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Why the 7% CPI Print Wasn’t Incrementally Hawkish

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What’s in Today’s Report:

  • What the 7% CPI Print Wasn’t Incrementally Hawkish
  • EIA Analysis and Energy Market Update

Futures are little changed following a generally quiet night of news.

Vice-Chair Brainard’s prepared remarks for today’s testimony were released after the close and she said fighting inflation was the Fed’s “most important task” largely echoing Powell’s commentary from Tuesday.

Senator Manchin called the 7% CPI print “very troubling,” further reducing the chances of Build Back Better passing.

Today focus will be on Brainard’s testimony, but as long as she doesn’t imply sooner than expected balance sheet reduction, the market shouldn’t take her comments too hawkishly.  Other potential market events today include, in order of importance:  PPI (E: 0.4%, 9.8%), Jobless Claims (E: 205K) and three Fed speakers:  Harker (8:00 a.m. ET), Barkin (12:00 p.m. ET) and Evans (1:00 p.m. ET).

With stocks not too far from recent highs, they will again be sensitive to more hawkish rhetoric, so if Brainard and her Fed officials are hawkish, and we get a stronger than expected PPI report, don’t be surprised if that puts a mild headwind on stocks today.

Tom Essaye Quoted in Bolly Inside on October 18, 2021

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US stocks rise, bonds fall on inflationary bets

The issues that caused the pullback have quieted over the past…wrote Tom Essaye, a former Merrill Lynch trader who founded “The Sevens Report” newsletter. Click here to read the full article.

Do Bonds Know Something Stocks Don’t?

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What’s in Today’s Report:

  • Do Bonds Know Something Stocks Don’t?
  • Existing Home Sales Data Takeaways

Stock futures are trading slightly higher this morning following mixed economic data overnight and a continued digestion of Powell’s “less-hawkish” testimony yesterday.

Economically, June Flash Composite PMI data was mixed as the Japan report disappointed (47.8 vs. E: 48.8) but the Eurozone print beat estimates (59.2 vs. E: 58.8).

Today, focus will be on economic data early with the U.S. PMI Composite Flash due to be released shortly after the bell (E: 67.9) and then a report on New Home Sales (E: 881K) will print at the top of the 10 a.m. hour.

Additionally, there are several Fed speakers to watch who could move markets today including: Bowman (9:00 a.m. ET), Bostic (11:00 a.m. ET), Rosengren (6:30 p.m. ET).

Finally, there is a 5-Yr Treasury Note auction at 1:00 p.m. ET that could impact bonds and ultimately stocks if yields move on the results.

How to Allocate to Commodities

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What’s in Today’s Report:

  • How to Allocate to Commodities

Stock futures are under pressure for the third day in a row this morning as inflation fears continue to grip global markets ahead of today’s key April CPI report in the U.S.

Economically, Eurozone Industrial Production missed expectations while both the U.K. Monthly GDP and Industrial Production reports handily topped estimates which is helping the FTSE buck the trend and rally today.

Looking into today’s session, all eyes will be on the April CPI report due out at 8:30 a.m. ET (E: 0.2% m/m, 3.6% y/y). A hot print could spook investors and cause a continuation of the early week’s risk-off money flows.

Later in the session, there are multiple Fed speakers including: Clarida (9:00 a.m. ET), Bostic (1:00 p.m. ET), and Harker (1:30 p.m. ET) however Fed speak has remained decidedly dovish and none of today’s speakers should move markets.

Finally, there is a 10-Yr Treasury Note Auction at 1:00 p.m. ET and the outcome could give investors an idea of how bond traders view inflation in the wake of the CPI report.

Ultimately a soft bond auction and a subsequent rise in yields would likely compound this week’s already elevated inflation concerns and cause more volatility in equity markets while a strong auction could ease those concerns and see a relief rally develop.

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Tom Essaye Interviewed with TD Ameritrade Network on November 20, 2019

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Tom Essaye interviewed with Oliver Renick from TD Ameritrade, discussing Bonds vs Equities, trade war, yield curve, reflation and more…Click here to watch the full interview.

