Technical Market Update

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What’s in Today’s Report:

  • Technical Market Update
  • Why are Small Caps Outperforming?
  • How Bad Was Economic Data Yesterday? (Answer:  Bad)

Futures are extending Wednesday’s losses following more disappointing earnings and as worries about the economy grow.

Alcoa (AA), Allstate (ALL), and Discovery Financial (DFS) posted soft earnings or negative guidance overnight.

Today we get several important economic reports including, in order of importance: Philly Fed (E: -10.3), Jobless Claims (E: 215K), and Housing Starts (E: 1.362M).

There are also several Fed speakers and the most important one is Brainard (1:15 p.m. ET) and if she’s slightly dovish, that will help markets stabilize.  Collins (9:00 a.m. ET) and Williams (6:35 p.m. ET) also speak today.

Finally on the earnings front, we get more important results today and the market needs some good news.  Reports we’re watching include:  PG ($1.58), FAST ($0.42), NFLX ($0.45), and PPG ($1.15).

Has the Outlook for China Finally Turned Positive?

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What’s in Today’s Report:

  • Has the Outlook for China Finally Turned Positive?
  • Chart – FXI (China) vs. S&P 500 Divergence
  • Empire State Manufacturing Survey Takeaways

Stock futures were volatile o/n as the BOJ doubled down on their bond-buying program, sending the yen lower by nearly 3% but markets have stabilized as focus turns to a busy morning of economic data and more earnings in the U.S.

Economically, Eurozone HICP met estimates at 9.2% y/y and the Narrow Core also met estimates at 5.2% y/y.

Looking into today’s session, focus will be on earnings in the pre-market with SCHW ($1.10) and PNC ($3.95) due to release earnings ahead of the bell while DFS ($3.58) will report after the close.

There is also a slew of economic data due out this morning including: Retail Sales (E: -0.8%), PPI (E: -0.1%, 6.8%), Industrial Production (E: -0.1%), and the Housing Market Index (E: 31). The market wants to see data continue to point to slowing, but not collapsing growth (as we saw with the Empire report yesterday) and a continued deceleration in inflation metrics to maintain bets for a soft landing.

As far as other catalysts go, there are two Fed speakers to watch this morning: Bostic (9:00 a.m. ET) and Bullard (9:30 a.m. ET) and then a 20-Yr Treasury Bond auction at 1:00 p.m. ET.

Bottom line, much of the recent rally has been based on hopes for a soft landing and less hawkish pivot by the Fed and anything that contradicts those two possibilities would likely trigger a wave of volatility today.

Tom Essaye Quoted in Blockworks on January 12th, 2023

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Crypto Miners Log Double-digit Stock Price Gains After CPI Report

Tom Essaye, the founder of Sevens Report Research, said Wednesday before the CPI print that inflation metrics would need to continue falling quickly if the market hopes to sustain a broader rally. Click here to read the full article.

Sevens Report Analysts Quoted in MarketWatch on January 11th, 2023

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Oil ends higher even as the EIA reports one of its biggest weekly crude supply increases on record

Trader conviction “is low given renewed hopes for a soft landing and optimism about China reopening (bullish) being weighed against economic uncertainties and growing concerns about the Department of Energy’s commitment to buy oil at $70/barrel due to funding and liquidity issues (bearish),” wrote analysts at Sevens Report Research in a Wednesday note. Click here to read the full article.

Tom Essaye Quoted in Yahoo on January 11th, 2023

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Stocks End on High Note With ‘Risk-On’ CPI Wagers: Markets Wrap

Now the caveat is that if the headline number drops, but core CPI doesn’t, the report won’t be that positive, wrote Tom Essaye, a former Merrill Lynch trader who founded The Sevens Report newsletter. Click here to read the full article.

Tom Essaye Quoted in Blockworks on January 12th, 2023

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‘They’re Definitely Still Hiking’: Inflation Cooling May Not Deter Fed

A drop in gasoline prices was the largest contributor to the core inflation dip, something that Tom Essaye, president of Sevens Report Research, told Blockworks is “a little bit more disappointing than the headline would imply.” Click here to read the full article.

