If the recent dynamic of rising rates, a firming dollar, and fading inflation expectations continues, it is only a matter of time until gold breaks down through the bulls’ ‘line in the sand’ at $1,680 and hits new lows for the year…analysts at Sevens Report Research wrote in Wednesday’s newsletter. Click here to read the full article.
What’s in Today’s Report:
Futures are moderately higher as the U.S. Dollar extended Friday’s declines thanks to a hawkish ECB article.
The euro is surging another 1% and pushing the Dollar Index lower following a hawkish ECB Reuters article that stated the ECB may have to raise rates to 2% to curb inflation, which is higher than current expectations.
Economic data was slightly underwhelming as UK Industrial Production (0.1% vs. (E) 0.3%) and UK Monthly GDP (0.2% vs. (E) 0.4%) both missed estimates.
Today there are no notable economic reports nor any major Fed speakers, so we’d expect stocks to continue to follow the dollar ahead of tomorrow’s CPI report. If the dollar extends this morning’s declines, stocks should be able to hold this early rally.
What’s in Today’s Report:
Futures are sharply higher on encouraging Chinese inflation data and a drop in the U.S. Dollar.
Chinese PPI (2.3% vs. (E) 2.8% y/y) and CPI (2.3% vs. (E) 3.2% y/y) both declined from last month and came in under expectations, providing more evidence that the global economy has hit “peak inflation.”
The encouraging Chinese inflation data combined with yesterday’s hawkish ECB is pushing the dollar 1% lower.
Today there are no notable economic reports but there are several Fed speakers, including Evans (10:00 a.m. ET), Waller (12:00 p.m. ET) and George (12:00 p.m. ET). If they sound optimistic on inflation, that will help extend this morning’s rally.
What’s in Today’s Report:
Futures are little changed following a mostly quiet night and ahead of the ECB decision and Powell Q&A session.
The Reserve Bank of Australia signaled it will slow the pace of rate hikes going forward but gave no insight into its “Terminal Rate.”
Economically, Japanese GDP slightly beat estimates (3.5% vs. (E) 3.0%) but that’s not moving markets.
Today’s focus will be on Powell (9:10 a.m. ET) and the ECB (75 bps hike), and any hint of “peak hawkishness” from Powell or the ECB will be a positive catalyst for markets (and no hints of it will likely be a headwind on stocks). Outside of Powell and the ECB, we also get Jobless Claims (E: 240K) and there’s one Fed speaker, Evans (12:00 p.m. ET), but neither of those should move markets.
What’s in Today’s Report:
U.S. stock futures have rebounded from overnight losses amid a steadying bond market and mostly upbeat economic data out of Europe.
Economically, German Industrial Production and Italian Retail Sales were both notably better than feared while the Final Q2 Eurozone GDP came in at 0.8% vs. (E) 0.6%, all of which is helping ease concerns about an imminent recession in Europe.
Today, there is one economic report to watch in the morning: International Trade in Goods (E: -$70.5B) and the Fed will release their Beige Book in the afternoon (2:00 p.m. ET) that could shed some light on the Fed’s current view of the economy and inflation trends ahead of this month’s FOMC meeting.
Additionally, there are a few Fed speakers over the course of the day: Mester (10:00 a.m. ET), Brainard (11:55 a.m. ET), and Barr (2:00 p.m. ET). Investors will be most closely focused on commentary from Vice Chair Brainard with the September meeting coming into view.
Bottom line, if data is generally good, rhetoric from the Fed is not more hawkish than it has been lately, and the bond market continues to stabilize, the S&P 500 should be able to hold the critical 3,900 area. However, a break below would be notable and greatly increase the odds of a retest of the June lows.
The jobs report once again carries risks for stocks because if it runs ‘too hot,’ that will increase the prospects of more hikes and, more importantly, delay when markets expect rates will be cut, Sevens Report said. Click here to read the full article.
The question for markets here is, at what point do investors begin to cheer the resilience of economic growth this year in the face of historically aggressive Fed policy tightening that is now beginning to show signs of being effective in capping and likely reducing inflation pressures? Tom Essaye, founder of Sevens Report Research, wrote in a note Friday. Click here to read the full article.
The labor market needs to show signs that it’s on the path to returning to a state of relative balance, where job openings are roughly the same as the number of people looking for jobs — and if it does not show that, then concerns about a more hawkish-for-longer Fed will rise, and that’s not good for stocks, wrote Tom Essaye, a former Merrill Lynch trader and the founder of the Sevens Report newsletter. Click here to read the full article.
All of yesterday’s news flow was digested as bearish for oil as the threat of OPEC+ cuts were reduced, demand estimates in Europe were adjusted lower on poor data while ‘hot’ data in the U.S. added to already hawkish money flows that bolstered the dollar and further pressured oil, wrote analysts at Sevens Report Research, in a note. Click here to read the full article.
What’s in Today’s Report:
There is a tentative risk-on tone to trading this morning as U.S. equity futures track global shares higher thanks to new stimulus measures in China and easing natural gas prices in Europe.
The PBOC announced new measures to help stabilize the yuan and bolster the economy in the face of renewed Covid lockdowns and recent signs of slowing growth which was welcomed by markets overnight.
In Europe, German Manufacturers Orders fell -1.1% vs. (E) -0.4% but that is helping dial back some of the recently more hawkish policy expectations ahead of this week’s ECB meeting.
Looking into today’s session, there is one economic report to watch: ISM Services Index (E: 55.4), and no Fed officials are scheduled to speak.
That should leave the focus on currency and bond markets in the U.S. if both the dollar and short-duration yields can stabilize, and not move materially higher, then stocks should be able to make an attempt to stabilize after Friday’s late session reversal lower.
Additionally, if we see natural gas prices in Europe continue to pull back from Friday and yesterday’s rise, that should help the risk-on mood in markets persist as the Nord Stream 1 halt was the main catalyst for stocks rolling over on Friday.