Why the Fed is Causing the Pullback (Not Omicron)

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What’s in Today’s Report:

  • Why the Fed is Causing the Pullback (Not Omicron)
  • Weekly Economic Cheat Sheet:  All About Inflation (Key Reports Friday)
  • Weekly Market Preview:  Can tech stabilize?

Futures slightly higher following generally positive comments on Omicron over the weekend.

There were multiple articles and commentary from public health officials suggesting the Omicron variant is more contagious but produces mild symptoms. Also, existing vaccines appear to give protection against severe illness, although markets are waiting for official word from both PFE and MRNA.

Economic data was mixed as German Manufacturers Orders fell –6.9% vs. (E) -0.5% while the UK Construction PMI rose to 55.5 vs. (E) 52.0 but the numbers aren’t moving markets.

Today there are no economic reports and no Fed speakers.  Like Friday, how the Nasdaq trades will likely determine the day, as markets want to see the tech sector stabilize after intense weakness late last week.  If Nasdaq can stabilize, the broad market can bounce.

Jobs Day

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What’s in Today’s Report:

  • Omicron Update
  • OPEC Meeting Takeways

Futures are slightly lower as markets digest Thursday’s rally ahead of the jobs report.

In Washington, the Senate passed a bill to avoid a government shutdown, removing a potential risk from markets.

The Omicron variant has been detected in five states now but symptoms so far appear mild.

Economically, EU and UK Composite PMIs generally met expectations.

Today focus will be on the Job Report and expectations are as follows: Job Adds 543K, UE Rate 4.5%, and Wages 5.0% y/y.  As long as the jobs report is around expectations (so not above 700k but still showing solid job additions with wages not spiking) then markets will expect a mild acceleration of tapering and the rally can continue.   We also get the ISM Services PMI (E: 65.0) and markets will be looking for a similarly “Just Right” number to show solid growth but nothing so strong it would encourage the Fed to substantially accelerate tapering of QE.

Sevens Report Co-Editor Tyler Richey Quoted in Market Watch on December 1, 2021

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Oil prices settle lower as U.S. reports its first case of the omicron variant of coronavirus

Omicron is causing significant volatility in the energy complex as the impact on demand is not yet known…analysts at Sevens Report Research wrote in Wednesday’s newsletter. Click here to read the full article.

Jobs Report Preview (Why It’s Still A Very Important Report)

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What’s in Today’s Report:

  • Jobs Report Preview (Why It’s Still A Very Important Report)
  • Oil Update and EIA Analysis

Futures are solidly positive as markets bounce from Wednesday’s sell-off following a quiet night of news.

There are no definitive results yet, but the chatter on Omicron is that vaccines do still provide protection from severe illness, and that is slightly easing anxiety about the variant.

Economic data was sparse but showed continued inflation pressures as Euro Zone PPI rose 5.4% vs. (E) 3.2%.

Today the key report is Jobless Claims (E: 245K) and we expect a solid bounce back from last week’s very low numbers, but clearly, trends in the labor market continue to improve.  We also get numerous Fed speakers including: Bostic (8:30 & 11:30 a.m. ET), Quarles (11:00 a.m. ET), Daly (11:30 a.m. ET), and Barkin (11:30 a.m. ET).

Bottom line, the market is dealing with three separate headwinds (ranked in order of importance):  Omicron uncertainty, Fed tapering acceleration, and Washington dysfunction (possible shutdown).  Positive headlines on any of them will help stocks bounce, while further negative headlines (like yesterday with a possible government shutdown) will cause another decline.

Tom Essaye Interviewed on TD Ameritrade Network on November 30, 2021

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The Market Impact Of The Omicron Variant

Tom Essaye, founder of the Sevens Report, discusses how futures are reversing Monday’s gains. He also talks about the market impact of the Omicron variant…Click here to watch to the full interview.

Is the Fed About to Make a Policy Mistake?

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What’s in Today’s Report:

  • Is the Fed About to Make a Policy Mistake
  • Powell Testimony Takeaways
  • S&P 500 Chart: Similarities to January 2020

U.S. equity futures are rebounding with European stocks and other risk assets such as oil this morning as Omicron fears continue to ebb and flow while some of the hawkish money flows from yesterday are unwound.

Powell’s comments yesterday were hawkish regarding tapering however the market’s outlook for rate hikes remains largely unchanged which is helping stocks stabilize.

Economically, Final Manufacturing PMIs were largely in line with expectations overnight and did not materially move markets.

Looking into today’s session, there are a few key economic reports to watch starting with the first look at November jobs data via the ADP Employment Report (E: 525K), followed by the ISM Manufacturing Index (E: 61.1) and Construction Spending (E: 0.6%).

