Fed-Day Technical Tear Sheet (Negative Divergence from Fundamentals)

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What’s in Today’s Report:

  • Fed-Day Technical Tear-Sheet: Market Technicals Are Diverging Negatively from Still Optimistic Fundamentals
  • Economic Takeaways: Retail Sales and Industrial Production Top Estimates

Stock futures are trading tentatively higher as investors digest mostly as-expected inflation data out of Europe overnight and look ahead to today’s Fed decision.

Economically, Eurozone CPI met estimates at 2.2% y/y in August while the Core figure was also as-expected at an unchanged 2.8% y/y last month.

Today, focus will be on the one notable economic data point due to be released: Housing Starts (1.300M) but it is unlikely to materially move markets with the Fed decision looming this afternoon.

The FOMC Announcement will hit the wires at 2:00 p.m. ET followed by Fed Chair Powell’s Press Conference at 2:30 p.m. ET. The consensus expectation is a 25 bp rate cut will be delivered but market-based policy rate expectations are pricing in a 65% chance of a 50 bp rate cut as of this morning.

Bottom line, whether the Fed delivers a 25 bp or 50 bp rate cut today is less important than the guidance provided on future cuts as the market wants to see the framework laid out for a fairly aggressive rate cutting path in the months ahead to shore up soft-landing hopes. So projections and Powell’s speech will be critical for the market reaction late in the session.

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FOMC Preview

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What’s in Today’s Report:

  • FOMC Preview
  • Empire State Manufacturing Index Takeaways
  • Chart: Equal-Weighted S&P 500 Index Hits Fresh Record

Futures are rallying ahead of key data on U.S. consumer spending as rates markets continue to price in better odds of a 50 bp rate cut from the Fed ahead of tomorrow’s FOMC decision.

Economically, the German ZEW Survey disappointed overnight with Economic Sentiment plunging more than 15 points to 3.6 vs. (E) 17.5.

Looking into today’s session, focus will be on economic data early with Retail Sales (E: -0.3%) being the most important release to watch, but Industrial Production (E: 0.1%), and the latest Housing Market Index (E: 40) will also be closely monitored.

There is one Fed official on the calendar to speak today: Logan (10:00 a.m. ET), but her remarks have been pre-recorded and therefore should not move markets with the September FOMC meeting getting underway this morning.

Finally, there is a 20-Yr Treasury Bond auction at 1:00 p.m. ET that should not materially impact markets unless there is a significant discrepancy between the when-issued yield and yield-awarded that shows weak demand (higher yields), as a subsequent rise in yields could pour some cold water on the so-far-dovish money flows ahead of the Fed decision.

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How to Explain This Market To Clients (September Update)

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What’s in Today’s Report:

  • How to Explain This Market To Clients (September Update)
  • Weekly Market Preview:  Two Key Central Bank Decisions (Fed on Wednesday, BOJ on Thursday)
  • Weekly Economic Cheat Sheet:  Important Growth Updates This Week

Futures are little changed despite more negative Chinese economic data as investors look ahead to the Fed decision on Wednesday.

August Chinese economic data disappointed as Industrial Production (4.5% vs. (E) 4.7% and Retail Sales (2.1% vs. (E) 2.7%) both missed estimates, raising more concerns about Chinese growth (and global growth more broadly).

Politically, there was another assassination attempt on Trump, although the event shouldn’t alter the current race.

This week will be both busy and important for this rally, but it starts slowly as the only notable number today is the September Empire Manufacturing Index (-4.1).  An in-line to slightly better than expected number would be the best-case scenario for markets today.

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September Market Multiple Table Chart

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What’s in Today’s Report:

  • September Market Multiple Table Chart

Futures are slightly higher despite more underwhelming tech company guidance.

Adobe (ADBE) posted solid results but disappointing guidance (like many tech firms recently) and the stock is down 8% pre-market, but that’s not impacting the broader averages like other recent disappointing tech guidance.

Economically, Euro Zone Industrial Production slightly missed estimates although that’s not moving markets.

Today focus will be on inflation expectations in the University of Michigan Consumer Sentiment Index and expectations are:  1-Yr Inflation Expectations: 2.8%, 5-Yr. Inflation Expectations: 3.0%.  If we see better than expected numbers, that should further fuel the “dovish” rally that pushed stocks higher on Thursday.

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What CPI Means for Markets (Fed Further Behind Curve?)

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What’s in Today’s Report:

  • What CPI Means for Markets (Fed Further Behind Curve?)

Futures are modestly higher mostly on momentum from Wednesday’s impressive reversal and following encouraging Japanese inflation data.

Economically, the only notable number overnight was Japanese PPI and it rose 2.5% vs. (E) 2.8%. That may take some pressure off the BOJ to hike rates and also weigh on the yen and the Nikkei rose 3% in response.

Today the focus will remain on economic data and rate cuts via the ECB Rate Decision first (E: 25 bps cut) and later Jobless Claims (E: 230K) and PPI (E: 0.2% m/m, 1.8% y/y).  If data can meet expectations and the ECB cuts rates and signals more cuts coming, yesterday’s rally can (and likely will) continue.

There are also two notable earnings reports today via Kroger (KR $0.91) and Adobe (ADBE $4.53).  KR will give us insight into consumer spending (especially on essentials) while ADBE will be the latest tech company to post results (and the stronger the guidance, the better for the broader tech sector).

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Is Oil’s Collapse an Anecdotal Warning Sign?

