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Is the Fed Really Going to Turn That Dovish?

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What’s in Today’s Report:

  • Why Did the Nasdaq Rally Yesterday?
  • Is the Fed Really Going to Turn That Dovish?
  • Charts: 2-Yr Note Yield Plunges the Most in Decades, VIX Has Further to Run

Stock futures are cautiously higher and yields are bouncing globally following better than expected economic data overnight and more stable price action in U.S. bank shares while traders continue to unwind hawkish Fed policy bets ahead of today’s CPI report.

Economically, the U.K’s ILO Unemployment Rate came in at 3.7% vs. (E) 3.8% which is pressuring Gilts (down 11 bp) and lifting yields across Europe and the U.S. while the NFIB Small Business Optimism Index rose to 90.9 vs. (E) 89.9.

Looking into today’s session, focus will be on the February Consumer Price Index release before the bell with the headline expected to rise 0.4% m/m (6.0% y/y) while the all-important Core CPI figure is also expected to rise 0.4% m/m (5.5% y/y).

There are no Fed speakers today so if the inflation data comes in hot, expect a rebound in yields that would likely pressure equities as traders reassess the less-hawkish policy expectations that have been priced into rates markets since the SVB debacle began.

Additionally, bank shares (KBE) will remain in focus and if contagion fears persist and financial stocks remain under pressure, it will be hard for the broader equity market to meaningfully stabilize, much less recover some of the recent losses.

Tom Essaye Interviewed on BNN Bloomberg’s Morning Markets on March 10th, 2023

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A 50bps hike is entirely possible for the U.S. after today’s jobs data: Tom Essaye

Tom Essaye, founder and president of Sevens Report Research, joins BNN Bloomberg to discuss the latest movements in the markets after today’s jobs data. Essaye is expecting another big hike from the Fed at the upcoming meeting and discusses his take on SVP bank’s halt in trading, Silvergate’s shutdown and bitcoin. He says 2023 will be volatile and investors should remain conservative. Click here to watch the full interview.

What the Bank Failures Mean for Markets

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What’s in Today’s Report:

  • What’s Happened with the Bank Failures
  • What the Government Response Means for Markets
  • Is This A Bearish Gamechanger?
  • CPI Preview

Futures are little changed as markets digest the three bank failures last week and the government response.

Silicon Valley Bank (SVB) and Signature Bank of New York (SBNY) both failed over the weekend, making three bank failures last week.  In response to the SVB and SBNY failures, the government announced the creation of a bank lending facility, the Bank Term Funding Program, which is helping to ease concern about a broader bank run (but doesn’t entirely solve the crisis).

Today President Biden will address the nation on the situation this morning, but the key remains stability in the regional banks and in Treasury yields (they need to stop collapsing).  If regional banks (KRE) and yields stabilize, markets can rally.

Tom Essaye Quoted in Forbes on November 28th, 2022

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Credit Suisse Tumbles: Stock Hits New Record Low After Banking Giant Warns Of ‘Substantial’ Losses

“In short, Credit Suisse is starting to act like a bank that’s about to go under,” analyst Tom Essaye of the Sevens Report said in a recent note. Click here to read the full article.

Tom Essaye Quoted in Barron’s on April 14th, 2022

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Tech Stocks Slide, Banks Report Earnings—and What Else Is Happening in the Stock Market Today

Banks only do that when they think that default rates, which are currently low, will start to rise…wrote Tom Essaye, founder of Sevens Report Research. Click here to read the full article.

Tom Essaye Quoted in CNBC on October 8, 2019

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Senator Warren has been a vocal – and frequent – critic of not only banks but large corporations more broadly. Looking at the potential economic impact of a Warren presidency on the broader market, Sevens Report founder Tom Essaye wrote that “it is a very reasonable statement that if Warren were elected…it would be negative for the stock market in the extreme.” Click here to read the full article.

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Tom Essaye Quoted in Yahoo Finance on September 27, 2019

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“The fact that the repos are still ongoing is a bit troubling for me. It makes me think that the Fed somehow or other has misjudged the liquidity needs…” Tom Essaye, who publishes investment newsletter The Sevens Report, told Yahoo Finance’s The First Trade. Click here to read the full article.

Curve Steepening: Buy Banks?

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What’s in Today’s Report:

  • 10’s-2’s Showing Signs of Life – Good for the Banks?

S&P futures are indicating stocks will open at all-time highs today thanks to strong earnings and Fed optimism after President Trump mentioned rate cuts and QE yesterday.

AAPL beat on earnings and revenue in Q1 but also notably revised guidance solidly higher citing improvement in Chinese markets. The company’s shares are trading up roughly 6% in the pre-market.

Most overseas markets are closed for holidays today and the market’s main focus will be the Fed events this afternoon: FOMC Meeting Announcement (2:00 p.m. ET), Fed Chair Press Conference (2:30 p.m. ET).

There are a however a few important economic reports that could move markets this morning: ADP Employment Report (E: 180K), ISM Manufacturing Index (E: 55.0), and Construction Spending (E: 0.2%).

Bottom line, the market is looking for more dovish rhetoric out of the Fed today and if Powell delivers, another set of closing highs in U.S. stock indexes is likely.

Tom Essaye Interviewed with TD Ameritrade on April 16, 2019

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“If this market’s going to continue to rally, it’s going to be led by those cyclical sectors.” Tom talks about the market, the earnings season, banks and more. Watch the full video here.

An Update from Dr. Copper

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What’s in Today’s Report:

  • An Update from Dr. Copper (Mildly Encouraging)

Futures are up modestly, but off the highs as investors digest the latest Brexit drama, Chinese stimulus, and mixed economic data ahead of more key US bank earnings.

Economically, Japanese Machine Orders badly missed expectations in November (0.0% vs. E: 3.3%) pointing to soft capital spending while European inflation data was largely inline with estimates.

Today, the government shutdown is going to start affecting the flow of economic data as the December Retail report will not be released. To that point, concerns are starting to build about the economic headwinds the shutdown will have as it drags on, and eventually those worries will begin to weigh on stocks.

U.S. economic data on Import & Export Prices (E: -1.2%, -0.3%) and the Housing Market Index (E: 57.0) will still be released as scheduled however, and there is one Fed official speaking: Kashkari (1:00 p.m. ET).

On the earnings front, focus will be on financials early with: BAC ($0.63), GS ($5.37), BLK ($6.39), and BK ($0.92) all due to report ahead of the bell while two notably growth-sensitive companies: AA ($0.49) and CSX ($1.00) will report after the close.