Two Reasons Rising Bond Yields Haven’t Caused a Pullback (Yet)

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What’s in Today’s Report:

  • Two Reasons Rising Bond Yields Haven’t Caused a Pullback (Yet)
  • Natural Gas Update

Futures are modestly weaker following a rally in oil prices and a continued rise in bond yields overnight.

Oil rallied 2% after Russia announced it was voluntarily reducing output by 500k bpd while OPEC+ did not signal any intention to increase output to offset the reduction.

Global bond yields moved higher after Nikkei reported Kazuo Ueda will become the next BOJ governor, and not the ultra-dove Masayoshi Amamiya (who was expected).

Today focus will remain on the data and specifically University of Michigan Consumer Sentiment (E: 65.0) and the inflation expectations in the report (any further decline will be positive for stocks).  We also get two Fed speakers: Waller (12:30 p.m. ET) and Harker (4:00 p.m. ET) and markets will want to see if they echo the hawkish tone from regional Fed presidents this week.

Market Multiple Table: February Update

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What’s in Today’s Report:

  • Market Multiple Table: February Update
  • EIA Analysis and Oil Update

Futures are enjoying a moderate bounce overnight thanks to slightly better than expected inflation data and earnings.

German CPI rose less than expected (8.7% vs. (E) 9.1%) and that’s helping to slightly calm fears of a bounce back in inflation.

Earnings overnight were also solid as DIS beat estimates and it’s fair to say this earnings season has been not as bad as feared.

Focus will remain on economic data and the only notable report today is Jobless Claims (E: 190K).  Holiday effects should be working their way out of these numbers so investors will want to see claims begin to rise over the coming weeks, otherwise it’ll imply the labor market remains much, much too tight (and that means more potential future rate hikes).

Earnings season is winding down but some notable reports today include: PM ($1.29), PYPL ($1.20), LYFT ($0.13).

Hard Landing, Soft Landing, or No Landing?

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What’s in Today’s Report:

  • Hard Landing, Soft Landing, or No Landing? (Printable PDF Table Available)
  • Powell Interview Takeaways

Futures are moderately lower this morning as investors continue to digest Powell’s commentary from yesterday which was largely viewed as another missed opportunity to push back on recent dovish money flows across markets.

Looking into today’s session there are no notable economic reports but a slew of Fed speakers that could move markets. In chronological order, we will hear from: Williams (9:20 a.m. ET), Cook (9:30 a.m. ET), Bostic (10:00 a.m. ET), Kashkari (12:30 p.m. ET), and finally Waller (1:45 p.m. ET).

Additionally, the Treasury will hold a 10-Yr Note auction at 1:00 p.m. ET and seeing as yesterday’s dismal 3-Yr auction sent the S&P 500 to session lows, the outcome could very well move markets today.

Finally, Q4 earnings season continues today with a few notable companies releasing results: UBER (-$0.21), CVS ($1.92), DIS ($0.80).

Will the October Lows Hold?

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What’s in Today’s Report:

  • Subscriber Q&A: Will the October Lows Hold and What Is Going On Below the Market’s Surface?
  • The Gap Between the Fed and Markets is Closing
  • Chart: 2-Yr Yield Approaches 2023 Highs

Stock futures are little changed while the dollar and Treasuries are steady following a quiet night of news as traders await Powell’s speech today.

Economically, German Industrial Production fell -3.1% vs. (E) -0.6% in December which is rekindling recession worries this morning and helping support the stabilization in bond markets.

Looking into today’s session focus will be on Powell’s speech at 12: 40 p.m. ET as traders brace for the Fed Chair to potentially push back on the market’s dovish reaction to last week’s FOMC decision, something that happened multiple times in 2022 sparking big waves of volatility across asset classes each time.

Expectations for Powell’s speech have already become more hawkish since the January jobs report, however, so he would need to be explicit and firm about raising rates beyond 5% and not cutting rates in 2023 to cause a meaningfully hawkish reaction.

Beyond Powell, there are two lesser followed economic reports to watch: International Trade in Goods Services (E: -$68.8B) and Consumer Credit (E: $25.0B) although neither should have a material impact on markets while the Fed’s Barr also speaks this afternoon (2:00 p.m. ET).

There is a 3-Yr Treasury Note auction at 1:00 p.m. ET and the outcome will offer some evidence of bond traders’ initial take on Powell’s comments. If the auction tails significantly, expect some hawkish follow-through money flows into the afternoon.

Finally, earnings season continues with a couple of notable reports after the close today: CMG ($8.88) and PRU ($2.57).

Has the Fed Reached Peak Hawkishness?

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What’s in Today’s Report:

  • Has the Fed Reached Peak Hawkishness?
  • Weekly Market Preview:  Will Powell Sound Hawkish on Tuesday?
  • Weekly Economic Cheat Sheet:  Key inflation data Tuesday and Friday.

Futures are moderately lower mostly on follow-through selling from Friday’s hot jobs report.

The Chinese spy balloon drama dominated weekend headlines but it’s unlikely to materially alter U.S./China relations and as such shouldn’t be an influence on markets.

