Politics and Markets

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What’s in Today’s Report:

  • Politics and Markets (An Important Week)
  • Weekly Market Preview:  Can the Rebound Continue?
  • Weekly Economic Cheat Sheet:  Important Growth and Inflation Data on Friday

Futures are slightly higher following a quiet weekend as the market’s focus turns to politics this week.

Democrats must pass a “Continuing Resolution” by Thursday to avoid a government shutdown, and while markets expect it will pass, there was little actual progress on that front over the past several days.

Economic data was sparse overnight and isn’t moving markets.

Today we get Durable Goods (E: 0.6%) and there are two Fed speakers, Evans at 8:00 a.m. ET and Williams at 9:00 a.m. ET & 12:00 p.m. ET, but really the market’s focus will be on Washington.  Despite the lack of progress from Democrats so far on passing a “Continuing Resolution” to fund the government before the deadline on Thursday night, markets fully expect that “CR” will pass by then.  But, if it becomes apparent it not might not pass by then, that will cause more stock market volatility.

Tom Essaye Quoted in OI Canadian Gaming News on September 21, 2021

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$250 billion vanishes from cryptocurrency market due to Evergrande case

The losses quickly spread to broader markets as experts began to warn that…wrote market analyst Tom Essaye, author of the Sevens Report, in a note last week. Click here to read the full article.

Tom Essay Quoted in UK News Today on September 20, 2021

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Crypto Markets Suddenly Lose $250 Billion In Value As Evergrande Turmoil Pummels Bitcoin, Ethereum And Other Major Cryptocurrencies

The losses quickly spread to broader markets as experts started warning its default could…market analyst Tom Essaye, author of the Sevens Report, wrote in a note last week. Click here to read the full article.

Why Treasury Yields Spiked Yesterday

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What’s in Today’s Report:

  • Why Treasury Yields Spiked Yesterday

Futures are modestly lower as markets digested the rally of the past two days, following underwhelming economic data and earnings overnight.

Nike (NKE) became the latest major company to cut guidance on margin concerns and supply chain issues and the stock dropped nearly 5% after hours.

Japanese flash manufacturing PMI missed estimates at 51.2 vs. (E) 52.0 mirroring the loss of momentum from global flash PMIs.

Today focus will remain on China headlines (although Evergrande is fading as a major market influence) and on multiple Fed speakers:  Mester (8:45 a.m. ET), Powell, Bowman, Clarida, George (10:00 a.m. ET), and Bostic  (12:00 p.m. ET).   Finally, we also get New Home Sales (E: 708K) but that shouldn’t move markets.

Tom Essaye Quoted in Quartz on September 21, 2021

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Evergrande is a massive problem—but it’s China’s problem

But it operates like one large company. Yes, there are “private” banks in China and yes, there are “private” corporations, but in the end the Communist Party…wrote Sevens Report Research president Tom Essaye in a note last week. Click here to read the full article.

What the Fed Decision Means for Markets

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What’s in Today’s Report:

  • What the Fed Decision Means for Markets
  • EIA Analysis and Oil Update

Futures are moderately higher as the rally continued overnight as China injected more liquidity into their economy.

Chinese officials injected another 17 billion yuan into the economy to prevent any liquidity issues, as it’s now clear that Chinese officials won’t allow a disorderly default (and that’s really all global markets care about).

Economic data disappointed as both the EZ and UK flash composite PMIs missed expectations (EZ PMIs fell to 56.1 vs. (E) 58.9 while UK PMI dropped to 54.1 vs. (E) 54.7).

Focus today will be on economic data, specifically the Flash Composite PMI (E: 55.5) and Jobless Claims (E: 309K).  Markets will want to see both numbers confirm what the Philly Fed and Empire survey implied last week, namely that the surge in COVID cases was a temporary and limited headwind on the economy.  If that’s the case the rebound in stocks should continue.

Technical Levels to Watch Today

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What’s in Today’s Report:

  • Technical Update: Key Support and Upside Targets for the S&P 500

Markets are trading with a risk-on tone this morning after some positive Evergrande developments while focus continues to shift to the conclusion of today’s Fed meeting.

