TradeTheNews.com Weekly
Market Update: Investors risk appetite returns as bond yields stabilize and
trade talks to move forward
Fri, 06 Sep 2019 16:10 PM EST
US stock markets returned to within just a few percentage points of all-time
highs this week as Treasury yields appeared to have bottomed, at least for now.
The news flow was decidedly positive as momentum gathered regarding several of
the key narratives that held back investors' willingness to add risk in August.
Italy was set to swear in a new government next week while UK MPs seem to have
found a way to avoid a 'no deal' Brexit in Oct, to the chagrin of PM Boris
Johnson. The US and China continued to talk with deputy-level meetings now
confirmed by both sides for later this month in Washington which will hopefully
result in principal-level meetings in Oct. Markets reacted extremely positively
as both sides dialed back the rhetoric significantly, allowing for optimism
heading into these next rounds of negotiations.
US manufacturing data continued to soften after the ISM reading followed
overseas economies into contraction territory for the first time since 2016.
Recession hand-wringing was held in check, though. Another solid US employment
report, albeit below market expectations, and a modest bounce in overseas
services data suggested to some the recent plunge in yields was likely an
over-reaction to global recessionary fears. The Fed still appears destined to
cut rates when they meet later this month but the most aggressive rate cut
projections were tempered as risk appetite improved and Treasury yields moved
up. Some ECB officials looked to lessen market expectations ahead of next
week's expected stimulus announcement. Chairman Powell did little to change
Federal Reserve expectations when he spoke in Switzerland on Friday, noting the
Fed was not expecting a recession and opted not to provide anything new on his
thinking on rates ahead of the Sep FOMC meeting. The US 10-year yield bounced
some 13+ basis points from Tuesday’s post ISM low, helping the US 2/10-year
spread finish the week in positive territory. Cable jumped to a one-month high
and gold prices rolled over from recent highs. For the week the S&P gained
1.7%, the Dow rose 1.5% and NASDAQ added 1.8%
In corporate news, airlines released guidance for the rest of the year, with
JetBlue cutting its revenue outlook, United and Delta affirming their
forecasts, and Alaska raising its RASM expectations. Lululemon crushed
quarterly estimates and raised its outlook yet again, noting a 15% growth to
same-store sales powered by 35% growth in menswear revenue. American Eagle
reported a miss on its quarterly SSS, citing underperformance in certain
seasonal categories and a delayed start to back-to-school. Ciena jumped initially
after announcing an earnings and rev beat, but then shares reversed when it
gave a weaker FY20 gross margin outlook. Slack posted solid results but shares
slumped on a slightly weaker earnings forecast as competition worries persist.
Halliburton guided its Q3 to the low end of forecasts amid maturation of the US
shale sector and cutbacks at oil and gas customers. Starbucks tempered 2020 EPS
projections, pointing to one-time tax benefits that will be a headwind to
earnings growth in the next year. Tyson cut its earnings outlook for a bevy of
reasons, which weighed on the food processing space.
SUN 9/1
(CN) China Customs Tariff Commission of the State Council clarifies tariff
increase on US goods; next round goes into effect on Sept 1st (today) on $75B
in goods in 2 batches, second round to take effect on Dec 15th - Xinhua
MON 9/2
*(ES) SPAIN AUG MANUFACTURING PMI: 48.8 V 48.5E (3rd straight contraction)
*(UK) AUG PMI MANUFACTURING: 47.4 V 48.4E (4th straight contraction and lowest
since July 2012)
416.HK Said to halt payouts on offshore preferred securities - US financial
press
TUES 9/3
*(US) AUG FINAL MARKIT MANUFACTURING PMI: 50.3 V 50.0E (lowest since Sept 2009)
*(US) AUG ISM MANUFACTURING: 49.1 V 51.2E; PRICES PAID: 46.0 V 46.8E (lowest
Manufacturing reading since Jan 2016)
*(US) JULY CONSTRUCTION SPENDING M/M: 0.1% V 0.3%E
(UK) UK Tory Party MP Phillip Lee defects to Liberal Democrats; Conservatives
lose majority as a result
(IT) Italy's 5-Star Party membership votes to form a govt with Democratic Party
(PD) - press
*(CL) CHILE CENTRAL BANK (BCCH) CUTS OVERNIGHT RATE TARGET BY 50BPS TO 2.00%;
AS EXPECTED
(US) Fed's Bullard (dove, voter): calls for immediate 50bps cut; Fed policy
rate is too high and would be better to get to right point now rather than in
smaller steps
WEDS 9/4
(HK) Hong Kong Leader Lam to formally withdraw extradition bill - press
*(DE) GERMANY AUG FINAL PMI SERVICES: 54.8 V 54.4E (confirm 74th month of
expansion)
(EU) EURO ZONE AUG FINAL PMI SERVICES: 53.5 V 53.4E (confirm 75th month of
expansion)
*(UK) AUG PMI SERVICES: 50.6 V 51.0E (5th month of expansion)
*(DE) GERMANY SELLS €2.353B VS. €3.0B INDICATED IN 0.0% OCT 2024 BOBL; AVG
YIELD: -0.88% (record low)V -0.79% PRIOR; BID-TO-COVER: 1.9X V 1.18X PRIOR
SBUX Cuts FY20 adj EPS outlook below 10% model (prior at least 13%); Affirms
FY19 $2.80-2.82 v $2.83e; - GS conf
*(US) FEDERAL RESERVE BEIGE BOOK: ECONOMY EXPANDED AT A MODEST PACE; CONCERNS
ABOUT TARIFFS AND TRADE POLICY CONTINUE
(UK) House of Commons passes the Brexit delay law; vote 327-299
(UK) PM Johnson proposes early general election on Oct 15th
(JP) Japan Investors Net Buying of Foreign Bonds: +¥1.5T v -¥910.3B prior week;
Foreign Net Buying of Japan Stocks: -¥89.5B v +¥3.9B prior week
(CN) CHINA COMMERCE MINISTRY (MOFCOM): WILL HOLD TRADE TALKS WITH US IN EARLY
OCT. IN WASHINGTON, DC [previously expected during Sept]
THURS 9/5
*(US) AUG ADP EMPLOYMENT CHANGE: +195K V +148KE (highest reading since April)
(US) Aug ISM Non-Manufacturing Index: 56.4 v 54.0e
*(US) JULY FINAL DURABLE GOODS ORDERS: 2.0% V 2.1%E; DURABLES
EX-TRANSPORTATION: -0.4% V -0.4%E
(US) Treasury releases proposals for Fannie Mae and Freddie Mac: recommends end
of conservatorship and preserving govt support in the housing market
FRI 9/6
*(EU) EURO ZONE Q2 FINAL GDP Q/Q: 0.2% V 0.2%E; Y/Y: 1.2% V 1.1%E
*(US) AUG AVERAGE HOURLY EARNINGS M/M: 0.4% V 0.3%E; Y/Y: 3.2% V 3.0%E; AVERAGE
WEEKLY HOURS: 34.4 V 34.4E
(US) New York Fed Nowcast: cuts Q3 forecast to 1.5% from 1.8%; cuts Q4 forecast
to 1.1% from 1.6%
