his first official press conference since the Fed put on a posture of patience. And, maybe most importantly, a delegation of top Chinese officials will head to Washington to try and make further progress in bridging the gap on trade before the March 1 tariffs truce expires. While Asian stocks have risen 5.5% so far this month, they erased early gains and were mixed by the close. Europe’s Stoxx 600 was down 0.5% with similar-sized losses seen across U.S. equity index futures. U.S. futures moved to new lows after Caterpillar shares slid 6% on an earnings miss that was partly blamed on slower activity in China. Despite higher yields in Europe, Treasurys were little changed.

 

NOTEWORTHY NEWS

ICYMI – January 25, 2019 Weekly Market Recap: A void of U.S. economic reports was filled by weaker-than-expected global data, mixed headlines on U.S-China trade negotiations, and developments related to the partial federal government shutdown. The two notable U.S. reports reinforced that housing remains weak (slowest existing home sales since 2015) but the labor market has yet to be interrupted by increased uncertainty (lowest new jobless claims since 1969). Turning abroad, the week started with China reporting its slowest annual growth pace (6.6%) since 1990 and the IMF lowering its forecast for global growth. Subsequent separate releases included the weakest Eurozone PMI since 2013 and a three-year low for German business confidence. The weaker Eurozone data was consistent with the ECB downgrading its risk assessment for the outlook, saying risks had moved to the downside. Elsewhere, the Bank of Japan left policy unchanged and cut its core inflation forecast. Apart from the economic data, there was some confusion about a preparatory trade meeting being canceled and mixed messaging from top White House officials about the status of negotiations with China. After the Senate voted down two funding bills Thursday, President Trump agreed to a short-term spending agreement Friday afternoon. The deal re-opens shuttered agencies through February 15 to allow federal workers to collect their back pay and Congress to work on funding for border security. Ultimately, U.S. markets ended little changed. Click here to view the full recap.