October MMT Update: Positive News (But Priced In)

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What’s in Today’s Report:

  • October Market Multiple Table – Positive News But Priced In

U.S. futures are higher on dovish-leaning comments by the Fed’s Kugler overnight while global shares declined broadly in sympathy with a near-10% drop in Chinese shares after the latest government stimulus efforts disappointed.

Economically, German Industrial Production rose 2.9% vs. (E) 0.8% in August, helping easing EU growth worries while the NFIB Small Business Optimism Index rose to 91.5 but narrowly missed estimates of 91.7.

There are no notable economic reports today, however several Fed officials are scheduled to speak: Bostic (12:45 p.m. ET), Collins (4:00 p.m. ET), and Jefferson (7:30 p.m.). Based on the market’s positive reaction to Kugler’s comments in the pre-market, more dovish commentary has the potential to fuel a further relief rally today while a hawkish tone would likely weigh on stocks.

Finally, there is a 3-Yr Treasury Note auction at 1:00 p.m. ET and given the hawkish money flows in the wake of last week’s ISM data and September jobs report, weak demand at the auction could send yields to new highs and further pressure equity markets.


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How to Cut Through the Market Noise

How to Cut Through the Market Noise: Start a free trial of The Sevens Report.


What’s in Today’s Report:

  • How to Cut Through the Market Noise
  • Weekly Market Preview:  Inflation and Earnings
  • Weekly Economic Cheat Sheet:  CPI on Thursday is the Key Report

Futures are moderately lower following underwhelming economic data and as investors continue to wait for the Israeli response to Iran.

Economically, German Manufacturers’ Orders and Euro Zone retail sales both missed estimates.

Geopolitically, investors are still awaiting the Israeli response strike to Iran and that lingering uncertainty is further boosting oil and weighing on futures.

Today the calendar is quiet as there is just one economic report, Consumer Credit (E: $13.5B) and two Fed speakers, Bowman (1:00 p.m. ET) and Kaskari (1:50 p.m. ET) but none of that should move markets.  Instead, focus will be on geo-politics as investors anxiously await the Israeli response strikes on Iran and whether they hit key infrastructure (nuclear sites, energy sites) or not will determine the impact on markets.


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Jobs Day

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What’s in Today’s Report:

  • Jobs Day
  • Key VIX Levels to Watch

Futures are slightly higher following the end to the dockworkers’ strike and as investors wait for the jobs report and the Israeli retaliatory attack on Iran.

The dockworkers’ strike ended Thursday night, removing a potential economic headwind.

Geopolitically, markets are still awaiting the Israeli response to Iran, but reports are pointing to a military or domestic energy target, which is a mild positive (if Israel were to attack Iran’s nuclear facilities it’d be viewed as a major escalation and we’d expect oil to surge further and be a stronger headwind on stocks).

Today focus will be on the jobs report and expectations are as follows: 147K job-adds, 4.2% UE Rate and 3.8% wages (y/y).  As long as the job adds and unemployment rate are relatively close to expectations, we should see a mostly Goldilocks reaction as that implies a soft landing and will keep the Fed on track to cut twice more this year (50 bps).  The biggest risk for the market remains a very weak number.

Finally, there is also one Fed speaker today and he is part of leadership, Williams at 9:00 a.m. ET, but barring a substantial surprise, he shouldn’t move markets.

 

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Jobs Report Preview (Important for Fed Rate Cut Expectations)

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What’s in Today’s Report:

  • Jobs Report Preview (Important for Fed Rate Cut Expectations)
  • EIA Analysis and Oil Market Update

Futures are modestly lower on continued elevated geo-political tensions and following mixed economic data.

Geopolitically, markets await the response from Israel to Tuesday’s attack and recent reports are stating it will be more aggressive than in April (increasing escalation risks).

Economically, EU and UK Service PMIs were mixed but both stayed above 50 (and economic positive).

Today focus will remain on economic data and the two key reports are Jobless Claims (E: 225K) and the ISM Services PMI (E: 51.5).  If the reports are close to in-line with expectations, look for a bounce in stocks as that will imply a still solid economy (soft landing) with looming Fed rate cuts (50 bps between now and year-end).

Regarding geopolitics, Israel’s response attack could come at any minute and the key here is whether it’s an aggressive attack on key Iranian military or oil infrastructure, or not.  If so, that could lead to further escalation (negative for the market).  If not, we likely have a repeat of April (where the situation cools down).  Regardless, watch oil.  If it spikes numerous percent (say 3% or more) that will reflect real, elevated geo-political tensions.

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The port strike could disrupt the data

The port strike could disrupt the data: Tom Essaye Quoted in Forbes


Could Dock Worker Strike Spike Inflation? Experts Are Split.

Sevens Report analyst Tom Essaye wrote Tuesday to clients any strike-related inflation uptick is ultimately just a “temporary disruption” and shouldn’t impact the view of the broader inflation picture.

“The port strike could disrupt the data, essentially creating a smoke screen for the Fed when trying to stick the soft landing,” wrote Essaye.

Also, click here to view the full Forbes article published on October 1st, 2024. However, to see the Sevens Report’s full comments on the current market environment sign up here.

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Futures contracts tied to the index are telling a different story

Futures contracts tied to the index are telling a different story: Tom Essaye Quoted in Market Watch


Why Wall Street’s ‘fear gauge’ could spike again around the election

But futures contracts tied to the index are telling a different story, and it’s one worth paying attention to, according to Tom Essaye, founder of Sevens Report Research.

