FED & ECB Remain Dovish, BREXIT Extended til Halloween, US/China Edge Closer

What You Need to Know Today

• FED and ECB remain on hold

• China has a Pork Problem – Driving Inflation higher

• Mnuchin says that we have agreed on an enforcement deal with China

• UK Gets a Reprieve until Halloween – May's day appear to be numbered

Stocks waffled around again yesterday as investors awaited news from the gov't on inflation (steady and not out of control according to them – although you have to wonder – do any of these people actually go out and spend money? Do they not see prices of everyday items that have exploded higher? Dunkin Donuts coffee is $11/lb? – last year I bought 4 lbs for $20 and yesterday I paid $11 for 1 lb – isn't that the very definition of inflation? Next up were comments from the FED (no change – more to follow), the ECB (no change – more to follow), BREXIT (extension granted - and like I said yesterday – NO ONE was throwing the UK out of the EU any time soon), US/Sino trade talks (getting closer) and earnings (which start in earnest tomorrow). The Dow had a 100 pt swing from hi to lo ending the day up 7 pts, while the S&P swung 10 pts – ending the day up 10 at the high, the Nasdaq too had a 50 pt swing ending the day on the high at +50 pts and the Russell 2000 (again the best performer at up 1.4% added 21 pts closing at the high. All of this once again suggesting that investors are discounting the negatives that have rocked the mkt earlier this week as it attempts to once again challenge some key milestones.

The Dow is just 600 pts away from the October high, the S&P is 40 pts away and the Nasdaq is about 130 pts away from piercing up and thru its October high – on the one hand you can feel the excitement and on the other hand you can feel the trepidation – all around earnings.....because all of the other stuff – has been settled for now. The FED made it clear and the headlines today spells it out –

"FED Minutes: Officials See Little Need to Change Rates This Year – FOMC members cited greater risks from global slowdown, muted inflation readings in keeping rates steady"

And for some reason some analysts and strategists found it necessary to find the negatives in the FOMC statement – (Where the FED reserves the right to change course if the data changes course) suggesting that the FED ‘left the door open to raise rates' – and that is what hit the Twittersphere – and to that I said - "What do you expect? Did the FED ever really close that door?" – Come on – it is understood that the FED can change course if the tide changes – what is difficult to understand? Look – the FED could CUT rates too (as some think they will) if the data weakens further – How come we didn't see that headline? Whatever...Either way – investors did not appear to be deterred as they took 3 out of 4 of the indexes higher closing them at or near their high.

Next up was all the European news – first was the ECB and the press conference hosted by Uncle Mario Draghi – where he also said that the ECB doesn't expect to increase its key short term interest rate before 2020 as they try to gauge the impact of the current stimulus measures designed to ‘kickstart' a slowing Eurozone. And then the EU – granted UK PM Theresa May an ‘extension' until Halloween before they will reconsider tossing them out of the European Union – and to this I ask – Was anyone really surprised by that? No, not really. But it does add just a bit of political uncertainty now as it appears that SHE is on the verge of being tossed out – her days at the 10 Downing Street appear to be numbered – so that will be the next broader catalyst for the Europeans and the Brits to figure out. JPM's European Economist – Malcom Barr wrote:

"A six-month period is clearly enough for the Conservative Party to contemplate a change in leadership while still allowing some time for the incoming PM to seek to negotiate with the EU. One could even cram a general election into that time frame too if PM May were to resign by roughly the end of May."

And so it goes.....And then we had more chatter around US/Sino trade talks with Treasury Secretary Stevey Mnuchin telling us we have pretty much agreed on the establishment of a trade enforcement office which is good – but do not kid yourself – there are still issues to be resolved – things like forced tech transfer and intellectual property rights continue to drag the process out – BUT we are still advancing the ball so that is good and investors continue to cheer about that. And finally earnings – which kick off tomorrow – led by the big banks – JPM and WFC to start the parade and all eyes will be laser focused on not only the number – but then all of the details that are embedded in the statement. Future guidance will never be more important this time around since S&P 500 earnings are expected to down y/y.......

