Keep it Running

Keep it running.  Stocks rose on Friday ending their best quarter since 1998.  The inverted front end of the yield curve turned slightly positive and upbeat news from US trade delegates in China spurred the markets forward.

 

WHAT YOU NEED TO KNOW:

1)  The Chinese economy might be stabilizing.  WHILE YOU SLEPT (or wept if you had Duke), Chinese Factory PMI came in at 50.5 up from 49.2 prompting a fresh round of buying in equity markets overseas.  Though consumption in China continues to languish, the positive news in manufacturing shows promise and will be welcomed by traders.

2)  Inflation is under control.  Friday’s core PCE deflator, the Fed’s go-to gauge of inflation grew at a year over year pace of +1.8% down from a revised +2.0% last month.  That puts the growth just below the Fed’s +2% target, supporting their patience policy.

3)  The yield curve turned positive on Friday taking some fear of a recession off the table.  Though the procession of Fed governors who spoke last week recognized weakness in the economy, none expressed the need to cut rates at this point.  The bond market is not convinced just yet as rates still remain low despite the yield curve bouncing back slightly.  There is plenty of political rhetoric for the Fed to cut rates but heretofore it is purely political.

4)  Brexit appears to be headed off a cliff.  On Friday, British lawmakers shot down Theresa May’s third attempt at separating from the EU.  Her defeat means that Parliament has two weeks to get its act together or face a much longer delay in the process, if not a hard Brexit.  Stock traders have still not factored in Brexit implications.

 

THE MARKETS:

The first quarter was a party for equities not seen since 1998 as the S&P 500 rose +13.07% and the Dow Jones Industrial climbed +11.15%.  The primary driver for the big move in stocks was the Federal Reserve’s now-famous pivot on the heels of a rate hike in late December.  Fed governors fearing that the hikes were possibly overdone decided to take a wait and see approach for future hikes as inflation appears to be under control.  Despite lowering expectations for economic growth and weak earnings guidance stock investors cheered the Fed’s change of heart.  The fear of recession has not completely faded as bond yields remain low and the yield curve inverted for a week but equity traders seem to be taking it in stride.  On Friday,  the S&P500 went up by +0.67%, the Dow Jones Industrial Average jumped by +0.82%, the Russell 2000 traded up +0.3%, and the NASDAQ 100 ran up by +0.8%.  Bonds receded slightly leaving ten year yields slightly higher at 2.4%, which was just enough to bring that now famous 3 month / 10 year yield curve to +0.87 basis … yes that’s positive, albeit not very.  The 2/10 yield curve now sits at +13 basis points, flatter by 2 basis points on the day.  All of that means that there is a lot of jockeying going on in bonds these days as the recession debate rages on.  Watching bonds and the yield curve carefully is a wise thing to do at this point.

 

WHAT TO LOOK FOR TODAY:

The US Census Bureau will release Retail sales figures this morning.  Top line retail sales are expected to have grown by +0.3% month over month, slightly higher than last month’s growth of +0.2%.  Retail Sales excluding Automobiles and Gas are expected to have grown at a month over month rate of +0.3% down from last month’s growth of +1.2%.  Later this morning we will get Markit Manufacturing PMI and the final number for March is expected to be 52.5 in line with prior estimates.  The ISM Manufacturing PMI is expected to come in at 54.5, up slightly from last month’s 54.2.  These are important numbers and you can read more about PMI’s in my note on the subject here: https://www.siebertnet.com/blog/index.php/2019/01/02/out-with-a-bang/  .  Finally, we will get a read on Construction Spending which is expected to have fallen by -0.2% after last month’s growth of +1.3%.  Today’s numbers should be enough to keep traders busy but throw in some more Mexican border turmoil and combine it with some more Brexit confusion and you get a manic Monday.

 

WHAT TO LOOK FOR IN THE WEEK AHEAD:

The week ahead is chock-full of economic numbers to ponder.  Today’s first wave of manufacturing numbers should set the tone for the week along with retail sales which are always looked at critically by traders.  Tomorrow, we will get a preliminary read on Durable Goods Orders and Wednesday we will get the services PMI’s from both Markit and ISM along wit the ADP Employment change number, which can sometimes hint at Friday’s big employment number.  On Friday, The Bureau of Labor Statistics will release its monthly employment situation which is expected to show that 175k new non-farm payrolls were added last month with an unemployment rate of 3.8%.  This is a busy week for numbers and we will still have some earnings releases as well.  Please refer to the attached weekly earnings and economic calendars for details.  Additionally, Chinese trade representatives will be in the US this week which will yield some more news on that front.

daily chartbook 2019-04-01

earnings releases 4_01

econ numbers 4_01