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Was the CPI a Bullish Gamechanger?

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Was the CPI a Bullish Gamechanger? Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • Was the CPI Report a Bullish Gamechanger?
  • CPI Data Analysis and Takeaways

Stock futures are extending the November gains this morning and Treasuries are steady after more cool inflation readings in Europe and stabilizing economic data in China.

Economically, Chinese FAI and Industrial Production figures met estimates while Retail Sales importantly accelerated to 7.6% vs. (E) 7.0% in October up from 5.5% in September.

In Europe, CPI data from the U.K., France, and Italy all met estimates or came in “cooler” than expected. This bolsters the view that global central banks are done with rate hikes, fueling risk-on money flows today.

Today, there are several economic reports to watch early: PPI (E: 0.1% m/m, 2.0% y/y), Empire State Manufacturing Index (E: -3.0), and Retail Sales (E: -0.3%). The market will be looking for more signs of cooling inflation in the PPI release. And no major surprises either way in the Empire and Retail Sales releases as the market is still vulnerable to data that is “too hot” (risks of more Fed tightening) or “too cold” (risks of a “hard landing”).

There are also two Fed speakers today: Barr (9:30 a.m. ET) and Barkin (3:30 p.m. ET) but neither are expected to move markets.

Was the CPI Report a Bullish Gamechanger?

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What the Hawkish Fed Decision Means for Markets

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Hawkish Fed Decision: Strengthen your market knowledge with a free trial of The Sevens Report.

What’s in Today’s Report:

  • What the Hawkish Fed Decision Means for Markets
  • Key Levels to Watch:  Post-Fed Takeaways
  • EIA Analysis and Oil Market Update

Futures are moderately lower on momentum from Wednesday’s late sell-off. As the Fed’s hawkish statement and projections weighed on global markets overnight.

The Norges Bank (Central Bank of Norway) hiked rates by 25 bps and signaled another hike in December. This wasn’t expected and added to hawkish central bank anxiety.

Economically there were no notable reports overnight.

Today will be another busy day and the first important event is the Bank of England Rate Decision (E: 25 bps hike).  If the BOE hikes 25 bps and strongly signals another hike is coming, that will be incrementally hawkish and likely add to global selling pressure.

Looking at economic data, there are two important reports today: Jobless Claims (E: 225K) and Philly Fed (E: 0.5).  Especially after yesterday’s declines, markets will want to see stable data, because if data is “Too Hot” it’ll push Treasury yields higher and weigh on stocks and if data is suddenly very bad it’ll increase stagflation concerns.  We also get Existing Home Sales (E: 4.10M) but that number shouldn’t move markets.

 

Hawkish Fed

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Stocks Pop in Relief Rally

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Stocks Pop in Relief Rally: Tom Essaye Quoted in Barron’s

Stocks Pop in Relief Rally

Sevens Report Research’s Tom Essaye told Barron’s he believes the market is experiencing a form of a relief rally.

He noted a wave of key catalysts for stocks has passed without significant negative surprises. This included the consumer price index on Wednesday and data on producer prices and retail sales on Thursday.

“Specifically for today, the ECB signaling it’s done with rate hikes combined with Goldilocks economic data to boost stocks and it’s just been building throughout the day,” Essaye says. “Essentially, it’s a similar dynamic to what we saw in June and July. Where markets are optimistic on growth (so more confident of a no/soft landing) and we see the ‘rest’ of the market outperform vs. tech.”

Also, click here to view the full Barron’s article published on September 14th, 2023. However, to see Tom’s full comments on the current market environment sign up here.

Stocks Pop

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Join hundreds of advisors from huge brokerage firms like Morgan Stanley, Merrill Lynch, Wells Fargo Advisors, Raymond James, and more! To start your quarterly subscription and see how The Sevens Report can help you grow your business, click here.

CPI remains the most important monthly economic metric

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CPI remains the most important monthly economic metric: Tom Essaye Quoted in MorningStar

Dow turns higher as Apple falls ahead of its iPhone event, with inflation data looming

“CPI remains the most important monthly economic metric for the simple reason that if CPI does not continue to decline, markets will have to price in a more hawkish Fed, and that would be a headwind on stocks,” said Tom Essaye, founder and president of Sevens Report Research, in a note Tuesday.