Evergrande announced overnight that the company would not default on a bond payment due tomorrow (but details were vague) while the PBOC injected 120B yuan of liquidity into the system helping ease financial conditions overnight.

Today there is one economic report due out early: Existing Home Sales (E: 5.90M), but the primary market focus will be the FOMC Meeting Announcement (2:00 p.m. ET) followed by the Fed Chair Press Conference (2:30 p.m. ET).

With regard to the Fed, any outcome that meets our “What’s Expected” or “Dovish If” outcomes from yesterday’s FOMC Preview will likely trigger a further relief rally while a “Hawkish If” scenario has the potential to spur another wave of elevated volatility with a high likelihood of stocks testing Monday’s lows.

FOMC Preview

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What’s in Today’s Report:

  • FOMC Preview
  • What to Make of Monday’s Collapse

Stock futures are extending yesterday’s late session bounce while most overseas markets stabilized overnight amid easing concerns about China’s property sector and positioning into the Fed.

According to Bloomberg, S&P Global Ratings said Evergrande is “on the brink of default” but that a contagion effect impacting other developers is unlikely at this time and that the Chinese government would intervene if necessary which eased some concerns surrounding the issue.

Looking into today’s session, trader focus will be shifting towards the September FOMC meeting, which begins this morning, and that could influence a sense of Fed paralysis if broad market volatility continues to ease.

Economically, there is one report today: Housing Starts and Permits (E: 1.575M, 1.610M) but given all of the other market influences right now, it is not likely to move equities. Finally, there is a 20-Yr Treasury Bond auction at 1:00 p.m. ET which could impact bond yields and potentially influence price action in stocks but again, it is unlikely with the Fed looming tomorrow.

Bottom line, the pieces are falling into place for the market to stabilize today as yesterday’s volatility is digested and focus shifts to the Fed. On the charts, a break above yesterday’s open near 4,400 in the S&P could trigger some follow-through buying while a failure to do so would leave the door open to another surge in volatility in the sessions ahead.

A Critical Six Weeks for Markets

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What’s in Today’s Report:

  • Why the Next Six Weeks Will be Critical for this Market
  • Weekly Market Preview:  Fed Tapering Plans Revealed
  • Weekly Economic Cheat Sheet:  What’s the State of the Global Recovery?

Futures are sharply lower on momentum from Friday’s declines, following a quiet weekend of news.

The reasons for the drop this morning are the same as last week:  China concerns (Evergrande, regulation, COVID), Fed tapering, and possible tax hikes, but nothing new occurred on any of those fronts this weekend to justify this mornings’ declines (meaning this is more about momentum than actual fundamental deterioration).

On taxes, headlines were actually slightly positive as Axios reported Senator Manchin wants to delay any increased spending/tax hikes until 2022.

Today the calendar is quiet as the only economic report is the Housing Market Index (E: 75), so pre-Fed positioning and momentum will drive trading today.  Ideally, we’d like to see stocks open deeply lower and then rally throughout the day (which would be the opposite of what we saw last week and imply a near-term bottom may be in).

What is Evergrande and Why Isn’t It Causing More Problems?

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What’s in Today’s Report:

  • What is Evergrande and Why Isn’t It Causing More Problems?

Futures are modestly lower on more negative China headlines following an otherwise quiet night.

Chinese authorities have extended anti-pollution directives to multiple cities and that’s causing a sharp drop in some industrial commodities (iron ore specifically) which is weighing on resource stocks in Europe.

Economically, UK Retail Sales missed estimates falling –0.9% vs. (E) 0.5% although the report isn’t moving markets.

Focus today will be on Consumer Sentiment (E: 72.0) and specifically inflation expectations, and if they spike higher (as we saw in the Fed survey earlier this week) don’t be surprised if there’s additional downward pressure on stocks.  Also, today is a “Quadruple Witching” options expiration which could mean big volumes and increased volatility into the close.