Why Stocks Rallied on Thursday

What’s in Today’s Report:

  • Why Stocks Rallied on Thursday
  • Policy Spread Update (Rate Cuts Imminent?)

Futures are slightly lower on digestion of Thursday’s rally and as markets await bank earnings this morning.

Fed balance sheet news overnight was mixed, as total usage of the Discount Window and BTFP dropped to $139 bln from $149 bln, but that’s still very elevated and it underscores there’s still stress in the regional banks.

Focus today will be on economic data and earnings, and the key here remains stability in both sets of reports (so no major disappointments).  Important economic reports today include, in order of importance, Retail Sales (E: -0.4%), Industrial Production (E: 0.3%) and Consumer Sentiment (E: 62.7).

Earnings season starts today and key reports we’re watching include: JPM ($3.41), C ($1.66), WFC ($1.15), PNC ($3.60), BLK ($7.73), UNH ($6.24).

Finally, there’s one Fed speaker, Waller at 8:45 a.m. ET but he shouldn’t move markets (the Fed message is very consistent right now).

Tom Essaye Interviewed on Yahoo Finance Live on April 11th, 2023

‘The Fed will be more hawkish than the market is currently expecting,’ Sevens Report Research President says

Sevens Report Research President Tom Essaye joins Yahoo Finance Live to discuss U.S. inflation, Fed policy, economic uncertainty, and the outlook for markets. “I think the Fed will be more hawkish than the market is currently expecting. We have to remember something. If we look at year-end Fed Funds estimates, it’s 4% to 4 and 1/4%. So the market is pricing in numerous rate cuts, not hikes, rate cuts before year end”…said Tom Essaye. Click here to watch the full interview.

Sevens Report – Market Multiple Table Chart

What’s in Today’s Report:

  • Market Multiple Table Chart
  • What CPI Means for Markets
  • EIA Analysis and Oil Update

Futures are slightly higher following better than expected economic data.

Chinese exports handily beat expectations in March rising 14.8% vs. (E) -7.0%, in what is the latest signal that the global economy remains resilient.

On inflation, German CPI met expectations rising 0.8% m/m and 7.4% y/y, numbers that are still too high in aggregate, but won’t make the ECB incrementally hawkish.

Today focus will remain on inflation and the labor market via PPI (E: 0.0% m/m, 3.0% y/y), Core PPI (E: 0.3% m/m, 3.4% y/y) and Jobless Claims (E: 233k).  PPI is expected to show moderation and importantly PPI is viewed as a quasi-leading indicator to CPI, so if numbers come in under expectations that’ll increase hopes inflation is truly easing.  For jobless claims, the higher the better as it implies normalization in the labor market, something the Fed wants to see before it can pause.

Market Multiple Table: April Update

What’s in Today’s Report:

  • Market Multiple Table: April Update
  • S&P 500 Chart – Cautious Trade Ahead of Today’s CPI Report

Equity futures are slightly higher while the policy-sensitive 2-Yr Treasury yield is pushing further beyond 4% in pre-market trade as focus is exclusively on today’s CPI report.

Economically, Japanese PPI came in at 0.0% vs. (E) 0.1% which is adding a slight tailwind to risk assets this morning.

Looking into today’s session, all eyes will be on inflation data ahead of the open: CPI (E: 0.3% m/m, 5.2% y/y), Core CPI (E: 0.4% m/m, 5.6% y/y).

From there, focus will shift to the Fed as Barkin speaks ahead of the bell (9:10 a.m. ET) and Daly speaks mid-day (12:00 p.m. ET), before the latest FOMC meeting minutes will be released at 2:00 p.m. ET. Any hawkish commentary or verbiage within the minutes will likely weigh on stocks and push yields higher.

Bottom line, the CPI data will be the main catalyst today and to recap yesterday’s “CPI Preview” the “good scenario” is a headline below 5.2% with Core below 5.5%, the “bad scenario” is a headline between 5.2% and 6.0% with Core at 5.6%, and the “ugly scenario” is a headline above 6.0% with Core above 5.6%.

