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FOMC Preview: Forward Guidance Will Be Critical

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Forward Guidance Will Be Critical: Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • FOMC Preview – What’s Expected, Dovish-If, Hawkish-If, Forward Guidance Will Be Critical
  • Chart: 10-Yr Yield Approaches Critical Tipping Point

Futures are cautiously higher thanks to more evidence of disinflation in Europe. While an underwhelming yield curve control policy announcement by the BOJ is digested by global investors.

Economically, Eurozone CPI fell from 4.3% in September to 2.9% in October, well below estimates calling for 3.4% which further supports the narrative that global inflation pressures are easing considerably. Meanwhile, quarterly GDP in the EU disappointed, turning negative at -0.1% vs. (E) 0.0% which is rekindling recession worries in the Eurozone.

Looking into today’s session, there are several economic reports to watch this morning. The Employment Cost Index (E: 1.0%) being the most important for markets. The Case-Shiller Home Price Index (E: 0.7%) and latest Consumer Confidence report will also be released later in the morning (E: 100.0) but are less likely to move markets.

This week’s FOMC meeting gets underway today which will likely mean a familiar sense of Fed paralysis will begin to grip markets ahead of tomorrow’s policy decision, however, there is a 52-Week Treasury Bill auction at 1:00 p.m. ET that could move yields and influence equity market trading in the early afternoon.

Finally, earnings season is winding down but there are a few notable releases today. Starting with CAT ($4.75) and JBLU (-$0.27) reporting ahead of the bell with AMD ($0.68) after the close.

FOMC Preview - Magnifying Glass

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Another Reason Treasury Yields Are Rising

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What’s in Today’s Report:

  • Another Reason Treasury Yields Are Rising

Futures are modestly lower on more negative real estate news from China while Japanese inflation was hotter than expected.

Chinese real estate firm Evergrande filed for bankruptcy overnight, increasing concerns about the Chinese property market specifically and economy more broadly.

Economically, Japanese CPI was in-line (up 3.3% y/y) but services inflation rose to 2%, a 30 year high, and that’s increasing expectations the BOJ may get more hawkish (and that would put more upward pressure on global bond yields, which would increase the headwind on stocks).

Today there are no notable economic reports nor any Fed speakers so focus will remain on Treasury yields, and the market needs stability in yields for stocks to bounce back.  A sudden drop in yields on growth concerns (which is what we’re seeing this morning) or a sharp rally in yields (on inflation concerns) will only further pressure stocks, so the sooner yields can “calm down” and trade little changed, the better for stocks.

Tom Essaye Quoted in Barron’s on February 10th, 2023

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Dow Rises, but Higher Bond Yields Weigh on Tech Stocks

“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),” wrote Sevens Report’s Tom Essaye. Click here to read the full article.

What the BOJ “Rate Hike” Means for Markets

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What’s in Today’s Report:

  • What the BOJ “Rate Hike” Means for Markets (Possible a Positive)

Futures are moderately higher following better-than-expected earnings overnight.

Both Nike (NKE up 12% after hours) and FedEx (FDX up 4% after hours) posted better-than-expected earnings overnight and those results are helping to ease rising anxiety about 2023 earnings.

The only notable economic report was German Gfk Consumer Climate and it was in line (–37.8 vs. (E) -37.5).

Today the calendar stays quiet (it picks up tomorrow) but the focus will be on Consumer Confidence (E: 101.0) and Existing Home Sales (E: 4.2M) and the key for data will remain moderation (but not a collapse that implies looming stagflation).