What Powell’s Speech Means for Markets

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What’s in Today’s Report:

  • What Powell’s Speech Means for Markets
  • Weekly Market Preview:  Are Central Banks Getting More Hawkish?
  • Weekly Economic Cheat Sheet:  How Strong is Growth (Jobs Report on Friday)

Futures are down close to 1% on follow through selling from Friday as hopes of a near term “Fed Pivot” continue to fade in reaction to Powell’s speech last week.

European shares are also sharply lower as tightening expectations for the ECB rose sharply on Friday.  Markets are now pricing in a minimum 50 bps hike next week with a 75 bps hike a real possibility.

There were no notable economic reports overnight.

Markets dropped on Friday as Powell dismissed the idea of an imminent “Fed Pivot,” but the ECB also signaled more hawkish intentions on Friday, and it was the two events that combined to cause the ugly declines.  Today there are no economic reports but there is an important Fed speaker, Brainard (2:15 p.m. ET) and if she echoes Powell’s comments from Friday, expect more losses in stocks.

Powell Speech Preview

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What’s in Today’s Report:

  • Powell Speech Preview

Futures are modestly lower following a mostly quiet night ahead of Powell’s speech at 10:00 a.m. this morning.

Economic data was slightly underwhelmed as the German Gfk Consumer Climate declined to –36.5 vs. (E) -31.

The UK increased the electricity price cap for households by 80%, underscoring the impact of surging natural gas prices.

Today focus will be on the Powell speech at 10:00 a.m. and the market will be looking for Powell to tacitly endorse the “Fed Pivot” theory that’s helped stocks rally.  Away from Powell, we also get two notable inflation readings via the Core PCE Price Index (E: 0.3% m/m, 4.7% y/y) and Consumer Sentiment (E: 55.1), but it will take a material surprise from either report to move markets today.

Updated Technical Take On the Market

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What’s in Today’s Report:

  • Updated Technical Take
  • EIA Update and Oil Market Analysis
  • More Bad Consumer Earnings

Futures are solidly higher following better-than-expected economic data and as markets continue to recoup Monday’s declines ahead of the Powell speech tomorrow.

Economic data was better than expected overnight as German GDP beat estimates (1.8% vs. (E) 1.4%) as did the IFO Business Expectations survey (80.3 vs. (E) 78.8).

On the Fed front, Bostic said the September rate hike was a 50/50 proposition between 50 bps or 75 bps, and that’s largely in line with market expectations.

Today’s focus will be on economic data via Jobless Claims (E: 255k) and Revised Q2 GDP (E: -0.9%) and markets will want to see a continued slow rise in jobless claims and a stable GDP report (so not materially worse than expected).

Additionally, while the official Fed speaker calendar doesn’t have any events today, we should prepare for a deluge of Fed commentary via the financial media (CNBC, FT, WSJ, Marketwatch, etc.) as the Jackson Hole conference begins.  Barring any major surprise commentary, though, markets should look past Fed speak today and focus on Powell’s speech tomorrow.

Why Didn’t Stocks Fall on the Ugly PMIs?

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What’s in Today’s Report:

  • Why Didn’t the Ugly PMIs Cause a Further Decline in Stocks?
  • August Flash PMI Takeaways
  • Dollar Index Hits New Highs: Chart
  • Is there a New “OPEC+ Put” Under the Oil Market?

Stock futures are flat and international markets were little changed overnight as currency and bond markets continued to stabilize with the focus remaining on the Jackson Hole Economic Symposium later in the week.

There were no notable economic reports overnight.

Today, no Fed officials are scheduled to speak leaving the focus on economic data early with Durable Goods Orders (E: 0.5%) and Pending Home Sales (E -2.5%) both due out early in the day.

Beyond those economic reports, there is a 5-Yr Treasury Note auction at 1:00 p.m. ET, and if it is as soft as yesterday’s 2-Yr Note auction, that could result in rising yields which would in turn weigh on stocks ahead of Jackson Hole. However, barring any meaningful moves in the currency and bond markets today, it should be relatively quiet as traders begin to position into Powell’s speech on Friday morning.

Economic Breaker Panel: August Update

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What’s in Today’s Report:

  • Sevens Report Economic Breaker Panel: August Update
  • S&P 500 Reaches Key Technical Support: Chart

Stock futures are steady this morning as this week’s rise in both the dollar and bond yields has paused while economic data in Europe was better than feared

Economically, the Eurozone Manufacturing PMI was 49.7 vs. (E) 49.0 and the Services PMI came in at 50.2 vs. (E) 49.0 which is helping ease some stagflation concerns after last week’s soft growth numbers yet stubbornly high inflation across Europe.

