How Should We React to Fed Hawkishness?

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What’s in Today’s Report:

  • How Should We React to Fed Hawkishness?
  • Weekly Market Preview:  All About the Fed (Powell testifies Tuesday, Brainard testifies on Thursday).
  • Weekly Economic Cheat Sheet:  All About Inflation (CPI Wednesday is the Key Report).

Futures are slightly lower following a generally quiet weekend as investors digest last week’s hawkish surprises ahead of Powell’s testimony tomorrow and CPI on Wednesday.

Economically, the only notable number was Eurozone Unemployment, which met expectations at 7.2%.

Chances of Build Back Better passing fell further over the weekend as according to the Washington Post, Manchin remains against the current framework for the plan.

Today there are no economic reports and just one Fed speaker, Bostic (12:00 p.m. ET), so we’d not be surprised to see markets churn ahead the three major catalysts coming later this week:  Powell’s testimony on Tuesday, Wednesday’s CPI Report, and Brainard’s testimony on Thursday.  Those three events will determine whether stocks rally of decline this week and any additional hawkish surprises will pressure stocks.

 

Tom Essaye Interviewed on TD Ameritrade Network The Watch List on January 5, 2022

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Breaking Down The FOMC December Minutes

The Fed is already actively discussing shrinking the balance sheet showing they are serious about being hawkish, and stocks dropped…says Tom Essaye of The Sevens Report. Click here to watch the full interview.

 

Market Multiple Chart

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What’s in Today’s Report:

  • Market Multiple Chart

Futures are slightly higher following mixed economic data as markets look ahead to today’s jobs report.

Markets are looking for any signs inflation has peaked but that was not the case in Europe today as EU HICP  (their CPI) rose 5.0% vs. (E) 4.8%.  Economic growth was also solid (EU Retail Sales beat estimates) so the high inflation number isn’t hitting stocks ahead of the jobs report.

Today focus will be on the Employment Situation Report and estimates are:  Job Adds 400K, UE Rate 4.1%, Wages 0.3% m/m & 4.1% y/y.  Markets will be especially sensitive to a “Too Hot” number as that will further stoke fears of a more hawkish Fed and a “Too Hot” report will hit stocks.  There are also three Fed speakers today, Daly (10:00 a.m. ET), Bostic (12:15 p.m. ET) and Barkin (12:30 p.m. ET) and while they aren’t Fed leadership, if they are “hawkish” and talk about March rate hikes or balance sheet reduction, that will be a headwind on stocks.

 

Sevens Report Quarterly Letter

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The Single Reason the FOMC Minutes Were Hawkish

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What’s in Today’s Report:

  • Jobs Report Preview
  • The Single Reason the FOMC Minutes Were Hawkish

Futures are little changed following Wednesday’s sell-off, as solid economic data is helping sentiment.

The Chinese December Composite PMI beat estimates at 53.0 vs. (E) 51.2, the second straight better than expected data point from China.  UK Composite PMI also beat estimates, imply a resilient economy in response to Omicron.

President Biden and Senator Manchin are set to resume negotiations on “Build Back Better” signaling the legislation isn’t dead (again passage of this in Q1 shouldn’t shock markets but it will not likely be a major market influence, either).

Today’s focus will be on economic data, specifically Jobless Claims (E: 205K) and the ISM Services PMI (E: 67.0).  If the data is very strong, will that increase concerns the Fed will get even more hawkish, and that will pressure stocks again.

Sevens Report Co-Editor Tyler Richey Quoted in Market Watch on January 4, 2022

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Gold recoups half of its Monday loss on disappointing U.S. data, omicron uncertainty

A sharp rise in Treasury yields which begins to drive real interest rates higher is a “major risk to the gold market…analysts at Sevens Report Research wrote. Click here to read the full article.

Market Multiple Table: January Update

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What’s in Today’s Report:

  • Market Multiple Table: January Update
  • OPEC+ Meeting Takeaways (Not So Bullish)

Stock futures are down modestly this morning, but off the overnight lows in sympathy with rising European shares while Asian markets declined on Chinese regulatory concerns and fresh COVID lockdowns in Hong Kong.

Final December Composite PMI’s were slightly disappointing but investors are already looking ahead to 2022.

Today, there are three economic reports to watch: Motor Vehicle Sales (E: 13.2M), ADP Employment Report (E: 414K), PMI Composite Final (E: 56.9). It will be important for the latter two to point to continued growth but not at a pace that would cause an additional hawkish shift by the Fed as that would likely send rates sharply higher and act as a headwind on broader equity markets.

There are no Fed speakers today but the minutes from the December FOMC meeting will be released at 2:00 p.m. ET.

Tom Essaye Quoted in Bloomberg Quint on January 4, 2022

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U.S. Stocks Start 2022 at Record; Treasuries Fall: Markets Wrap

Bottom line, the outlook is positive for stocks, but the removal of stimulus…wrote Tom Essaye, a former Merrill Lynch trader who founded “The Sevens Report” newsletter. Click here to read the full article.

Bloomberg Quint_300x250

Why Did Treasury Yields Surge Yesterday?

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What’s in Today’s Report:

  • Why Did Treasury Yields Surge Yesterday?
  • Oil Update – OPEC+ Meeting Preview

Stock futures are trading at record highs as investors shrug off surging COVID cases and digest upbeat economic data.

New COVID cases topped 1 million in the U.S. Monday, nearly doubling the previous record, however, hospitalizations and deaths remain low, keeping economic lockdown odds minimal as the Omicron outbreak is increasingly expected to burn itself out in the coming weeks.

China’s Manufacturing PMI rose to 50.9 vs. (E) 50.0 in December further easing global growth concerns.

Today, there are two economic reports to watch: ISM Manufacturing Index (E: 60.5) and JOLTS (E: 11.060M). Investors will be looking for more good data, but not so good that rate hike expectations are brought forward.

There are no Fed speakers today. The January OPEC+ policy meeting will be underway soon (E: +400K b/d production hike in February) and if the group of oil producers disappoint the market, expect a potential spike in volatility that could spill over into both equity and bond markets.

Two Questions to Start 2022

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What’s in Today’s Report:

  • Two Key Questions To Start 2022
  • Weekly Market Preview:  Omicron, Build Back Better Progress?
  • Weekly Economic Cheat Sheet:  A Busy Start to the Year (Highlighted by the Jobs Report Friday)

Futures are starting the new year with moderate gains driven mostly by momentum/start of year positioning, following a quiet weekend of news.  Many major markets today (London, Japan, Australia, U.S. Bonds) are closed.

Tesla (TSLA) reported better than expected deliveries for the fourth quarter and the stock is up 7% pre-market, and that’s helping markets rally.

There was no new news on Omicron over the weekend as cases skyrocket but hospitalizations remain relatively low.

With so many major markets closed, today will be a mostly quiet day, and barring any surprises tomorrow will be the first “real” trading day of the year.  We do get one notable economic report today, the Markit December Manufacturing PMI (E: 57.8), and markets will want to see a “Goldilocks” number that shows Omicron isn’t a major economic headwind, but at the same time the data isn’t so strong it makes the Fed more aggressive.

 

Sevens Report Quarterly Letter Delivered Today

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Tom Essaye Quoted in Market Research Telecast on December 28, 2021

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Wall Street opens green and the Dow Jones rises 0.16%

Optimism about omicron continues to help drive risk assets higher as markets continue to believe…said the president of the firm Seven Reports, Tom Essaye, in a note. Click here to read the full article.