Stuck in a Meeting: OPEC, ECB Gather in Coming Days As Volatility Hits 5-Week Low

It may be a quiet few days in the first few days of the week with subdued volatility and the yield curve inversion being out of the picture for now. But with upcoming OPEC and European Central Bank meetings this week, there could be some movement. wild ride through Italy, China, U.K.
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Key Takeaways

  • Key OPEC and ECB meetings coming up later this week

  • Apple expected to unveil new iPhones tomorrow

  • Volatility continues to ease from August highs

(Monday Market Open) After a weekend of huddles behind the line of scrimmage, the new week starts with some potentially market-moving economic huddles on the calendar. 

Most importantly, we get meetings of the European Central Bank (ECB) and OPEC. The ECB is widely expected to enact some sort of new economic stimulus for the sluggish European economy, while OPEC is widely expected to continue its policy of production cuts. Those cuts haven’t seemed to help the crude market much, as prices remain mired in the mid-$50’s a barrel.

Europe’s anticipated stimulus would come just after China’s government made moves over the last few days to jumpstart economic activity by cutting the ratio of cash that banks are required to hold on their balance sheets. This is something China’s done a lot over the last two years, and maybe it can help the slowing economy there. China’s trade data over the weekend—both imports and exports—looked pretty disappointing, but despite that, Chinese stocks did pretty well Monday.

Meetings continue next week when the Fed gathers. That means we’ll be entering a “quiet period” over the next few days, so those regular headlines about Fed presidents expressing their thoughts on the economy will quiet down for now.

With earnings and the Fed expected to be non-factors this week and the jobs report behind us, volatility has crumbled quickly over the last few days. The Cboe Volatility Index sank to five-week lows near 15 early Monday, down sharply from above 20 at times last month and maybe indicating that investors don’t expect the kind of market turbulence we all got used to in August. As anyone who follows the markets knows, however, VIX can change at the drop of a hat.

In corporate news, Apple (AAPL) is expected to unveil new iPhones tomorrow, though JP Morgan (JPM) said in a report that it’s “unlikely to be a material event for shares.” Pricing of the phones could be the key takeaway.  Speaking of JPM, the company  is close to winning the lead advisory role for Saudi Aramco's initial public offering, Reuters reported. 

Also, it looks like AT&T (T) shares could have a big day Monday on word that a major activist investor group has taken up a stake. Strength in T shares could have an impact today on the Dow Jones Industrial Average ($DJI) and on media stocks in general.

For data lovers, this week offers its share of excitement with inflation numbers (see more below) and retail sales. That’s all coming over the next few days, with Monday looking kind of quiet.

Payroll Post-Game Report

Looking back at Friday’s jobs report with a little more time to review it, the headline number was a bit light and represented the third-straight month of falling growth. Still, August is always a strange report, so it’s important to take the data in context.  Summer jobs roll off during the month as kids go back to school, and many summer resorts close. 

There was also the anomaly of the government hiring 25,000 workers for the census last month. You normally don’t see that, and it isn’t really repeatable. The federal jobs growth helped make the headline number look a bit better than maybe it had a right to, so that could raise some concern about whether the report truly reflected the jobs picture.

Speaking of concern, despite last week’s strength in stocks and softness in bonds, the market arguably remains in caution mode and is barely up year-over-year. Tariff worries continue to hang over everything, and the stock market might continue to only be as happy as the latest tweet or Chinese state media article allows. As we noted Friday, the 3000 barrier could remain challenging for the S&P 500 Index (SPX) as long as there’s no tariff resolution.

Treasury yields fell Friday based partly on the soft headline jobs number, with the 10-year yield sinking back to 1.55% after Thursday’s big move higher.  On the positive side, the yield curve ended last week out of inversion, with 10-year yields just above two-year yields.

The dollar index, meanwhile, stepped back slightly toward the end of last week and finished Friday under 98.5. That’s still relatively high vs. where it’s been over the last year, as investors continue gravitating toward U.S. assets due partly to ideas that the economy here is weathering global turbulence better than some other countries.

That turbulence includes unrest in Hong Kong, political strife over Brexit in the U.K., and any tension with Iran or North Korea. All wait in the wings as possible shadows that could spread over world markets at any time. Though volatility has fallen sharply over the last week, with the Cboe Volatility Index finishing back down near 15 after climbing above 20 in August, it’s not necessarily the right time to relax. Keep in mind, too, that we’re between earnings seasons. That means stocks could have a tendency to react more dramatically to rough geopolitical weather because there’s less corporate news in the mix. 

