A Critical Time for the Yield Curve

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What’s in Today’s Report:

  • A Critical Time for 10s-2s
  • Empire State Manufacturing PMI Takeaways

There is a clear risk-on tone in markets this morning with stock futures sharply higher amid optimism that China will ease regulation on the tech sector (the Hang Seng rallied 3%) while economic data surprised to the upside.

Economically, the Q1 Eurozone GDP Flash came in at 5.1% vs. (E) 5.0% Y/Y which helped ease recently elevated concerns about global growth which may have been overdone.

Looking into today’s session, focus will be on economic data early with several reports due to be released including: Retail Sales (E: 0.7%), Industrial Production (E: 0.4%), Housing Market Index (E: 75). Investors will be looking for solid data that helps further ease fears about a potential slowdown in the economy.

There are also multiple Fed speakers today: Harker (9:15 a.m. ET), Powell (2:00 p.m. ET), Mester (2:30 p.m. ET), and Evans (6:45 p.m. ET). Powell will be the main focus but the market will want to see officials collectively strike a less hawkish tone if we are going to see these early gains in equities hold.

Bottom line, the overnight rally in equity futures came on very light volume and it should not be surprising to see the market gravitate back towards yesterday’s levels this morning as investors assess the new economic data and slew of Fed speakers. But with good news flow, we could see the relief rally resume today.

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Three Keys to a Bottom (Specifics)

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What’s in Today’s Report:

  • Three Keys to a Bottom (Specifics)
  • Weekly Market Preview:  Can Easing Chinese Restrictions Fuel a Bigger Bounce?
  • Weekly Economic Preview:  May Data in Focus (Empire Today, Philly Wed)

Futures are modestly lower on disappointing Chinese economic data and as India banned wheat exports.

Chinese Industrial Production fell –2.9% vs. (E) 0.5% and Retail Sales plunged –11.1% vs. (E) -6.6%, underscoring the economic damage from the COVID lockdowns.

Geo-politically, India banned the export of wheat over the weekend, a move that will likely exacerbate global shortages and keep wheat/commodity prices high.

Today’s focus will be on economic data via the Empire State Manufacturing Index (E: 15.0), which is the first data point for May.  Markets will want to see stability in the data to ward off stagflation concerns and the bigger the drop in the price index, the better.  We also get one Fed speaker, Williams (8:55 a.m. ET), but he shouldn’t move markets.

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Dow Theory Update (Bearish)

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What’s in Today’s Report:

  • Dow Theory Update (Bearish)
  • VIX Analysis Update

Futures are moderately higher following positive China COVID news.

Chinese authorities said they hoped to end all lockdowns in Shanghai by May 20th as cases continue to fall.  If the Chinese economy can fully reopen in the coming weeks that will remove a big headwind from stocks.

Economically, EU Industrial Production wasn’t as bad as feared, as IP fell –1.8% vs. (E) -2.0%.

Today the focus will be on the inflation expectations contained in the Consumer Sentiment (E: 63.7) report and if five-year inflation expectations can decline from 3%, that will be another anecdotal signal that inflation pressures have likely peaked (and it should add incrementally to this morning’s rally).     We also get two Fed speakers, Kashkari (11:00 a.m. ET) and Mester (12:00 p.m. ET), but we don’t expect them to move markets (look for them to reiterate the current Fed mantra of two more 50 bps hikes).

Why Are the VIX and S&P 500 Possibly Diverging?

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What’s in Today’s Report:

  • Why Are the VIX and S&P 500 Possibly Diverging?
  • Is Selling Becoming Mechanical?
  • CPI Takeaways (It Won’t Make the Fed More Hawkish)

Futures are moderately lower mostly on momentum from Wednesday’s afternoon selloff.

Economically, UK economic data disappointed (GDP and Industrial Production both missed estimates) while BOE officials warned of more rate hikes reminding markets there’s a real stagflation threat in the UK.

Geo-politically, Finland formally applied to join NATO (and Sweden is expected to follow), keeping NATO/Russia tensions high for the foreseeable future (meaning quarters and years).

