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Good News Is Bad News, or Vice-Versa?

Mark Vickery
Jay Powell testimony this week, new earnings results and testimony from Fed Chair Powell will all inform this week's market.

Monday, July 8, 2019

Following a better-than-expected jobs number from the Bureau of Labor Statistics (BLS) on Friday, when many traders were extending their Independence Day holidays, futures are down in today’s pre-market — likely the result of delayed trading reaction to the BLS survey. The reason for this is surmised as a “good news is bad news” phenomenon, whereby a healthier economy reduces the chances of a Fed rate cut at the end of the month.

A single robust jobs number is, of course, not enough to take down an entire trading market, but global economic weakness and a hazy outlook are contributing to a more bearish outlook on the market. This, conversely, brings a “bad news is good news” scenario, whereby slowing economic growing increases the chances of a Fed rate cut.

Here’s what we need to know this week: Fed Chair Jay Powell will bring his testimony to bear tomorrow and Wednesday, we see a major restructuring at Deutsche Bank DB which reflects on the global economic situation, and a surprising number of companies will be reporting (what we consider Q2) earnings this week.

Investors will be looking for signals whether Fed Chair Powell is looking to cut interest rates — and by how much — when the Federal Open Market Committee reconvenes at the end of this month. President Trump is upset that there has yet been no reduction in interest rates domestically, citing other countries bringing interest rates lower in the face of economic challenges they are facing.

Deutsche Bank has decided to exit the global equities business, which will result in the cutting of 18K jobs over the next three years. These jobs are worldwide, but in particular will affect Tokyo, Sydney and especially London, which had held roughly 7K of these positions. Weakness in the German economy — part of the global slowdown referred to above — along with the confidence in German investment and the Eurozone overall (the lowest we’ve seen in almost five years) are considered responsible for the move.

This week, we see early Q2 earnings reports from the likes of  PepsiCo PEP, Costco COST, Delta Air Lines DAL and Fastenal FAST. Expectations are for a slowing in gains to continue, as year-over-year comps continue to be a challenge. That said, a surprise to the upside might prove the U.S. economy is stronger than analysts expected… which, of course, brings us back to a “good news is bad news” scenario…

Mark Vickery
Senior Editor

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