The October VIX contract is trading at a premium to the November contract, an unusual development known to futures traders as “backwardation.” Typically, the VIX futures curve exhibits a smooth upward slope. But for most of this year, there has been a kink along this part of the curve.

According to Essaye, the inversion is notable not so much for its degree — the October contract was just 0.3 points above its September sibling as of early Thursday — but for its staying power. This segment of the curve has been in backwardation since the October contract started trading in February.

Also, click here to view the full MarketWatch article published on September 26th, 2024. However, to see the Sevens Report’s full comments on the current market environment sign up here.


If you want research that comes with no long term commitment, yet provides independent, value added, plain English analysis of complex macro topics, then begin your Sevens Report subscription today by clicking here.

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What the Iranian Missile Strike Means for Markets

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What’s in Today’s Report:

  • What the Iranian Missile Strike Means for Markets
  • ISM Manufacturing Mildly Disappoints
  • JOLTS Top Estimates

Stock futures are lower amid a continued risk-off tone in markets as investors digest negative earnings news and await Israel’s response to Iran’s missile attack on Tuesday.

In corporate news, NKE earnings disappointed as sales fell 10% y/y and guidance was withdrawn ahead of a CEO change, leaving shares down 5% pre-market.

Economically, the Eurozone Unemployment Rate held steady at 6.4% in August, meeting estimates which is having little impact on markets today.

Today, investor focus will be on the ADP Employment Report (E: 121.5K) before the bell as well as a handful of Fed speakers on the schedule through the lunch hour: Hammack (9:00 a.m. ET), Musalem (10:05 a.m. ET), Bowman (11:00 a.m. ET), and Barkin (12:15 p.m. ET).

In addition to the jobs data and Fed chatter, tensions in the Middle East will remain a major focus as further deterioration in the Israel-Iran conflict is likely to weigh further on risk assets and influence flight-to-safety money flows.

Sevens Report Quarterly Letter Delivered

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Economic Implications of the Port Strikes

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What’s in Today’s Report:

  • Will the Port Strike Increase Hard Landing Chances
  • Fed Chair Powell’s Commentary Takeaways (Less-Dovish)

Futures are little changed this morning as investors weigh a favorable decline in EU inflation against news that a dockworkers strike has commenced at East Coast ports.

Economically, the Eurozone Manufacturing PMI fell to 45.0 vs. (E) 44.8 while the EU HICP Flash (their CPI) fell 0.4% to 1.8% vs. (E) 2.0% in September. The sub-2% headline was notably the first below-ECB-target print since 2021.

Looking into today’s session, there are several domestic economic data points that will be in focus including, in order of importance: The ISM Manufacturing PMI (E: 47.0), JOLTS (E: 7.7 million), and Construction Spending (E: -0.3%).

Additionally, there is one Fed speaker on the calendar for the late morning: Bostic (11:00 a.m. ET).

Bottom line, investors will be assessing what the market implications of the East Coast port strike will be as the situation develops today while also looking for more “goldilocks” economic data and a less-hawkish tone from Fed officials in order for the early week stock market gains to hold.

 

Sevens Report Quarterly Letter Delivered Today

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Why the Next Four Weeks Are So Important

Investor Sentiment Update: Start a free trial of The Sevens Report.


What’s in Today’s Report:

  • Why the Next Four Weeks Are So Important
  • Weekly Market Preview:  Does Data Stay Goldilocks?
  • Weekly Economic Cheat Sheet:  Jobs Report Friday, ISM PMIs This Week

Futures are slightly lower as markets digest last week’s rally ahead of a busy week of economic data.

Geo-politically, Mid-East tensions rose further as Israel struck Houthi targets in Yemen, expanding its current campaign.  However, for now this is not impacting stocks.

Economically, Chinese manufacturing and non-manufacturing PMIs underwhelmed, raising expectations for even more stimulus (and boosting Chinese stocks).

There are no important economic reports today (they come later this week) so the most important event today is Powell’s speech at 1:55 p.m. ET.  He’s unlikely to say much new (given the FOMC decision was less than two weeks ago) but a dovish reiteration of policy will likely continue to boost markets in the near term.


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Investor Sentiment Update

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What’s in Today’s Report:

  • Sentiment Update: Investors Aren’t Wildly Bullish, But They Are Complacent
  • August Durable Goods Come in Better-Than-Feared
  • Jobless Claims Point to Further Resilience in the Labor Market

U.S. stock futures are slightly lower this morning as more positive stimulus news out of China is being offset by a stronger yen following Japanese election results.

The PBOC cut 7-day reverse repo rates to 1.5% from 1.7% as well as lowered bank reserve ratios by another 50 bp which sent stocks in Asia solidly higher with some regional benchmarks advancing the most since 2008.

In Japan, Shigeru Ishiba’s election victory to become the nation’s next Prime Minister spurred a more than 1% rally in the yen as he is a monetary policy hawk. The yen strength is weighing on the global carry trade, specifically U.S. tech stocks in the pre-market.

Looking into today’s session, the most important potential catalysts hits before the bell with the Fed’s preferred inflation gauge, Core PCE (E: 0.2% m/m, 2.7% y/y) due out at 8:30 a.m. ET.

Additionally, the latest Consumer Sentiment Report (E: 69.0, 1-Yr Inflation Expectations: 2.7%) will be released at 10:00 a.m. ET and there is one Fed speaker in the early afternoon: Bowman (1:15 p.m.) but Fed speak has been benign this week and is likely to stay that way today.


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