Yesterday's earnings report from MSM (MSM Industrial Direct) – a direct marketer and supplier of a broad range of metalworking and maintenance and repair supplies – did not help alleviate the simmering concerns...They missed on earnings and they missed on revenues (so they missed on both the TOP and BOTTOM lines) and forward guidance was less than robust – so investors punished it hard...taking 5 pts or 6% out of the stock on the opening as investors reacted to the weak report.....by the end of the day – the stock closed off by $4.15 or down 4.85%. (suggesting why the Dow Industrials had a tough day) – and this is exactly what investors will need to deal with in the coming weeks. The number of bad earnings reports appears to be growing (bad meaning that companies are missing already slashed estimates and that is not good) – ahead of what is the ‘official start' of the season – individual names will be punished for sure – but if the news continues to be negative the broader tone will surely change no matter what the FED says....and while the dovish FED may mute a larger pullback – it will be the tone that these companies announce that will set the stage for the mkts next move as well as the FED's next move – Could we see a rate CUT???? Only your hairdresser knows for sure! (Now I am clearly dating myself – but any baby boomer knows exactly what I mean.

Overnight – Asian mkts ended mostly lower with China getting clobbered (2.16%) after reporting inflation at a 5 month high due to the shortage of pigs.....CPi rose 2.3% y/y below the 2.4% forecast but well above the January rate of 1.5% - food CPI alone was up 4.1% in March vs. the 0.7% rate in February....seasonal increases in vegetable prices and the culling of hogs to stop the spread of African Swine Fever is driving up the price of pork.....while NON Food CPI was essentially flat up 1.8% vs. February's +1.7%. PPI rose by 0.4% easing any fear of deflation.....by the end of the day – Japan +0.11%, Hong Kong – 0.98%,and ASX – 0.40%

In Europe right now – mkts there are all a bit higher – taking it all in stride....BREXIT being the driving force today as Donny Tusk – EU Council President wants "the UK to find the best possible solution." The ECB statement warning of continued slow European and global growth allowing him to consider more stimulus if the slowdown persists – giving European investors the same downside protection that US investors have with the FED. As long as investors know that the central banks will stand behind them – then they know there is a floor under stocks and that allows them to be a bit more Risk On. FTSE +0.16%, CAC 40 + 0.78%, DAX + 0.39%, EUROSTOXX + 0.42%, SPAIN + 0.12% and ITALY +0.20%.

US Futs are up 3 pts in early trading...the focus is all about US/China trade and the latest comments about the agreement of enforcement actions and further progress on trade issues. Stevey told CNBC on Wednesday afternoon that

"We are hopeful we can do this quickly, but we are not going to set an arbitrary deadline, If we can complete this agreement, this will be the most significant changes to the economic relationship between the U.S. and China in really the last 40 years."

And so that is what the mkts are focused on today.....Expect more talk about tomorrow's earnings releases and what that means for the mkt. It feels like we want to challenge 2900 again today – but my sense is that it will fail again until we see what tomorrow brings...but if we pierce it today and then tomorrow's earnings somehow disappoint – expect that we will plunge right thru before you hear the bell ring.... Look the banks as a group are up 12% ytd....JPM is up 8%, WFC is up 5% - the fear is that even if they ‘beat' the number you could see some profit taking (relief selling) and if they should MISS – then you will see them get punished hard and that will set the tone going into the weekend.

Eco data today - Jobless Claims (E: 211K) and PPI (E: 0.4%, Ex food and energy of 0.2%) neither should move markets. We have Vice Chair Ricky Clarida at 9:30 a.m. ET and NY's Johnny Williams 9:35 a.m. ET – and while we will hear from St Louis's Jimmy Bullard and Board of Governor Miki Bowman – neither of them are considered to be a mkt mover since they are not considered leadership. We still remain in the 2850/2900 range.