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What’s in Today’s Report:

  • More Problems With Expectations (This Time Companies)
  • Is Oil’s Collapse an Anecdotal Warning Sign?

Futures are tracking most overseas equity markets lower as investors assess global growth concerns and look ahead to today’s critical U.S. inflation data.

Economically, U.K. data was weak as monthly GDP fell to 0.5% vs. (E) 0.6%, Industrial Production was down -0.8% vs. (E) +0.2% and monthly trade data showed both imports and exports slowed -4.6% and -10.8%, respectively in July.

Looking ahead to today’s session, the most important potential market catalyst is U.S. inflation data: CPI (E: 0.2% m/m, 2.6% y/y) and Core CPI (E: 0.2% m/m, 3.2% y/y). A “cool” CPI report should bolster hopes for a 50 bp rate cut next week, and in turn, support stocks while a “hot” print could pour cold water on this week’s tentative rebound in equity markets.

There are no Fed officials scheduled to speak today however there is a 10-Yr Treasury Note auction at 1:00 p.m. ET that could shed additional light on investor expectations for inflation, growth, and Fed policy going forward. A weak auction outcome would be negative for stocks while solid demand for the 10-Yr Notes should support a continuation of this week’s rally.

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Market Multiple Table: Still Overvalued

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What’s in Today’s Report:

  • September Market Multiple Table Update: Still Overvalued
  • Chart – Oil Falls to 52-Week Lows on Demand Worries

Futures are modestly lower this morning as last week’s volatility and yesterday’s relief rally are digested by investors while focus is shifting to tomorrow’s CPI release.

Economically, the NFIB Small Business Optimism Index whiffed estimates of 93.6 and fell 2.5 points to 91.2 in August while German CPI met estimates at 1.9% y/y.

Looking into today’s session, there are no notable economic reports on the calendar, but two Fed officials are scheduled to speak: Barr (10:00 a.m. ET) and Bowman (12:15 p.m. ET). It is unlikely that either move markets though.

Finally, in the afternoon, the Treasury will hold a 3-Yr Note auction at 1:00 p.m. ET. If demand for the Notes is weak it could spark hawkish money flows while an auction outcome too-strong could reignite recession worries in afternoon trade.

Bottom line, more “wait-and-see” trading is most likely for today’s session as traders await the latest inflation data which has the potential to shift Fed policy expectations (25 bop or 50 bp Fed rate cut) ahead of next week’s meeting.

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The Real Problem for this Market (Not Growth)

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What’s in Today’s Report:

  • The Real Problem for this Market (Not Growth)
  • Weekly Market Preview:  Does Weak Inflation Data Make a 50 bps Cut More Likely?
  • Weekly Economic Cheat Sheet:  CPI Wednesday is the key report.

Futures are seeing a strong bounce following a generally quiet weekend of news.

There was no specific positive headline that’s rallying futures and instead we’re seeing mostly technical dip buying.

Economically, Japanese Q2 GDP missed estimates (2.9% vs. (E ) 3.1% and that’s pushing back on BOJ rate hike expectations, which is a mild positive (the yen is down 1%).

This week focus turns back to inflation and that includes today’s NY Fed Inflation Expectations (E: 3.0%).  If they fall more than expected, it’ll further boost expectations for a 50-bps cut (and help support stocks).  The other notable economic report is Consumer Credit (E: $12.5B) and there is another important tech earnings report after the close (ORCL (E: $1.33)).  Solid guidance from ORCL would be a welcomed positive for investors right now.

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Technical Update (Ahead of Jobs Report)

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What’s in Today’s Report:

  • Technical Update (Ahead of Jobs Report)
  • Abbreviated Jobs Report Preview
  • EIA and Oil Market Analysis (Will Oil Keep Falling?)

Futures are sharply lower on more disappointing AI related tech earnings and ahead of today’s jobs report.

Broadcom (AVGO) posted disappointing guidance and became the latest AI related tech company to produce underwhelming results and that’s weighing on futures.

Economic, data was mildly disappointing overnight as German IP missed estimates while EU GDP was revised lower.

Today focus will be on the jobs report and expectations are as follows:  Job Adds (160k), Unemployment Rate (4.2%), Wages (0.3% m/m, 3.7% y/y).  The mood in the markets has soured this week and investors are nervous about a disappointing jobs number. If that happens, look for an intense decline in stocks as hard landing chances rise.  However, if the report is “Just Right” a solid relief rally (S&P 500 up 1% or more) should materialize, especially if the Fed speakers today point to a 50-bps cut.

In addition to the jobs report, as mentioned, there are two important Fed speakers today:  Williams (8:45 a.m. ET) and Waller (11:00 a.m. ET).  If they hint at a 50-bps cut, that will help support markets regardless of the jobs report.

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Jobs Report Preview (A Significant Change)

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What’s in Today’s Report:

  • Jobs Report Preview (A Significant Change)

Futures are little changed following a quiet night of news and ahead of more important economic reports.

On earnings, HPE became the latest tech company to post solid but “not as good as hoped for” earnings (the stock is down 3% pre-market).

Economically, the only notable report beat estimates as German Manufacturers’ Orders rose 2.9% vs. (E) 1.8%.

Today focus will remain on economic data and the key reports are (in order of importance):  ADP Employment Report (E: 140K), Jobless Claims (E: 230K), ISM Services PMI (E: 51.1) and Unit Labor Costs (E: 0.8%).   From a market reaction standpoint, bad data is now bad for the markets (given growth concerns), so the stronger these numbers, the better for stocks.

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