Is a Soft Landing More Likely Now?

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What’s in Today’s Report:

  • Is a Soft Landing Really More Likely Than Before?
  • Weekly Economic Cheat Sheet – Stagflation or Soft Landing?

Stock futures are lower and bond yields are climbing on the back of strong economic data and hawkish ECB chatter.

Chinese economic data was strong overnight while the German ZEW Survey surprised to the upside and U.K. wage growth rose to a record 6.4% vs. (E) 6.1%.

Meanwhile, the ECB’s Chief Economist, Philip Lane, made hawkish comments about rates rising into restrictive territory overnight which is weighing on recently dovish-leaning investor sentiment.

Today, focus will be on earnings early with: GS ($5.25), MS ($1.25), CFG ($1.30) all reporting ahead of the bell while UAL ($2.07) will release results after the close.

Economically, there is one important report this morning: Empire State Manufacturing Index (E: -7.5) and there is one Fed speaker to watch this afternoon: Williams (3:00 p.m. ET).

Fed Speak and Updated Rate Expectations

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What’s in Today’s Report:

  • Fed Speak and Updated Rate Expectations
  • CPI Takeaways

Futures are slightly lower following mixed economic data, as markets continue to digest increased hopes for an economic “soft landing.”

Chinese exports declined but fell less than expected (-9.9% vs. (E) -11.1%), offering more “not as bad as feared” news.

Today’s focus will switch to earnings (and that’s true for next week too) and key reports today include:  JPM ($ 3.11), BAC ($ 0.76), C ($ 1.18), UNH ($5.17), WFC ($0.63) and BLK ($ 8.00).  If earnings are better than feared, that should help stocks extend yesterday’s gains.

Economically the focus will stay on inflation with Import & Export Prices (E: -0.9%, -0.7%) and Consumer Sentiment (E: 60.0) while we get another Fed speaker: Harker (10:20 a.m. ET).  As has been the case, anything that implies declining inflation and/or a 25 bps rate hike in February will help stocks rally.

Market Multiple Table Chart

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What’s in Today’s Report:

  • Market Multiple Table Chart
  • EIA Analysis and Oil Market Update

Futures are little changed as overnight economic data was in-line with expectations while investors look ahead to this morning’s CPI Report.

Economically, Chinese CPI was the only notable number and it largely met expectations at 1.8% y/y (vs. (E) 1.9%).  That reading will keep Chinese authorities actively stimulating the Chinese economy, which is a positive for the global economy.

Today focus will clearly be on the CPI report (E: 0.0, 6.6%), but remember the Core CPI report is the more important number (E: 0.3%, 5.7%).  Markets need to see continued declines in CPI to underwrite recent gains in stocks and bonds.

Away from CPI, we get the latest Jobless Claims reading (E: 215K) and this number needs to move higher to reflect a better balance in the labor market.  Finally, there are multiple Fed speakers today including Harker (7:30 a.m. ET), Bullard (11:30 a.m. ET), and Barkin (12:40 p.m. ET) and while we should expect typically hawkish rhetoric, they shouldn’t reveal anything new (and as such shouldn’t move markets).

CPI Preview

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What’s in Today’s Report:

  • CPI Preview: Focus on the Core Figure
  • Chart – Gold Moving Higher in Well Defined Uptrend

U.S. stock futures are tracking global shares higher in moderate risk-on trading this morning as investors look past Powell’s lack of commentary of monetary policy plans yesterday and await tomorrow’s all-important CPI data.

Economically, Retail Sales reports in both Australia and Italy handily beat expectations overnight, adding to optimism for a global economic soft landing.

There are no market-moving economic reports today and no Fed officials are scheduled to speak.

That leaves just one potential market catalyst today, a 10-Yr Treasury Note auction at 1:00 p.m. ET. And while it is possible a surprise outcome in the auction moves yields and causes some modest moves in equities in the afternoon, the session is likely to be mostly quiet as traders position into the CPI report.