Inflation Expectations Dashboard

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What’s in Today’s Report:

  • Sevens Report Inflation Expectations Dashboard
  • Chart: Gold Holds Key Trend Support

Stock futures are wavering between gains and losses this morning as traders digest mixed economic data and look ahead to a key inflation report due later in the week.

Economically, Japanese GDP was not as bad as feared in Q1 but German Industrial Production missed estimates as did the U.S. NFIB Small Business Optimism Index which is weighing modestly on sentiment this morning.

There are two economic reports to watch in the U.S. today: International Trade in Goods and Services (E: -$69.0B) and JOLTS (E: 8.045M). The latter will be the more important to watch as investors continue to look for clues regarding the state of the labor market recovery.

No Fed officials are scheduled to speak today however there is a 3-Yr Treasury Note auction at 1:00 p.m. ET and a weak outcome could rekindle taper fears with Thursday’s CPI report coming into focus.

A Market Still In Search of a Catalyst

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What’s in Today’s Report:

  • Why This Market Still Needs A Positive Catalyst
  • Weekly Market Preview (Fed anticipation and Inflation)
  • Weekly Economic Cheat Sheet (Inflation Thursday and Employment Data Are Key)

Futures are slightly lower on underwhelming economic data and as markets digest last week’s rally.

Economic data was slightly disappointing as Chinese exports missed expectations (27.9% vs. (E) 32.1%) as did German Manufacturers’ Orders (-0.2% vs. (E) 1.0%).

The G-7 agreed in principle to a global minimum corporate tax and that is weighing slightly on global markets.  But, investors view implementation of the tax as taking a very, very long time (if it ever actually happens).

Today there are no notable economic reports and no Fed speakers so focus will be on any apparent infrastructure progress, although at this point any infrastructure deal likely won’t be big enough to provide material stimulus to the economy (and push markets higher).

Market Multiple Chart

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What’s in Today’s Report:

  • Market Multiple Chart
  • EIA Analysis and Oil Update
  • What Yesterday’s Jobs Numbers Mean for Today’s Report (and the Market Reaction)

Futures are little changed ahead of this morning’s jobs report and following a mostly quiet night of news.

Economic data was mixed overnight as the UK Construction PMI beat estimates while Euro Zone Retail Sales missed, but neither number is moving markets.

Infrastructure “chatter” about a potential $1 trillion compromise is getting louder, but markets remain skeptical about an infrastructure deal anytime soon.

Focus today will be on the Jobs Report and expectations are as follows: Job Adds 645K, UE Rate 5.9%, Wages 0.2% m/m).  Thursday’s strong employment data (ADP and claims) makes the market more sensitive to a “Too Hot” report (and potentially less dovish Fed) than it was on Wednesday, but the bottom line is that a number near either extreme (900k or 300k) will likely cause at least a temporary market headwind.

Also, Fed Chair Powell is speaking at a Bank of International Settlements Climate panel right now, but that shouldn’t move markets.

Jobs Report Preview

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What’s in Today’s Report:

  • Jobs Report Preview:  Two Sided Risks for the Market

Futures are modestly lower following mixed economic data while the Fed announced it’s winding down one of its pandemic era support programs.

Service PMIs for May were mixed as the Chinese PMI missed estimates while the EU & British PMIs were in-line with expectations, but none of the data is altering the expectation that the global economic recovery is on going.

The Fed announced it’s going to start selling assets from the “Secondary Market Credit Facility” which was the program the Fed used to buy corporate bonds to stabilize markets during March/April of 2020.  This has nothing to do with QE, but it is a general reminder that we are seeing central banks removing market support as society returns to normal, and it’s a tangential reminder that tapering of QE is coming at some point.

Today’s focus will be on economic data as we get several notable reports today:   ISM Services PMI (E: 63.1), Jobless Claims (E: 400k), and ADP Employment (627k).  Generally speaking, markets will want to see “Goldilocks” data from all three reports – close to or better than expectations but not so good they make the Fed think more about tapering.  We also have three Fed speakers:  Bostic (12:30 p.m. ET), Harker (1:50 p.m. ET), and Quarles (E: 3:05 p.m. ET) but none of them should move markets.

Tom Essaye Quoted in Courthouse News Service on May 28, 2021

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Markets Eke Out Winning Week in Swirl of Data, Good and Bad

Put differently, we all know that inflation surged in April. The key is whether it keeps going through the summer. If inflation continues during the summer months that could cause volatility and… Essay wrote. Click here to read the full article.

 

Tom Essaye Quoted in Barron’s on May 27, 2021

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Stocks Edge Higher as Jobless Claims Continue to Decline

Inflation not being temporary is easily the biggest long-term risk to this market, because it will cause the Fed to get more…writes Tom Essaye, founder of Sevens Report Research. Click here to read the full article.

Tom Essaye Quoted in Marketplace on May 26, 2021

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The Dow at 125: Why it endures

That can tend to let the Dow be more volatile. It can also be skewed more by one stock, it gives you a glimpse of the economy that other indexes don’t. And the fact that companies…said Tom Essaye, president of Sevens Report Research. Click here to read the full article.

Tom Essaye Quoted in Barron’s on June 1, 2021

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Stocks End Mixed After Another Inflation Red Flag

If we get that strong [PMI] number (along with strong pricing indices) then pressure will build on the Fed to at least acknowledge a discussion about…wrote Tom Essaye, founder of Sevens Report Research. Click here to read the full article.
Barrons_06_02_21

Market Multiple Table (Deterioration from May)

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What’s in Today’s Report:

  • June Market Multiple Table (Deterioration from May)
  • ISM Manufacturing PMI: Why It Wasn’t As Good As It Seemed

Futures are little changed following a generally quiet night of news as markets await the first employment report of the week.

Economic data was sparse but disappointing, as German Retail Sales fell –5.5% vs. (E) -2.6% while Euro Zone PPI rose 7.6% yoy vs. (E) 7.3% and those disappointing numbers are weighing slightly on European indices.

Today’s focus will be on the ADP Employment Report (E: 627k) and if it’s much weaker than expected, or there’s some specific mention about labor shortage issues, expect that to be a headwind on stocks.  There are also three Fed speakers today, Evans (12:00 p.m. ET), Harker (12:00 p.m. ET), and Kaplan (6:05 p.m. ET) but we don’t expect them to move markets.

What Can Go Right and What Can Go Wrong?

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What’s in Today’s Report:

  • What Can Go Right and What Can Go Wrong?
  • Weekly Economic Preview:  More Tapering Talk?
  • Weekly Economic Cheat Sheet:  All About Friday’s Jobs Report.

Futures are modestly higher thanks to more solid economic data combined with generally in-line inflation metrics.

The Chinese, EU, and UK final May manufacturing PMIs all largely met expectations and confirmed the global economic recovery is continuing (and importantly not deteriorating).

EU HICP (their CPI) rose 2.0% vs. (E) 1.9%, but the core reading was in line with expectations at 0.9% and as such not spiking inflation fears.

Focus today will be on the ISM Manufacturing PMI (E: 60.9) and the market will want to see a “Goldilocks” number that shows the economic rebound is continuing, but that activity isn’t so hot that it increases inflation fears.  If we get that “Goldilocks” number stocks can extend the early rally.