Waiting for That Reichstag Fire Moment

Investors have a busy week ahead with a string of economic data and our first look at 1Q earnings. On the economic front, we have Manufacturing PMI, the Unemployment Rate, Non-Farm Payrolls, and Average Hourly Earnings.

Non-Farm Payrolls & Unemployment Rate: On Friday (4/7), we have the release of Non-Farm Payrolls, the Unemployment Rate and Average Hourly Earnings for March. Should the figure show that the economy created more jobs than expected, or if average hourly earnings jumped higher, we will likely see the markets go higher, the US Dollar go higher and oil go lower. Should these numbers disappoint, we believe the markets will go lower along with the US Dollar. If the number is strong, Sean Spicer will likely say this number is real unlike Obama’s White House fake number while a weak number will continue to be a fake number.   

Earnings Season: 1Q Earnings season kicks off with 14 S&P 500 companies expected to report this week. So far for Q1, we have seen 79 negative EPS preannouncements issued by S&P 500 companies compared to 29 positive EPS preannouncements. Investors will watch to see how this plays out for the quarter.

Brexit: The divorce proceedings begin. Last week, Prime Minister Theresa May officially triggered Article 50. The triggering of Article 50 had been priced in to the market for weeks so we witnessed little reaction. Investors will now turn to the rhetoric of how the negotiations may go in the split. The nastier the split, the more volatility we could witness in European markets and in foreign currency. So far, the statements from the EU have been mixed as to how the negotiations may go. The French elections could play a part in this, which is scheduled for (4/23).

Central Bankers Speak: As central bankers start saying now that we may have 4 rate hikes, or that rates are too low. Investors will watch to see if the US Dollar takes off, which could also see US mortgage rates rise. FOMC Member William Dudley said last week those rates are too low, but then flip flopped his stance 24 hours later stating that “the Fed is in no rush to hike”. Investors (and algos) will look to see if we have more hawkish comments than dovish comments. More hawkish comments will have the projections on rates steepening, sending the Dollar and interest rates higher, along with helping the banking sector. More dovish comments may see interest rate projections flatten, pushing Treasuries higher.    

FOMC Minutes: On Wednesday (4/5) the latest FOMC Minutes are released. Investors will be looking closely at the language of the minutes to see what may have changed from the previous FOMC meeting. After the Fed raised interest rates at their last meeting, investors will closely monitor the wording, but will mainly be listening to FOMC members at the latest speaking arrangements.

Manufacturing PMI: PMI readings from across the globe are due out this week. Traders will watch to see if these readings, which are considered hard data, continue coming in lower compared to soft data (confidence, sentiment) which have been seeing highs not seen in years. Unless we see a huge miss, investors should not expect a market moving event as the soft readings the last few months have been the large drivers compared to hard readings.

Oil: In the past week, oil climbed back above $50 after Kuwait’s oil minister said OPEC is in talks to extend production costs. Investors will be listening to headlines out of OPEC (which algos go crazy off of) to see where oil ends up for the week. We will also be listening to the latest inventory levels as these readings have been at records some weeks, pushing the price of oil lower.  

Witch Hunt: The latest witch-hunt in Washington on who is colluding with the Russians and who is spying on each other has done little to rattle the stock market. As rhetoric continues with Congress and the media pointing fingers with little to show for it, investors will continue not to care. In this man’s opinion, this is the likely scenario that will play out and the market’s reaction:

This leads to nothing and drags on for years. It’s the Democrats version of Republicans useless attack on Hillary’s emails and Benghazi hearings. Nothing is going to change the direction of tax reform or Trump’s agenda. Health reform will happen at some time, just not today, and in a different form. The markets and interest rates will continue to go up. Infrastructure projects will go through helping construction companies. Nothing will come of the witch hunt unless we have a Reichstag Fire moment. For those that don’t have a clue of this reference, below is a history lesson for you. *

Tomb Sweeping Day: This week’s unusual bank holiday comes to us from China. On Monday (4/3) Chinese markets are closed for Tomb Sweeping day. So as you sit at your desk wishing for a bank holiday, here is one that has a custom of (besides the obvious of cleaning a tomb) flying a kite.

*The Reichstag Fire was an arson attack on the Reichstag building in Germany in 1933 in which the Nazis stated it was set by the communists plotting against the German government. Hitler, recently sworn is as Chancellor of Germany, urged the President to pass an emergency decree to suspend civil liberties and started instituting mass arrests putting the Nazis completely in power. History has shown us that the Nazis may have actually started the fire as a false flag to seize power.