CPI Preview: Good, Bad, & Ugly

What’s in Today’s Report:

  • CPI Preview: Good, Bad, & Ugly
  • WTI Crude Oil Chart – Futures Pinned In Tight Range at $80/bbl

Stock futures are rising in sympathy with overseas markets on the back of dovish commentary by new BOJ Governor Kazuo Ueda and favorable economic data overnight that is easing “hard landing” worries.

Economically, Chinese CPI rose just 0.7% vs. (E) 1.1% and PPI dropped -2.5% vs. (E) -2.3% while Eurozone Retail Sales fell -3.0% vs. (E) -3.5%. In the U.S., the NFIB Small Business Optimism Index came in at 90.1 vs. (E) 89.0. The mostly better than expected data is helping rekindle hopes that a soft landing may be achieved.

There are no other notable economic reports today which will leave focus on a 10-Yr Treasury Note auction at 1:00 p.m. ET and the sole Fed speaker today: Goolsbee (1:30 p.m. ET) as traders are largely looking ahead to tomorrow’s CPI report.

Tom Essaye Quoted in Forbes on April 7th, 2023

Labor Market Adds 236,000 Jobs In March—Lowest Since 2020—As Economists Worry Recession May Be ‘Underway Now’

The revisions fueled recession concerns that intensified this week, with “every major data point”—including jobless claims, manufacturing activity and construction spending—signaling the economy is slowing down and pushing some experts to worry it may be slowing down too quickly, says Sevens Report founder Tom Essaye. Click here to read the full article.

Tom Essaye Quoted in Yahoo Finance on April 6th, 2023

Why speculative AI stocks like C3.ai and BigBear.ai are seeing monster volatility

“Basically I think there’s some regulation concerns, not so much in the governmental sense yet, but perhaps industry regulations. That’s just injecting some fundamental uncertainty into the whole space, and given the valuations and popularity of the AI names, it’s resulting in some wild gyrations!” Sevens Report Research founder Tom Essaye says. Click here to read the full article.

Tom Essaye Quoted in BNN Bloomberg on April 6th, 2023

U.S. stocks rise amid hopes for ‘just right’ jobs print

As investors have aggressively priced in rate cuts this year, a “too hot” payrolls number would undermine those expectations, while a “too cold” report would add to concerns about a hard landing, according to Tom Essaye, a former Merrill Lynch trader who founded The Sevens Report newsletter. Click here to read the full article.
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Analysts at Sevens Report Quoted in MarketWatch on April 6th, 2023

Oil tallies a third straight weekly gain after OPEC+ production cuts

“Bottom line, the fundamental dynamics of the oil market changed this week with OPEC+’s announced production cut, which they said was geared towards regaining control of the markets and spooking speculators out of the market,” said analysts at Sevens Report Research, in a Thursday note. Click here to read the full article.

Current Market Assumptions (Why Stocks Remain Resilient)

What’s in Today’s Report:

  • Current Market Assumptions (Why Stocks Remain Resilient)
  • Why Jobless Claims Jumped Last Week
  • Weekly Economic Cheat Sheet:  Inflation is the Key This Week (CPI on Wed, PPI on Thurs)
  • Weekly Market Preview:  Do Stagflation Risks Rise?

Futures are little changed following a mostly quiet weekend of news as investors digest the “Just Right” jobs report and look ahead to CPI on Wednesday and the start of earnings season on Friday.

Friday’s jobs report was “Just Right” with job adds rising 238k vs. (E) 230k and wages gaining 4.2% vs. (E) 4.3% y/y. The report is helping to slightly ease the hard landing worries from last week.

Today should be a mostly quiet day of trading as European markets are closed for the Easter holiday and there are no notable economic reports and just one Fed speaker, Williams at 4:15 p.m. ET, as investors will look ahead to Wednesday’s critical CPI report and the start of bank earnings on Friday.

 

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