Looking into today’s session, the focus will be on economic data early, specifically, the PMI Composite Flash (E: 49.2) as investors will want to continue to see steady moderation and evidence of slowing growth but not an all-out crash in the data either. New Home Sales (E: 575K) will also be released shortly after the open.

Outside of the data, there is one Fed speaker on the calendar: Kashkari, but not until after the close (7:00 p.m. ET) while there is a 2-Yr Treasury Note auction at 1:00 p.m. ET that could move yields.

Bottom line, news flow has not been decidedly negative over the last few sessions and the pullback in stocks has been largely driven by the rally in the dollar and rising bond yields. So if we can see those two markets stabilize, equities should be able to stabilize today as well, especially with the S&P into solid technical support, however, if the dollar and yields both grind higher, expect further volatility in the stock market ahead of Jackson Hole.

Tom Essaye Quoted in Barron’s on August 20th, 2022

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Bitcoin and Stocks Are Falling Together Again. What’s to Blame.

Bitcoin’s moves definitely follow the market. There’s no question, and that’s been especially true on days when the market has been down a lot, Tom Essaye, founder of Sevens Report Research, told Barron’s. Click here to read the full article.

 

Tom Essaye Quoted in CNBC on August 18th, 2022

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Bond yields tick lower, cooling off after Fed’s meeting minutes released

Bottom line, the market continues to view virtually all Fed utterances as implying a less-hawkish pivot and Wednesday wasn’t any exception as the FOMC minutes erased the dollar’s earlier gains and cut the rise in Treasury yields as stocks continue to ignore signals from the currency and bond markets that imply the Fed will not be making this hoped for pivot anytime soon, wrote Tom Essaye of The Sevens Report. Click here to read the full article.

What the Bulls Believe (Four Assumptions)

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What’s in Today’s Report:

  • Four Bullish Assumptions Currently in the Market
  • Weekly Market Preview:  All About Powell (Speech on Friday)
  • Weekly Economic Cheat Sheet:  How Solid Is the Economy?  (Important Growth Data This Week)

Futures are sharply lower as markets price in a greater chance of a hawkish speech from Fed Chair Powell this Friday.

Markets are reversing some of the “Fed Pivot” gains of the past few weeks ahead of Chair Powell’s speech in Jackson Hole on Friday, as investors fear the markets’ expectations for the Fed have become too dovish.

Economically, China cut interest rates again to stimulate the economy, although the rate cuts were small and stocks declined anyway, as the Chinese economy continues to face numerous large challenges (Zero COVID policy, drought, property market decline, etc.).

Today there are no Fed speakers and only one notable economic report, the Chicago Fed National Activity Index (E: -0.19), and as has been the case markets will want to see stability in the date to reinforce that the U.S. economy is not moving closer to stagflation.

What’s Changed With the Fed

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What’s in Today’s Report:

  • What’s Changed with the Fed (and What Hasn’t)
  • Technical Update

Futures are moderately lower following mixed economic data and after a WSJ article warned the market was underestimating Fed conviction on rate hikes.

Economically, German PPI surged 37.2% vs. (E) 30.9% y/y on exploding electricity costs while UK Retail Sales fell –3.4% vs. (E) -3.3%.  Both numbers highlight the economic challenges facing the EU and UK.

A WSJ article warned of a “reckoning” for stocks as markets think the Fed is bluffing about further hikes and that’s weighing on sentiment this morning.

Today there are no notable economic reports but there is one Fed speaker, Barkin at 9:00 a.m. ET, and if he echoes this disconnect between Fed intentions and market expectations for rates, that will further pressure stocks today.

FOMC Minutes: Not as Dovish as the Market Reaction

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What’s in Today’s Report:

  • FOMC Minutes:  Not as Dovish as the Market Reaction
  • Retail Earnings Takeaways
  • EIA and Oil Market Analysis

Futures are slightly higher on better-than-expected earnings, following an otherwise quiet night of news.

Cisco (CSCO) posted strong earnings and gave positive commentary on tech demand going forward.

Economically, EU HICP (their CPI) met expectations at 8.9% yoy and that reading means a 50 bps rate hike from the ECB is still likely in September.

Today’s focus will be on economic data, specifically the Philadelphia Fed Manufacturing Survey (E: -5.0).  If Philly Fed echoes the weak Empire Manufacturing reading and the price indices don’t decline, we’ll see stagflation concerns rise.  Other reports today include Jobless Claims (E: 265K) and Existing Home Sales (E: 4.85M) but neither should move markets.

We also get two Fed speakers, George (1:20 p.m. ET) and Kashkari (1:45 p.m. ET), and the market will be looking for any insight on a 50 bps vs. 75 bps hike in September (markets are expecting 50 bps).