Markets Still Need Macro Clarity

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What’s in Today’s Report:

  • Bottom Line:  Markets Still Need Macro Clarity
  • Weekly Market Preview:  The Heart of Earnings Season
  • Weekly Economic Cheat Sheet:  October Flash PMIs are the Key Report this Week

Futures are modestly lower thanks to underwhelming Chinese economic data and rising global bond yields.

Chinese data disappointed as GDP (4.9% vs. (E) 5.2%), Industrial Production, and Fixed Asset Investment all missed estimates, raising concern about the strength of the Chinese economy.

Global yields are higher as New Zealand CPI spiked to 2.2% (a decade high) while BOE Governor Bailey hinted at a rate hike in December.

Today there are two notable economic reports, Industrial Production (E: 0.2%) and the Housing Market Index (E: 75) and one Fed speaker: Kashkari (2:15 p.m.ET).   On the earnings front, the majority of the important reports come later this week but reports we’ll be watching today include:  STT ($ 1.92), STLD ($4.95), ZION ($1.38).

However, unless there are major surprises in the data or earnings today, they shouldn’t move markets.  So, yields will be the main influence on stocks today and if yields rise throughout the day, expect a stiffening headwind on stocks.

Follow Up to “How Does the Rally Ultimately End?”

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What’s in Today’s Report:

  • Follow Up to “How Does The Rally Ultimately End?”

Futures are modestly higher mostly on momentum from Thursday’s earnings-driven rally.

Alcoa (AA) was the only notable earnings report overnight but like most reports on Thursday, it beat estimates.  While it’s very, very early in earnings season, so far the results are better than feared and that’s driving the rally.

Today is another busy day of economic data, Fed speak, and earnings.  Economically, the three key reports are Retail Sales (E: -0.1%), Empire State Manufacturing Index (E: 25.0), and Consumer Sentiment (E: 74.0).  Markets will want to see stability in the first two, and the focus will be on inflation expectations in the third (they need to stay close to last month’s readings).

On the earnings front, we have three notable reports today:  GS ($9.78), PNC ($3.64), JBHT ($1.77), and we also get two Fed speakers, Bullard (11:45 a.m. ET) and Williams (12:20 p.m. ET), with the latter being the more important of the two.

How Does This Rally Ultimately End?

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What’s in Today’s Report:

  • How Does This Rally Ultimately End?

Futures are solidly higher following slightly underwhelming inflation data and better than expected earnings.

Chinese CPI rose 0.7% vs. (E) 0.8%, implying inflation pressures may be peaking.

On earnings, TSM beat estimates and upped guidance and that’s helping to lift stocks.

Today there are two notable economic reports, Jobless Claims (E: 320K) and PPI (0.5%, 8.7%) and markets will want to see claims continue to fall and PPI remain generally stable.  We also have multiple Fed speakers today including: Bullard (8:35 a.m. ET), Bostic (9:00 a.m. ET), Barkin & Williams (1:00 p.m. ET) and Harker (6:00 p.m. ET).  Their tone will likely be to reinforce that tapering is happening this year (as the market expects) but that shouldn’t move markets.

Finally, on the earnings front, some important results we’ll be watching today include:  TSM ($1.03), BAC ($0.71), WFC ($1.03), C ($1.82), UNH ($4.41), MS ($1.70), WBA ($1.03 and AA ($1.85).  If inflation is better than expected, that will help stocks rally.

Inflation Update

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What’s in Today’s Report:

  • Inflation Update
  • Inflation Expectations Chart

Stock futures are slightly higher this morning while global shares were mixed overnight ahead of fresh U.S. inflation data and the unofficial start to the Q3 earnings season.

Economically, German CPI met expectations while Eurozone Industrial Production beat estimates, which is helping ease recent stagflation concerns this morning.

Looking into today’s session, focus will be on inflation data with the September CPI report due at 8:30 a.m. ET (E: 0.3%, 5.3%) as well as the start of Q3 earnings season with JPM ($3.00) and DAL ($0.15) reporting results before the open.