Rate expectations rose over the weekend following Friday’s jobs report, with markets now pricing in a terminal Fed Funds rate of 4.75% and that’s the main reason stocks are lower this morning.

Today there are no notable economic reports and no Fed speakers, so the focus will remain on yields and rate expectations and if they continue to climb, that will weigh on stocks.

Jobs Report Preview

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What’s in Today’s Report:

  • Jobs Report Preview

Futures are moderately lower following a disappointing night of tech earnings and more hot inflation data.

AAPL, AMZN, and GOOGL all reported earnings overnight and the results underwhelmed.  Each stock is down between 2% and 5% pre-market.

Economically, EU PPI rose 1.1% vs. (E) -0.7% and became the third inflation number this week to hint at a rebound.

Focus today will be on the Employment Situation Report and expectations are as follows: Job Adds 185K, UE Rate 3.6%, Wages 0.3% m/m, 4.5% y/y).  Financial media focus will be on the headline job adds number but thanks to Powell’s less hawkish speech it’ll take a big number (300k or more) to be “Too Hot.”  Instead, focus on wages as they are directly related to services inflation, which remains sticky.  If wages are strong, that’ll be a negative.  The other notable economic report today is the ISM Services Index (E: 49.6) and markets will want to see stability in the data (no not worse than expectations).

Was Powell’s Press Conference A Bullish Gamechanger?

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What’s in Today’s Report:

  • Why Did Stocks Rally During Powell’s Press Conference?
  • Was the FOMC Decision A Bullish Gamechanger (No, But It Was a Positive Event)
  • EIA Update and Oil Market Analysis

Futures are solidly higher on continued momentum from Wednesday’s “not hawkish” post-FOMC rally and following better-than-expected META earnings.

META surged 19% overnight as the company reported better-than-feared earnings driven by gains in artificial intelligence and aggressive cost-cutting.

Today will be a very busy day of micro and macro-economic events as we get major central bank decisions, more important economic data, and key earnings.

First, this morning there are two central bank decisions:  BOE Rate Decision (E: 50 bps hike) and ECB Rate Decision (E: 50 bps hit).  If either is overtly hawkish (maybe the ECB) it could send global yields higher and take back some of yesterday’s rally.

After those two central bank decisions, we get an update on the labor market via Jobless Claims (E: 193K),  inflation via Productivity & Costs (E: 2.4%, 1.5%), and economic growth via Factory Orders (E: 2.2%).  Especially in light of Powell’s not hawkish press conference, data that shows stability and declining price pressures will support stocks.

Finally, on earnings, today is likely the single most important day of the earnings season as we get results from three of the most widely held stocks in the market:  AAPL ($1.93), AMZN ($0.15), and GOOGL ($1.14).

Tom Essaye Quoted in Forbes on January 30th, 2023

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Natural Gas Prices Crashing Amid Warmest January In 15 Years—Here’s How Bad Bear Market Could Get

“Warmer-than-average temperatures across much of the country is suppressing heating demand, domestic production remains at record highs, and inventories are seasonably healthy,” explains analyst Tom Essaye, founder of the Sevens Report, of the recently collapsing market for natural gas. Click here to read the full article.

Tom Essaye Quoted in Blockworks on January 30th, 2023

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Fed Watch: Bitcoin Gives Up Weekend Gains, Analysts Say Not To Worry

“Reaching peak hawkishness is one of our three keys to a bottom, and the most important one, so if the Fed has reached peak hawkishness that’s a powerful positive to consider,” Tom Essaye, founder of Sevens Report Research, wrote in a note Monday. Click here to read the full article.

Fed Wildcard to Watch

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What’s in Today’s Report:

  • Wildcard to Watch: Powell’s Press Conference
  • Employment Cost Index Takeaways
  • Key Technical Levels to Watch in the Wake of the Fed – Chart

Global markets are rallying on the back of favorable economic data in Europe while large cap tech shares are dragging U.S. futures lower following dismal SNAP earnings (shares of the company are down ~15% in pre-market trading).

Economically, the Eurozone Manufacturing PMI met estimates at 48.8 while the HICP Flash (their CPI) cooled to 8.5% vs. (E) 9.1% which is being received as mildly dovish ahead of this week’s all-important central bank meetings.

Looking into today’s session, we will get our first look at January jobs data with the ADP Employment Report (E: 158K) ahead of the bell while JOLTS (E: 10.2 million) and the ISM Manufacturing Index (E: 48.0) will be released at the top of the 10:00 a.m. hour ET.

From there focus will shift to the Fed with the FOMC Decision at 2:00 p.m. ET (E: +25 bp to 4.50% – 4.75%) followed by Powell’s Press Conference at 2:30 p.m. ET.

There are also a few notable earnings releases to watch today: TMUS ($1.39), META ($2.12), and ALL (-$1.37).

Bottom line, investors will be looking for further moderation in the morning economic data but not a sharp drop off indicating a deep recession looming while an as-expected or dovish Fed decision and press conference would likely see January’s gains extended in the afternoon. Conversely, a hawkish press conference (like the Jackson Hole speech in August) would very likely trigger a surge in volatility into the final hour of the day.