Today, we get Jobless Claims (E: 190K) and PPI (0.5% m/m, 10.7% y/y) and one Fed speaker, Daly (4:00 p.m. ET), but barring a big spike in claims, a big move in PPI or incrementally hawkish commentary from Daly (all of which are unlikely) these events won’t move markets.  So, short-term technical will continue to be the main driver of stocks, and markets need to show some stabilization, otherwise, the declines themselves will invite more selling.

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

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The Dow Fell, Palantir Tumbled—and What Else Happened in the Stock Market Today

The selling is technical and emotions (fear/greed) that are driving the markets on an intraday basis and we should all prepare for more elevated volatility ahead…wrote Tom Essaye, founder of Sevens Report Research. Click here to read the full article.

Market Multiple Levels Chart

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What’s in Today’s Report:

  • Market Multiple Levels: S&P 500 Chart
  • Quick CPI Preview

There is a tentative sense of relief in markets this morning with stock futures tracking global equities higher while bond yields and the dollar pullback ahead of key inflation data in the U.S. today.

Economically, Chinese CPI and PPI were both hotter-than-expected however German CPI met estimates of 7.4% y/y which is giving investors hope that price pressures are still high but in the process of peaking.

Looking into today’s session investors will be primarily focused on the CPI report (E: 0.2% m/m, 8.1% y/y), and more specifically the Core CPI figures (E: 0.4% m/m, 6.0% y/y).

We will also hear from one Fed speaker: Bostic (12:00 p.m. ET), and there is a 10-Yr Treasury Note auction at 1:00 p.m. ET.

Bottom line, if today’s inflation data comes in below expectations, it will likely bolster this morning’s already solid gains in stock futures and lead to a further relief rally. Conversely, if inflation runs hot, expect more volatility across asset classes and the potential for new lows in the major equity indices.

Tom Essaye Quoted in CNBC on May 9th, 2022

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10-year Treasury yield rises to its highest level since November 2018

To start the year, we knew that central bank tightening would make for a challenging market, but that has been compounded by two surprise events: The Russia/Ukraine war (no one expected that in January) and Chinese lock-downs (it’s quasi-shocking the Chinese are still adopting these policies and crushing their economy)…wrote Tom Essaye of The Sevens Report. Click here to read the full article.

Market Multiple Table

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What’s in Today’s Report:

  • Why Stocks Dropped Again (It Wasn’t Actual News)
  • Market Multiple Table – May Update

Stock futures are trading with tentative gains this morning as yesterday’s steep declines are digested after a mostly quiet night of news.

Economically, data overseas was slightly better than feared (specifically Economic Sentiment within the German ZEW Survey) while the NFIB Small Business Optimism Index in the U.S. held steady at 93.2, topping estimates of 92.9.

There are no notable economic reports today but there is a 3-Yr Treasury Note auction at 1:00 p.m. ET and if the results help the bond market stabilize, that could help equities bounce today.

Finally, there are a slew of Fed speakers today including: Williams (7:40 a.m. ET), Bostic (8:30 a.m. ET), Barkin (9:15 a.m. ET), Kashkari (1:00 p.m. ET), and Mester (3:00 p.m. ET). If they collectively strike a “less-hawkish” tone, that could also help fuel a relief rally in stocks today.

Tom Essaye Quoted in Barron’s on May 5th, 2022

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The Dow Lost More Than 1,000 Points as Wednesday Gain Vanishes

China’s PMI this morning was horrific, that underscores that the Chinese economy is a huge drag on global growth right now. It’s a risk to keep inflation high…said Tom Essaye, founder of Sevens Report Research. Click here to read the full article.

Tom Essaye Quoted in The Madison Leader Gazette on May 5, 2022

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Stock Market Today: Dow Slides, Shopify Tumbles, NIO Slumps

We shouldn’t have gone up 2% yesterday on the news…said Tom Essaye, founder of Sevens Report Research. Click here to read the full article.