“Sensitivity to this report will be especially high tomorrow because there have been anecdotal signs that inflation may be leveling off or bouncing back,” he said.

A “good” CPI report would show core inflation, which excludes energy and food prices, rose 0.2% or less in August, according to Essaye. Economists polled by the Wall Street Journal have forecast that core CPI increased 0.2% last month and 4.3% year over year.

“A continued drop in core CPI will help to calm concerns that inflation is bouncing back, and that could trigger a solid drop in Treasury yields and a good relief rally in stocks,” said Essaye.

Also, click here to view the full Morningstar article published on September 12th, 2023. However, to see Tom’s full comments on the current market environment sign up here.

If you want research that comes with no long term commitment, yet provides independent, value added, plain English analysis of complex macro topics, then begin your Sevens Report subscription today by clicking here.

To strengthen your market knowledge take a free trial of The Sevens Report.

Join hundreds of advisors from huge brokerage firms like Morgan Stanley, Merrill Lynch, Wells Fargo Advisors, Raymond James, and more! To start your quarterly subscription and see how The Sevens Report can help you grow your business, click here.

Headline and Core CPI – The Important Difference

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Difference Between Headline and Core CPI: Strengthen your market knowledge with a free trial of The Sevens Report.

What’s in Today’s Report:

  • The Important Difference Between Headline and Core CPI
  • NFIB Small Business Optimism Index Contradicts the “No-Landing” Scenario

U.S. stock futures are tracking global shares lower this morning following more disappointing economic data in the Eurozone and continued pressure on the tech sector.

AAPL shares are extending yesterday’s post-product launch declines this morning, therefore, weighing on the tech sector broadly in pre-market trading.

Economically, U.K. GDP dropped to -0.5% vs. (E) -0.2% in July after hot wage data yesterday, bolstering stagflation fears while EU Industrial Production fell -1.1% vs. (E) -0.7%. Despite the recently soft data, rates markets continue to price in a 75% chance of an ECB rate hike this week.

Today, focus will primarily be on inflation data and how Treasuries react to the release: CPI (0.6% m/m, 3.6% y/y), Core CPI (E: 0.2% m/m, 4.4% y/y).

There are no Fed speakers or Treasury auctions today so a “hot” CPI report will likely spark cross-asset volatility while a Goldilocks release will setup a possible extension of the early September relief rally.

Headline and Core CPI

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CPI Preview Scenarios: Good, Bad, Ugly

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CPI Preview Scenarios: Strengthen your market knowledge with a free trial of The Sevens Report.

What’s in Today’s Report:

  • CPI Preview Scenarios: Good, Bad, Ugly
  • Table: CME FedWatch Tool Shows No Additional Rate Hikes This Cycle

Stock futures are modestly lower today as ORCL offered disappointed revenue guidance after yesterday’s close. And, while economic data was largely disappointing overnight.

Economically, the German ZEW Survey’s Current Conditions Index fell to -79.4 vs. (E) -71.3. U.K. Also, wage growth rose to 8.5% vs. (E) 8.2% stoking stagflation concerns in Europe.

Domestically, the NFIB Small Business Optimism Index fell to 91.3 vs. (E) 91.7 in August. This was well below the long-term average of 98.0 pointing to deteriorating sentiment among small business owners.

Today, there are no additional economic reports today and no Fed officials are scheduled to speak which will leave equity traders focused on AAPL’s new product event. Tech shares have been driving the major stock indices so far this week (TSLA and QCOM yesterday, ORCL this morning) so any meaningful reaction in AAPL shares will likely move the broader indices as focus turns ahead to CPI tomorrow.

Finally, there is a 10-Yr T-Note auction at 1:00 p.m. ET that could move fixed-income markets and see equities reprice inflation expectations ahead of tomorrow’s widely anticipated inflation release, but no major moves are expected before tomorrow’s CPI print.

CPI Preview

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Why Didn’t NVDA Earnings Spark A Rally?

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What’s in Today’s Report:

  • Why Didn’t NVDA Earnings Spark A Rally?

Futures are bouncing modestly following a quiet night of news and as investors look ahead to Powell’s speech later this morning.