Finally, Powell will continue his CARES Act testimony at 10:00 a.m. ET today and the market will be listening closely for any further hints about taper plans, rate hike timelines, and the potential impact of the Omicron variant.

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Omicron and Fed Tapering

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What’s in Today’s Report:

  • Omicron and Fed Tapering
  • Omicron Update (Some Incremental Information)

Stock futures are down more than 1%, tracking global equities lower while the 10-year yield is down more than 10 basis points on renewed omicron variant concerns.

In an interview with the FT, MRNA’s CEO said the scientists he had spoken with expect a material decline in the efficacy of current vaccines against the new omicron variant of the coronavirus due to the high number of mutations and that is weighing heavily on risk assets this morning.

Today, there are a few economic reports due out: Case-Shiller Home Price Index (E: 1.1%), FHFA House Price Index (E: 1.0%), and Consumer Confidence (E: 110.7), but all of the data was gathered well before the omicron news emerged and therefore will not have a major impact on markets given the keen focus on COVID in recent days.

Fed Chair Powell will join Treasury Secretary Yellen in testifying before the Senate this morning at 10:00 a.m. ET and any indication that the Fed may change course regarding policy plans as a result of omicron could move markets. There is one other Fed speaker today: Williams (10:30 a.m. ET).

Bottom line, this is once again a COVID-driven market and any negative headlines about vaccine effectiveness or the severity of omicron infections could cause more risk off money flows as the odds of new lockdowns in parts of the world would rise as a result.

Omicron Update: The Two Key Questions We Need Answered

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What’s in Today’s Report:

  • Omicron Update:  The Two Key Questions We Need Answered
  • Weekly Market Preview:  How Big A Risk is the New Variant?
  • Weekly Economic Cheat Sheet:  A Very Busy Economic Week:  Jobs Report Friday, Final PMIs.

Futures are solidly higher as markets bounce following Friday’s COVID related steep declines.

The new COVID variant, named Omicron, was identified in numerous countries over the weekend, and governments enacted more travel bans to try and stop the spread.  But, beyond those measures, the market didn’t learn anything “new” about the variant over the weekend.

Regarding today’s bounce in futures, Friday’s steep declines were due in part to light liquidity and attendance, so we’re seeing that portion of the declines reversed this morning now that people are back to work.

Today we get the Pending Home Sales Index (E: 0.7%) and we have one Fed speaker (Williams at 3:00 p.m. ET) but the focus will be on COVID headlines.  It’s safe to assume the variant is already in the U.S. but a headline confirming that might create a short-term headwind.  Beyond the short term, however, the major unknown is whether the variant can evade the current vaccines, and that will determine whether this COVID pullback in stocks is brief, or something more extended.

What the New COVID Variant Means for the Rally (So Far)

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What’s in Today’s Report:

  • What the New COVID Variant Means for the Rally (So Far)

Futures are sharply lower on concerns about a new COVID variant discovered in South Africa.

A new COVID variant discovered in South Africa has multiple new mutations and the WHO has called its discovery “concerning.”

Several countries have stopped flights from countries in Africa, and the discovery of the variant is only compounding worries about more COVID lockdowns.

There are no economic reports today and the NYSE closes at 1:00 p.m. ET.

Regarding the new COVID variant, clearly this is something to watch closely but COVID variants only become real risks to the rally if they can breakthrough a vaccine or render therapeutics ineffective, and there has been no research out so far that implies that’s the case with his new South African COVID variant.  In the near term, though, it’ll exacerbate COVID lockdowns/restrictions concerns, which is the real reason stocks are lower and the lack of liquidity on the Friday after Thanksgiving is only making the market reaction more intense.

What the SPR Release Means for Oil

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What’s in Today’s Report:

  • Global Flash Composite PMI Data Takeaways
  • What the SPR Release Means for Oil

Stock futures are trading lower and international markets were mixed overnight as investors look ahead to a very busy day of economic data while volumes are already thinning out given the Thanksgiving holiday tomorrow.

Today, there is a slew of economic data due out including: Durable Goods Orders (E: 0.3%), Q3 GDP (E: 2.1%), Jobless Claims (E: 264K), New Home Sales (E: 790K), Core PCE (E: 0.4%, 4.1%), and Consumer Sentiment (E: 66.9).

There are no Fed officials speaking today however the November FOMC meeting minutes will be released at 2:30 p.m. ET.

Bottom line, investors will be looking for good economic data today, but not so good that it will cause the Fed to accelerate tapering plans or pull forward the first rate hikes. That is especially true for the Core PCE print as it is the Fed’s preferred measure of inflation.