ECB Preview (Dovish Surprise?)

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What’s in Today’s Report:

  • ECB Preview (Dovish Surprise?)
  • Did Small Caps Just Bottom?

Futures are marginally higher following another night of generally solid earnings and ahead of the ECB decision.

Delta variant fears continued to recede as governments appear to be focusing on re-masking as a policy response, not economic restrictions.

Today focus will be on the ECB Rate Decision & Press Conference (7:45 & 8:30 a.m. ET) and economic data via Jobless Claims (E: 350k) and Existing Home Sales (E: 5.90M).  Markets will want to see a dovish ECB and continued improvement in claims to reinforce that the global recovery is on going, and that central banks will remove accommodation very, very slowly.

On the earnings front, there are several more notable reports today:  T ($0.78), AAL (-$1.70), FCX ($0.73), TWTR ($0.07), INTC ($1.06).

Why Did Stocks Rally?

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What’s in Today’s Report:

  • Why Did Stocks Rally?

Futures are modestly higher thanks to continued momentum from Tuesday’s rebound combined with solid earnings reports.

Earnings overnight were good and importantly companies like CMG and UAL said the increase in COVID cases was not hurting business, which helped reassure markets that the Delta variant isn’t changing consumer’s behavior.

There were no economic reports overnight and there are no economic reports later today, so focus will remain on earnings and COVID trends.  If earnings are solid and commentary remains upbeat, and we don’t get any negative COVID headlines, then the rebound can continue today.

Some earnings we’ll be watching today include (in order of importance):  TXN ($1.82), JNJ ($2.28), KO ($0.57), VZ ($1.29), STX ($2.87), LVS (-$0.19), CSX ($0.37), DFS ($3.58).

What to Make of Yesterday’s Selloff

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What’s in Today’s Report:

  • What to Make of Yesterday’s Selloff
  • OPEC+ Policy Update and Oil Outlook

Price action is mixed across asset classes this morning as equity futures are cautiously rebounding with EU shares but bond yields made new lows amid lingering Delta variant fears.

Economically, German PPI fell to 1.3% vs. (E) 1.1% in June, down from 1.5% in May which offers some new support for the transitory inflation thesis.

Economically, there is one report on the real estate market today: Housing Starts and Permits (E: 1.590M, 1.700M) but it should not have an impact on stocks or bonds, and no Fed officials are scheduled to speak.

That will leave trader focus on earnings early with: ALLY ($1.49), PM ($1.54), TRV ($2.35), and SYF ($1.51) reporting Q2 results ahead of the bell and NFLX ($3.16), UAL (-$4.17), IBKR ($0.83) reporting after the close.

Outside of those potential catalysts, the broader market focus remains on the latest developments regarding the Delta-variant of COVID-19 and any subsequent restrictions or lockdowns that may be announced around the globe.

As has been the case in recent weeks, the stock market will likely react to moves in bonds, so if yields begin to extend this morning’s early drop amid new risk-off money flows, expect volatility to remain elevated. Conversely, if bond yields begin to recover meaningfully, then stocks would likely follow, potentially rising back towards Friday’s closing levels.

Four Pillars of the Rally Updated (Still Intact)

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What’s in Today’s Report:

  • Four Pillars of the Rally Updated (Still Intact)
  • Weekly Market Preview:  Does Delta Cause a Pullback?  Can Earnings Impress Investors?
  • Weekly Economic Cheatsheet:  Flash PMIs Friday are the Key Report.

Futures are moderately lower as more governments implement restrictions in reaction to the Delta COVID variant.

More cities in California reinstituted indoor mask mandates, Australia implemented more lockdowns and select countries in Europe upped restrictions as Delta COVID cases continue to rise, causing concern among investors that the economic recovery might lose momentum.

On infrastructure, the bi-partisan $1 trillion deal is in danger of collapsing as early as this week, which would increase the chances of tax hike headlines over the next month.

There’s only one notable economic report today, the Housing Market Index (E: 82.0), and just two notable earnings reports, AN ($2.65), TSCO ($2.94), so the tenor of COVID headline and infrastructure will drive markets, and if there are more restrictions announced or the bipartisan infrastructure bill dies, expect more weakness in stocks.

Tom Essaye Interviewed with TD Ameritrade Network on July 14, 2021

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Consumer Price Index Takeaways / The Fed’s Comments

Tom Essaye, founder of the Sevens Report, discusses the Consumer Price Index takeaways as well as Powell’s comments. Click here to watch the full interview.

Why Economic Data is Stronger Than it Appears

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What’s in Today’s Report:

  • Why Economic Data Is Stronger Than It Appears

Futures are drifting slightly higher following a mostly quiet night of news.