Mixed Friday Ended Positive Week with SPX Piercing Resistance

Stocks bounced around Friday and lost ground into the close, with the Nasdaq (COMP) actually declining for the day. What is supportive going into the new week, on the other hand, is the SPX’s late-week climb above a heated technical resistance area that had been holding pretty tightly at 2940 for quite a while.

Friday might feel like a long time ago, but the jobs report and Fed Chairman Jerome Powell’s speech both could influence markets this week. Powell’s speech had pretty much the same tone we’ve heard from him a lot recently: Balanced. The remarks appeared to reinforce investors’ beliefs that the Fed is about to lower interest rates by 25 basis points when the Federal Open Market Committee (FOMC) meets next week, but probably not 50 basis points. You could argue that the market wants a rate cut and will probably get it, but that a 50-point cut now would possibly spook people into thinking things are worse than they are from an economic standpoint.

Any drama around the September Fed meeting is basically over. It’s October that now starts coming into view. The futures market is pricing in 61% chances that the Fed lowers rates another 25 basis points in October, but decent 35% odds of staying pat with just the single cut in September.

One other thing that’s maybe worth monitoring is continued weakness in a couple of key market barometers. Both the Russell 2000 Index (RUT) of small-cap stocks and the Dow Jones Transportation Average ($DJT) have trailed the broader market by a good margin over the last year. Though both perked up a little in the last week or two, these indices still don’t show too much life.

LANGUISHING RUT: Small-cap stocks, represented year-to-date here by the Russell 2000 Index (RUT—candlestick), continue to languish vs. the S&P 500 (purple line), and didn’t get much of a boost last week even as bigger stocks moved higher. Data sources: FTSE Russell, S&P Dow Jones Indices. Chart source: The thinkorswim® platform from TD AmeritradeFor illustrative purposes only. Past performance does not guarantee future results. 

A Deeper Look at Payrolls: After a weekend to think things over, here are a few more observations about Friday’s payrolls report and what it tells us about the U.S. economy. First, average monthly job growth so far this year of 158,000 is well below last year’s 223,000 average, but that might not be the worst thing in the world. With unemployment at 50-year lows, it’s unlikely last year’s huge growth pace could have continued, and economists say growth of just 100,000 a month might be enough to sustain low levels of unemployment. It’s probably too much to expect jobs growth of 200,000 a month to continue indefinitely, so the drop we’ve seen this year isn’t necessarily a sign of recession ahead.  

Wages also looked pretty solid, growing 3.2% year-over-year. That’s been a pretty steady number over the last few months, and it’s in Goldilocks territory—not so high that it would stir inflation fears, but also high enough to potentially fuel positive consumer sentiment. So even though the headline number might have disappointed by coming in below expectations, there were things to like.

The More Things Change: There wasn’t much job growth or losses in some of the key sectors like construction and manufacturing. These areas tend to be closely monitored because they can signal strength in the economy. However, the economy is changing, and it’s interesting to see how growth in professional and business services keeps chugging along, even if the average monthly growth is a little less than a year ago. Health care, too, is one of the areas adding jobs in a major way. That’s probably a sign of how the aging population is raising demand for workers in that profession.

So even though the Labor Department said job growth in construction and manufacturing has moderated a bit in the last year (which makes sense when you consider how businesses appear to be cutting back on investment amid trade concerns), it’s possible that other areas of the economy can help make up some of the difference, at least for now.

Price Watch Starting: Price data due Wednesday and Thursday potentially could help shape the Fed’s feelings going into next week’s meeting. The fun starts with August producer prices (PPI) on Wednesday and continues with consumer prices on Thursday. Last time out, PPI rose 0.2% in a relatively benign performance. But CPI rose 0.3%, which was above expectations and might have raised some eyebrows. As the year continues, both PPI and CPI could get even more attention than in the past, because both have a chance of reflecting the new tariffs against China.

The question might end up being whether PPI begins rising in coming months, and, if so, whether that gets passed along to consumers and shows up in a higher CPI. These trends take months to play out, and the Fed also looks at Personal Consumption Expenditure (PCE) prices to determine the inflation rate. Thinking around the market now is that the Fed is likely to lower rates by 25 basis points this month no matter what PPI and CPI say, but if they do show signs of creeping inflation, it could put the October Fed meeting into more focus.

Good Trading,



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This week's economic calendar. Source:

Key Takeaways

  • Key OPEC and ECB meetings coming up later this week

  • Apple expected to unveil new iPhones tomorrow

  • Volatility continues to ease from August highs

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