The Market Today
Retail Sales, Corporate Earnings, and Trade Talks
by Craig Dismuke, Dudley Carter
THIS WEEK’S CALENDAR
Retail Sales and Corporate Earnings Headline This Week: Thursday’s retail sales report (March) and corporate earnings reports will dominate investor attention this week. The consumer has yet to prove a true rebound from the year-end weakness. The March retail sales data will be another chance to prove that the consumer is not pulling in the horns as a result of the recent volatility. This week’s trade (Wed.) and inventory (Wed. and Thu.) data will also be critical to the 1Q GDP tally.
New York Fed Report Beats Expectations, but Future Outlook Dinged: This morning’s calendar is quiet with only the Empire Fed Manufacturing report. The index jumped more-than-expected, rising from 3.7 to 10.1. The new orders component rose 4.5 points to +7.5 while inventories jumped from 0.0 to +8.4. The reading on hours worked recovered from the first negative reading in two years to show a slightly positive outlook. The Empire Fed report now points to a further rebound for the ISM Manufacturing index. If there was an area of weakness in the report, it would be the general outlook for business conditions six-months ahead. The index fell from +29.6 to +12.4, the weakest reading since early 2016.
Overnight – Little Market Conviction as Investors Await More Corporate Earnings: Global investors showed little conviction to move markets in either direction overnight in front of the first full week of corporate earnings, including another heavy slate of U.S. bank results. Equities were mixed across Asia, little changed in Europe, and U.S. futures were hovering around the flat-line. Foreign bond yields had ticked higher and Treasurys were modestly flatter with the short-end inching up more than longer yields (2s +1.0 bps at 2.40%, 10s flat at 2.57%). The absence of new economic news left attention split between last week’s activities and this week’s corporate earnings releases. A mixed week for global news last week was capped Friday by upbeat signals from Chinese data and better-than-expected earnings data from JPMorgan (more below). This week’s earnings calendar started with Goldman Sachs posting earnings that were better than expected but revenues that fell short and mixed capital markets activity. Trade negotiations between the U.S. and China obviously remains a focus and there were several related headlines making the rounds. Treasury Secretary Mnuchin said the U.S. is open to “repercussions” if they break their commitments, Reuters reported the U.S. was easing up on industrial subsidy demands, and Bloomberg wrote that the U.S. had asked China to shift tariffs currently on agricultural products to other imports. Also on Monday, the EU approved “negotiating directives” that will allow trade talks with the U.S. to begin.
ICYMI – April 12, 2019 Weekly Market Recap: The themes of last week’s trading session encapsulated the major topics that have driven global markets to start 2019. Several Fedspeakers and the Minutes from the Fed’s March meeting reiterated the message of patience from last month’s decision that, in the midst of increased global uncertainty and because inflation pressures remain muted, led officials to seek the flexibility to move rates, in either direction, only if the incoming data warrants. Trade tensions have been a major source of that global uncertainty, specifically between the U.S. and China. However, last week’s trade news involved early-week tariff threats involving the U.S. and EU related to support of domestic aircraft producers. Brexit has also played a major role in blurring the outlook in 2019, and may do so for months to come after the Article 50 deadline was delayed to October 31. The domestic growth data was mixed, with still-soft business spending, a disappointing JOLTS report but a nearly 50-year low for jobless claims, and lower-than-expected levels for business and consumer confidence. Importantly, domestic core inflation missed across the board. Core CPI inflation was softer than expected as a record drag from apparel, partly driven by methodology changes, offset firmness elsewhere. Secondary inflation reports on producer and export prices were also weaker. Long-term consumer inflation expectations turned back to match their lowest level on record. However, a bit of good news from China Friday on export and credit growth combined with a solid earnings report from JPMorgan Chase to push yields and equities up for the week. Click here to view the full recap.