Tom Essaye with TD Ameritrade

Is the Tariff Delay Bullish?

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Today’s Report is attached as a PDF.

What’s in Today’s Report:

  • Why Isn’t the Tariff Delay Causing a Bigger Rally?
  • Bond Market Update:  Not Confirming 3000 in the S&P 500

Futures are marginally higher ahead of the ECB decision and following a short tariff delay by President Trump.

Trump announced that the October 1 tariff increases (25% to 30% on 250 bln of imports) will be delayed till October 15th as a gesture of “goodwill.”

Economic data was again soft as German Industrial Production dropped –0.4% vs. (E) -0.1%, continuing the trend of disappointing EU manufacturing data.

Today the key event is the ECB Meeting.  The decision is at 7:45 a.m. and the Press Conference will be held at 8:30 a.m.  For the ECB to meet expectations we need to see 1) A rate cut, 2) More QE and 3) A “Tiered” deposit system.  Outside of the ECB we also get two important economic reports,  CPI (E: 0.1%) and Jobless Claims (E: 215K) and they could move markets if they are surprises (especially is CPI runs hot).

Tom Essaye Quoted in CNBC on August 7, 2019

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“Although gold futures remain near-term overbought, momentum is decidedly higher. Fundamentally, the sharp downtrends in bond yields…” said Tom Essaye, founder of the Sevens Report, in a note.

Weighing Gold

 

Why Stocks Have Rallied

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What’s in Today’s Report:

  • Why Stocks Have Rallied (FOMO)
  • An Important Gap Between Stocks and Bonds
  • EIA Analysis and Oil Market Update

Futures are slightly lower following a quiet night as markets digest more mixed economic data following the big three day rally.

Chinese economic data was mixed as Industrial Production missed estimates (5.3% vs. (E) 5.5%) while Fixed Asset Investment slightly beat and Retail Sales met expectations.

Geo-politically it was a quiet night as there were no updates to U.S./China trade.

Today focus will be on economic data via the Jobless Claims (E: 225K), Import Export Prices (E: 0.3%, 0.2%) and New Home Sales (E: 620K), as well as testimony before Congress by Treasury Secretary Mnuchin.  Finally, there’s a GE guidance update later this morning, and if that’s particularly soft, that could hit stocks.

Rotation to Value

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What’s in Today’s Report:

  • More Evidence of the Rotation to Value

US futures are lower again this morning and most overseas markets declined overnight thanks to a continued rise in bond yields and concerns about global economic growth.

The IMF reduced global growth expectations for 2018 from 3.9% to 3.7% citing the escalating trade tensions between the US and China as a potentially significant headwind.

The NFIB Small Business Optimism Index eased to 107.9 vs. (E) 108.0 last month, but remains near a record high.

With the NFIB already out, there are no additional economic reports in the US today but there are two Fed speakers to watch, one shortly after the open: Evans (10:00 a.m. ET) and one later this evening: Williams (9:15 p.m.ET).

That will leave investor focus on the pace of rising bond yields and tech weakness. And unless we see some moderation in the bond rout and some stabilization in tech, it will be hard for stocks to move meaningfully higher today.

Yield Breakout (Threat to Stocks?)

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What’s in Today’s Report:

  • What Higher Yields Mean for Stocks
  • Jobs Report Preview

Futures are moderately lower following hawkish commentary by Fed Chair Powell and ahead of a critical speech on China by VP Pence.

Fed Chair Powell said in a Q&A after the bell that the Fed is a “long way” from neutral rates and may have to go “past” neutral.  The comments further pressured bonds overnight and extended the rise in global bond yields.

Politically, VP Pence will deliver a very critical policy speech on China that goes beyond economic criticism, and the concern is the speech will make a trade deal even more difficult to achieve.

Today focus will be on bond yields (does the surge in yields/dollar continue?) as well as the Pence speech on China (just how critical will it be?).  Economically, there are two reports, Jobless Claims (E: 213K) and Factory Orders (E: 2.1%) and one Fed speaker, Quarles (8:15 a.m. ET), but none of that should move markets.

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