Then in the afternoon, we will get the FOMC Meeting Minutes (2:00 p.m. ET) and multiple Fed speakers: Brainard (3:30 p.m. ET), Bowman (8:00 p.m. ET).

Finally, there is a 30-Yr Treasury Bond auction at 1:00 p.m. ET that could impact yields and ultimately move equity markets (especially if yields make new highs).

Market Multiple Levels: S&P 500 Chart

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What’s in Today’s Report:

  • Market Multiple Levels: S&P 500 Chart

U.S. equity futures fell with global stocks overnight amid ongoing stagflation fears but optimism that the House will pass the debt ceiling bill today has helped stocks stabilize.

Economically, the German ZEW Survey slightly missed estimates while the NFIB Small Business Optimism Index was 99.1 vs. (E) 99.5 but neither report is materially moving markets this morning.

Looking into today’s session, there is just one economic report to watch: August JOLTS (E: 11.013M) but it would take a meaningful surprise in the release to impact markets as it is a very dated report.

Meanwhile, there are no Fed officials scheduled to speak but there are two notable Treasury auctions to watch: 3-Yr Note (11:30 a.m. ET) and 10-Yr Note (1:00 p.m. ET).

Outside any potential surprises from Congress regarding the bill to raise the debt limit, if we see rates continue to accelerate higher on inflation worries today, then stocks could remain volatile and potentially test last week’s lows.

Tom Essaye Interviewed by TD Ameritrade Network on October 11, 2021

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Takeaways From Recent Market Volatility

This week will give insight into when the Fed might start tapering, says Tom Essaye, Founder of The Sevens Report. Click here to watch the full interview.

Focus Turns to Earnings and Yields

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What’s in Today’s Report:

  • Focus Turns to Earnings and Yields (And Away from Washington, For Now)
  • Weekly Market Preview:  Will Earnings Results Ease Market Anxiety?
  • Weekly Economic Cheat Sheet:  Key Inflation and Growth Data this Week

Futures are modestly lower on a resumption of the commodity rally following an otherwise quiet weekend.

Energy prices (oil, natural gas, coal) are all rallying again (up 2% – 3%) and that’s increasing global inflation anxiety, which is weighing moderately on futures.

Global bond yields are also rising as two hawkish Bank of England members warned of a possible rate hike this year, although that is not the consensus expectation (although a rate hike from the BOE in early 2022 is looking more likely).

Today is Columbus Day and the U.S. bond markets are closed and there are no economic reports today, although there is one Fed speaker: Evans (6:00 p.m. ET).  So, commodity prices are Treasury yields should drive trading today.  The more they rise, the stronger the headwind on stocks will become.

Tom Essaye Quoted in Barron’s on October 7, 2021

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The Dow Closes Higher on Debt Ceiling Deal and Ahead of Friday’s Critical Jobs Report

For Friday’s trading, if the employment result shows more than 750,000 jobs were added…writes Tom Essaye, founder of Sevens Report Research. Click here to read the full article.

Tom Essaye Quoted in Yahoo Finance on October 6, 2021

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4 Catalysts That Could Send The Stock Market Higher Or Lower From Here

Right now, the current market valuation assumes that tax increases are relatively small and that companies bear most of the…Tom Essay said. Click here to read the full article.

Jobs Day

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What’s in Today’s Report:

  • Jobs Report Preview (Abbreviated Version)

Futures are little changed as the debt ceiling extension was made official during an otherwise quiet night.

Economic data was mixed as the Chinese Service Sector PMI beat estimates (53.4 vs. (E) 49.1) while Japanese House Hold Spending missed expectations (-3.0% vs. (E) -1.9%), but those numbers aren’t moving markets.

The debt ceiling extension was signed late last night and the proverbial “can” has been kicked to late December.

Today focus will be on the Employment Situation report are expectations are as follows:  E: Job Adds: 475K, UE Rate:  5.1%, Wages:  0.4% m/m 4.6% y/y.  Treasury yields remain buoyant (the 10-year yield was above 1.60% overnight) so risk remains that a “Too Hot” number spikes yields and hits stocks.

 

Sevens Report Quarterly Letter

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