EU economic data was soft again overnight, as German IFO Business Expectations missed estimates (82.6 vs. (E) 83.6) and added to the list of disappointing economic reports this week.

Today focus will be on Powell’s speech (10:00 a.m. ET) and if Powell’s tone implies “higher for longer” on rates, that will boost Treasury yields and pressure stocks.  Conversely, if he talks about being “patient” with the 2% inflation target, that will be seen as dovish.

Away from Powell, the only notable reports are Consumer Sentiment (E: 71.2) and the One-Year Inflation Expectations (E: 3.3%) and Five-year Inflation Expectations (E: 2.9%).   If inflation expectations are solidly under estimates, that’ll be a mild positive for markets.

Another Reason Treasury Yields Are Rising

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What’s in Today’s Report:

  • Another Reason Treasury Yields Are Rising

Futures are modestly lower on more negative real estate news from China while Japanese inflation was hotter than expected.

Chinese real estate firm Evergrande filed for bankruptcy overnight, increasing concerns about the Chinese property market specifically and economy more broadly.

Economically, Japanese CPI was in-line (up 3.3% y/y) but services inflation rose to 2%, a 30 year high, and that’s increasing expectations the BOJ may get more hawkish (and that would put more upward pressure on global bond yields, which would increase the headwind on stocks).

Today there are no notable economic reports nor any Fed speakers so focus will remain on Treasury yields, and the market needs stability in yields for stocks to bounce back.  A sudden drop in yields on growth concerns (which is what we’re seeing this morning) or a sharp rally in yields (on inflation concerns) will only further pressure stocks, so the sooner yields can “calm down” and trade little changed, the better for stocks.

Why the Sintra Comments Were Slightly Hawkish

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What’s in Today’s Report:

  • Why the Sintra Comments Were Slightly Hawkish (And What They Mean for Markets)
  • Clarifying the “Growth On” Trade vs. “Growth” Style

Futures are modestly higher after all 23 U.S. banks passed the Fed’s annual stress tests.

The 23 largest banks in the U.S. passed the Fed’s annual stress tests, and while none were expected to fail, the fact that there were no negative surprises is a general positive for the banking sector and financials.

Economically, Euro Zone Economic Sentiment, was basically in-line with expectations and isn’t moving markets.

Today focus will be on economic data, and the key reports today are:  German CPI (E: 6.3% y/y), Jobless Claims (E: 270k) and Final Q1 GDP (E: 1.4%).  Markets have priced in “Immaculate Disinflation” so inflation needs to continue to fall everywhere (including Germany), while markets also need to see jobless claims gradually rise (a big spike in claims would be a negative) to keep to bullish momentum going.

 

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You can view our Q1 ’23 Quarterly Letter here.

To learn more about the product (including price) please click this link, and if you’re interested in subscribing please email info@sevensreport.com.

Why the Fed Wants Higher Rates

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What’s in Today’s Report:

  • Why Would the Fed Keep Hiking Rates if Inflation Is Coming Down?
  • Jobless Claims Chart – Critical to See Further Move Higher

Equity futures are modestly higher this morning as traders weigh renewed optimism about Chinese growth against more hawkish policy speak from multiple ECB officials, including President Lagarde, reiterating the need for a “higher for longer” policy rate path.

Premier Li of China confirmed the government is committed to achieving their 5% GDP target overnight which helped Asian markets outperform and fueled modest risk-on money flows around the globe.

Today’s list of economic data releases is a long one with Durable Goods Orders (E: -1.0%), Case-Shiller Home Price Index (E: 0.5%), FHFA House Price Index (E: 0.4%), Consumer Confidence (E: 103.7), and New Home Sales (E: 663K).

Beyond those economic reports, there are no Fed officials scheduled to speak today but there is a 5-Yr Treasury Note Auction at 1:00 p.m. ET that could move yields and influence equity market trading.

Bottom line, in order for markets to stabilize here and stocks to resume their 2023 rally, we will need to see signs of slowing, but not collapsing growth in today’s economic data and no surprises in the Treasury auction. Looking ahead, trading may slow down some today as investors position into tomorrow’s Central Bank Forum hosted by the ECB in which Fed Chair Powell will participate.