Why Fed Rate Hike Expectations Are Still Rising

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What’s in Today’s Report:

  • Why Fed Rate Hike Expectations Are Still Rising
  • Did Yesterday’s Economic Data Signal Stagflation?
  • EIA Analysis and Oil Market Update

Futures are extending Wednesday’s declines and are moderately lower as more global inflation data came in hotter than expected.

Euro Zone HICP rose 8.5% vs. (E) 8.2% y/y and joined French, Spanish and German CPIs as signaling a bounce back in inflation.  That’s pushing global yields higher and weighing on futures (just like it weighed on stocks on Wednesday).

Today focus will remain on economic data and the key report is Unit Labor Costs (E: 1.4%).  Wages are a major source of inflation the Fed is trying to bring down, so if Unit Labor Costs are lower than expected, that will likely cause a bounce in stocks and bonds.  Other notable events today include Jobless Claims (E: 200K) and two Fed speakers, Waller (4:00 p.m. ET) and Kashkari (6:00 p.m. ET), although they shouldn’t move markets.

Disinflation On, Disinflation Off

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What’s in Today’s Report:

  • Disinflation On, Disinflation Off (Scenario Table with Asset Performance Guide)
  • Chart – 2 Yr. Note Futures Approach Multiyear Lows
  • Chart – “Another Bull Trap” Update

U.S. stock futures are tracking global shares higher this morning as investors cheer better than expected economic data out of China.

Economically, China’s Manufacturing PMI jumped to 51.6 vs. (E) 49.9 in February, up from 49.2 in January, indicating the recovery process is gaining momentum. The Eurozone Manufacturing PMI, meanwhile, met estimates at 48.5.

Today, investor focus will be on economic data early beginning in Europe with the German CPI release at 8:00 a.m. ET (E: 8.7%). So far this week, European yields have led global yields higher on hot inflation data and if the German print is above estimates, expect that trend to continue and stocks to remain under pressure.

In the U.S. we will get the February ISM Manufacturing Index (E: 48.0) as well as the lesser followed Construction Spending report (E: 0.2%). Investors will want to see improving, but not overly strong growth metrics and fading price pressures to see some of the recent hawkish money flows ease.

Finally, there is one Fed speaker today: Kashkari (E: 9:00 a.m. ET), and as a voting member of the FOMC, his comments will be closely watched for any new hints at the Fed’s policy plans.

Economic Breaker Panel: February Update

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What’s in Today’s Report:

  • Sevens Report Economic Breaker Panel – February Update
  • January Durable Goods Orders Takeaways
  • Breakout in Natural Gas Futures

Stocks futures are trading with modest gains this morning while Treasury yields are tracking European bond yields higher following stubbornly high inflation data overnight.

Economically, both Spanish and French CPI headlines were hotter than expected, above 6%, which saw European rates markets price in a 4% terminal ECB rate for the first time. Government bond yields across the Eurozone notably rose to multi-year highs.

Looking into today’s session, there are several economic reports to watch including: International Trade (E: -$91.0B), Case-Shiller Home Price Index (-0.5%), FHFA House Price Index (E: -0.3%), and Consumer Confidence (E: 108.5).

Traders will be looking for less signs of stagflation in the data as elevated inflation figures and weakening growth metrics were a headwind for equities last week.

Finally, the Chicago Fed’s Goolsbee (who just succeeded Evans) has his first speaking engagement since taking over the role at 2:30 p.m. ET, and as a voting member of the FOMC, his comments will be closely watched for any new clues about Fed policy plans in the months ahead. A notably hawkish tone, could easily cause another bout of volatility in risk assets this afternoon.

Tom Essaye Quoted in Blockworks on February 24th, 2023

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Risk-Off Is Back: Crypto, Equities Slide on Persistent Inflation

“To be clear, the report won’t be enough to change the Fed’s thinking (this is very old data at this point) nor was it enough to move bonds or currencies, but for a market that’s concerned about stagflation, this report won’t do anything to ease those concerns.” Tom Essaye added. Click here to read the full article.