COVID headlines were mixed as Los Angeles reimposed an indoor mask mandate (negative) while President Biden said the U.S. could ease travel restrictions from Europe soon (positive).  Bottom line, concerns about the Delta variant are a market influence (mild headwind) but at this point, it’s not enough to cause a material pullback.

Economic data was minimal as EU HICP met expectations (0.3% m/m and 1.9% y/y).

Today, focus will be on economic data, specifically Retail Sales (E: -0.4%) and the inflation expectations component in Consumer Sentiment (E: 87.0).  As has been the case, markets will want “Goldilocks” results for both retail sales and inflation expectations (so strong, but not too strong).  There is also one Fed speaker, Williams (9:00 a.m. ET), but he shouldn’t move markets.

Why Powell Wasn’t Dovish (Tapering is Coming)

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What’s in Today’s Report:

  • Why Powell Wasn’t Dovish (Tapering is Coming)
  • Infrastructure Update (Tax Hike Risks)
  • Oil Update, EIA Analysis, and OPEC Outlook (Where is Oil Going?)

Futures are modestly lower following mixed Chinese economic data.

Chinese Fixed Asset Investment, Retail Sales, and Industrial Production all beat estimates, although they were offset by a miss in Q1 GDP (7.9% vs. (E) 8.2%).  But, while GDP got most of the headlines, the bottom line is the rest of the data is more current, and on balance, the outlook for the Chinese economy has improved (which is good for global stocks).

Today there are numerous economic reports to watch including, in order of importance:   Philly Fed Manufacturing Index (E: 28.5), Empire State Manufacturing Index (E: 18.3), Jobless Claims (E: 368K), and Industrial Production (E: 0.7%).  As has been the case “Goldilocks” data with muted pricing indices will help stocks rally (markets won’t want to see data that’s too strong or too weak).

Turning to the Fed, Chair Powell speaks to the Senate at 9:30 a.m. ET but we should expect the same message as Wednesday and his comments shouldn’t move markets.

Finally, earnings season continues to gain momentum and some reports we’ll be watching today include: TSC ($0.89), MS ($1.63), UNH ($4.41), USB ($1.14), BK ($1.01).

CPI Takeaways

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What’s in Today’s Report:

  • CPI Takeaways

Stock futures are little changed as Treasuries recover some of yesterday’s losses ahead of more U.S. inflation data and Congressional testimony from Fed Chair Powell today.

Economically, U.K. CPI was above estimates in June but PPI was unexpectedly soft while Eurozone Industrial Production also disappointed, but none of the data from overnight seems to be having a material impact on markets this morning.

Today, there is one more inflation report in the U.S., PPI (E: 0.6% m/m, 6.8% y/y) at 8:30 a.m. ET and then focus will turn to Fed speak with Chair Powell’s semiannual testimony before Congress beginning at 12:00 p.m. ET and Kashkari also speaking at 1:30 p.m. ET.

The start of Q2 earnings season will also remain in focus with notable reports coming from: WFC ($0.97), BAC ($0.78), C ($1.99), DAL (-$1.37), BLK ($9.24), and PNC ($4.22).

Tom Essaye Quoted in Barron’s on July 12, 2021

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Virgin Galactic Soars, Rocket Cos. Drops, and Stocks Are Mostly Lower

Futures are slightly lower following a very quiet weekend of news as markets wait for…writes Tom Essaye, founder of Sevens Report Research. Click here to read the full article.

What Is Happening With the Bond Market?

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What’s in Today’s Report:

  • What Is Happening With the Bond Market?

Stock futures are little changed amid a stable bond market this morning following good economic data while focus shifts to the unofficial start of earnings season and the latest consumer inflation report in the U.S.

Economically, the NFIB Small Business Optimism Index came in at 102.5 vs. (E) 99.2 for the month of June.

Today, earnings will come into focus as the big banks kick off the Q2 reporting season. Notable companies releasing results today include: JPM ($3.05), GS ($9.57), PEP ($1.52), and FAST ($0.41).

The latest U.S. inflation data will also be released ahead of the opening bell: CPI (0.5% m/m, 5.0% y/y) while there are several Fed officials scheduled to speak in the afternoon: Bostic (12:00 p.m. & 2:30 p.m. ET), Kashkari (12:45 p.m. ET), Rosengren (2:50 p.m. ET).

Bottom line, the number of influences on equities clearly picks up today and for stocks to hold the latest record highs we will need to see 1) earnings at least meet estimates, 2) CPI data not run “hot,” and 3) Fed chatter remain accommodative and importantly not take a hawkish turn.

 

It’s Not Too Late to Send Clients a Quarterly Letter!

Our Q2’21 Quarterly Letter was delivered to subscribers two weeks ago along with compliance backup and citations, and we’re continuing to hear from advisors how happy they are with the quality of the letter and how much time and work it has saved them. 

You can view our Q1’21 Quarterly Letter here.

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