Did the Markets Achieve Peak Inflation & Peak Hawkishness

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What’s in Today’s Report:

  • Keys to a Bottom Update:  Did the Markets Achieve Peak Inflation & Peak Hawkishness?
  • Weekly Market Update:  Can Stocks Hold the Recent Gains?
  • Weekly Economic Cheat Sheet:  All About Growth This Week (And the Data Needs to be Solid)

Futures are modestly lower after Chinese economic data missed estimates and the Chinese central bank cut rates in response.

Chinese economic data was soft as Industrial Production (3.8% vs. (E) 4.3%) and Retail Sales (2.7% vs. (E) 4.9%) both missed estimates.  In response, China’s central bank announced a surprise 10 bps rate cut, a move that signals economic concern but also doesn’t offer a lot of help (a 10 bps cut won’t make a difference as long as “Zero COVID” is an in-force policy).

Focus today will be on the August Empire Manufacturing Survey (E: 5.0) and specifically the price index within the report.  The sharp drop in that price index kicked off the “peak inflation” rally of the last month, so markets will be looking for continued signals that growth is stable (so a solid headline reading) and inflation is falling (another drop in the price index).

We also get the July Housing Market Index (E: 55.0) and we have one Fed speaker,  Waller (10:50 a.m. ET), but they shouldn’t move markets.

What Could Send Stocks Higher from Here (Three Factors)

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What’s in Today’s Report:

  • What Could Send Stocks Higher from Here (Three Factors)

Futures are slightly higher as comments by San Francisco Fed President Daly are being interpreted as slightly dovish. San Francisco Fed President Daly spoke after the close Thursday and said that Wednesday’s CPI was a “welcome sign” that could lead to a “slowing” in the pace of rate hikes (to 50 bps in September, not 75 bps).

Economic data was better than expected as both UK and EU Industrial Production slightly beat estimates.

Today focus will be on the University of Michigan 5-Year Inflation Expectations (E: 2.9%) as that’s the first inflation reading in August, and if it drops below expectations we should see a continued tailwind on stocks.

Tom Essaye Quoted in Bolly Inside on August 9th, 2022

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US Futures Fall, Asia Stocks Face Dovish Open: Markets Roundup

The economy still has to digest all this tightening, and that will materially slow things, wrote Tom Essaye, a former Merrill Lynch trader who founded The Sevens Report newsletter. Click here to read the full article.

Market Multiple Table

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What’s in Today’s Report:

  • August Market Multiple Table
  • Growth and Inflation – Which One Falls Faster? (It’s an Important Question Going Forward)

Futures are modestly higher as markets digest Wednesday’s big rally and following better than expected earnings.

Disney (DIS) posted better than expected earnings driven by theme park performance and strong Disney+ subscriber numbers and that’s anecdotally adding to the idea that the economy remains resilient.

There was no notable economic data overnight and investors are looking ahead to this week’s claims data.

Today focus will be on Jobless Claims (E: 260k) and PPI (E: 0.3% m/m, 10.3% y/y) and the market will want to see continued moderation in the jobs market (so claims slowly drifting towards 300k) and for the PPI to also signal a peak in inflation pressures (so numbers that a better than expectations).  If the markets get those two readings from the data, the rally can continue.

Tom Essaye Quoted in Barron’s on August 9th, 2022

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Oil Earnings Outlook Dims. Blame Cheaper Oil.

For oil’s drop, it’s mostly a demand story. If you see oil move into the high to mid 70s, people are going rethink the idea that these companies are cash flow-generating machines, Essaye said. Click here to read the full article.

Tom Essaye Quoted in Yahoo on August 8th, 2022

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S&P 500 Finishes Lower After Wiping Out 1% Rally: Markets Wrap

The economy still has to digest all this tightening, and that will materially slow things…wrote Tom Essaye, a former Merrill Lynch trader who founded The Sevens Report newsletter. Click here to read the full article.

Tom Essaye Quoted in CNBC on August 8th, 2022

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Strong economic data puts ‘Fed pivot’ rally in danger, Essaye says

The market has rallied hard on the idea of a Fed pivot. Friday’s jobs report didn’t support that hope and, if anything, will make the Fed more resolute about rate hikes. So, now inflation needs to clearly show signs of peaking and declining, otherwise we’d expect this market to abandon some of that near-term hope, and for volatility to increase, Essaye wrote. Click here to read the full article.

Market Set Up Into Today’s CPI Report

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What’s in Today’s Report:

  • Market Set Up Into Today’s CPI Report
  • Are Semiconductor Stocks Forecasting the Slowdown?

Futures are slightly higher on mildly positive geo-political news and ahead of the CPI report.

China ended the military exercises around Taiwan and while that was always expected it’s still a mild positive as it reduces the chances of any accidental conflict.

Economically, the Chinese CPI rose 2.7% vs. (E) 2.9% allowing China to continue to actively stimulate its economy.

Today’s focus will be on the CPI report and expectations are as follows: Headline CPI:  0.2% m/m, 8.7% y/y. Core CPI: 0.5% m/m, 6.1% y/y.  Markets remain in a “glass half full” mood on inflation so unless the numbers are solidly above expectations, we’d expect stocks to weather the number with only modest declines (while a soft number will likely spur an additional rally).

We also get two Fed speakers, Evans (11 a.m. ET) and Kashkari (2 p.m. ET) but they shouldn’t move markets.

CPI Preview: Good, Bad and Ugly

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What’s in Today’s Report:

  • CPI Preview:  Good, Bad, and Ugly

Futures are slightly lower thanks to more tech stock weakness following a mostly quiet night of macroeconomic news.

Micron (MU) became the second large semiconductor company to produce negative earnings guidance (Monday it was Nvidia) as MU slashed its outlook, and that’s weighing on markets this morning.

Geo-politically, the FBI raid on Mar-a-Lago is dominating news coverage, but it has no impact on markets.

Today’s focus will remain on inflation via Unit Labor Costs (E: 9.3%) and if they come to light, that will further strengthen the idea that inflation is peaking and help to support stocks into tomorrow’s CPI report.

Sevens Report Analysts Quoted in The Market Herald on August 5th, 2022

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ASX Today: Cautious start as traders await US jobs report

Demand concerns are now the dominant influence on the global energy market and even though supply worries will persist with the Russia-Ukraine war, we will need to see evidence of demand stabilizing for the oil market to begin to find a near-term bottom,” analysts at Sevens Report Research wrote. Click here to read the full article.