Tom Essaye Joins BNN Bloomberg to Discus the FAANGs on February 23rd, 2023

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We could be approaching the death of the FAANGs: Tom Essaye

Tom Essaye, founder and president of Sevens Report Research, joins BNN Bloomberg to recap earnings from big tech this week. Essaye says that Meta’s earnings were the worst from a business standpoint and says that Amazon and Apple are most attractive to him out of the group. He cautions watchers not to buy these dips and talks on other sectors he finds more attractive.
Click here to watch the full interview.

Now What? Updated Market Outlook

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What’s in Today’s Report:

  • Now What?  Updated Market Outlook
  • Weekly Market Preview:  Will Yields Keep Rising?
  • Weekly Economic Cheat Sheet:  Key Growth Updates This Week

Futures are modestly higher on a bounce back from last week’s losses following a generally quiet weekend of news.

Economic data was sparse and the only notable report was EU M3 money supply, which rose less than expected (3.5% vs. (E) 3.9%).

Geopolitically, fears are easing that China will send arms to Russia (concerns about this weighed on stocks late last week and an easing of them is helping futures rally).

Today focus will remain on economic data and the two notable reports are Durable Goods (E: -4.0%) and Pending Home Sales (E: 1.0%).  While neither should be a major market mover, markets will want to see stable data (so reports that don’t imply growth is too strong, or too weak).  We also get one Fed speaker, Jefferson (10:30 a.m. ET).

Core PCE Price Index Preview (Good, Bad & Ugly).

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What’s in Today’s Report:

  • What the Core PCE Price Index Will Mean for Markets (Good, Bad & Ugly)
  • EIA and Oil Market Analysis

Futures are moderately lower mostly on positioning ahead of the Core PCE Price Index release but also in reaction to disappointing EU economic data.

German GDP underwhelmed and fell –0.4% vs. (E) -0.2% while Gfk Consumer Climate also slightly missed estimates (-30.5 vs. (E) -30.4).

Today, focus will be on inflation and the key report is the Core PCE Price Index (E: 0.4% m/m, 4.3% y/y).  We have a full Core PCE Price Index preview in the Report, but generally speaking, if the numbers are below expectations, it’ll spark a rally, if they are around expectations that’s mostly priced in, and if Core PCE is higher than last month, prepare for a selloff.

Other data today includes Personal Incomes and Outlays (E: 1.0%, 1.2%), , New Home Sales (E: 617K) and Consumer Sentiment (E: 66.4), but barring a move in five year inflation expectations above 3% none of those reports should move markets.

Finally, we also have two Fed speakers today, Mester (10:15 a.m. ET) and Collins (1:30 p.m. ET).

Tom Essaye Quoted in Forbes on February 21st, 2023

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‘Damage Is Done’: Stock Market Likely Set For Another Plunge As Economic Warning Signs Abound, JPMorgan Cautions

“Markets are admitting the Fed may not be close to done,” Sevens Report strategist Tom Essaye wrote in a Tuesday note, as stocks sank following worse-than-expected retail earnings. Click here to read the full article.

Are Junk Bonds Signaling Recession?

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What’s in Today’s Report:

  • Are Junk Bonds Signaling Recession?
  • What Does Terminal Fed Funds Mean in Plain English?

Futures are modestly higher on solid tech earnings and after another global central bank ended rate hikes.

Nvidia (NVDA) earnings beat estimates and the stock us up 8% pre-market, and that’s helping general tech sentiment.

South Korea’s central bank ended its rate hike campaign and while that’s not a major central bank, it’s another reminder the global hiking cycle is ending.

Focus today will remain on economic data and Fed speak and that includes Jobless Claims (E: 200K) and Revised Q4 GDP (E: 2.9%). Fed speakers include Bostic (10:50 a.m. ET) and Daly (2:00 p.m. ET) and as has been the case for two weeks, any data or comments that increase rate hike expectations will pressure stocks (and vice-versa).

Tom Essaye Joins Yahoo Finance To Discuss The Economy on February 21st, 2023

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‘The economy is stronger than everybody thought,’ Sevens Report Research Founder says

Sevens Report Research Founder and President Tom Essaye to discuss the expectations for the Fed’s upcoming FOMC minutes meeting, the future of Fed policy pathway, why investors should remain on recession watch in 2023, and the outlook for markets. Click here to watch the full discussion.