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Bull vs. Bear Case (Part 1 of 3)

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Bull vs. Bear Case (Part 1 of 3): Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • The Bull vs. Bear Case – What the Bulls Think Will Happen

Futures are flat with the 10-Yr yield hovering near 4.40% as traders await a slew of Fed speak and fresh economic data.

Economic data overnight was mildly disappointing. As Australian Retail Sales, the German GfK Consumer Climate report and Eurozone M3 Money Supply all missed estimates.

Looking into the U.S. session, there are a few second-tiered economic reports to watch today: Case-Shiller Home Price Index (E: 0.7%), FHFA House Price Index (E: 0.4%), and Consumer Confidence (E: 101.5), but none are likely to move markets ahead of the key inflation data due out Thursday.

Additionally, there are several Fed officials scheduled to speak today: Goolsbee, Waller, Bowman, and Barr. If any of them strike a materially hawkish tone or stray from the “soft landing” outlook narrative, it could weigh on stocks today.

Finally, there is a 7-Yr Treasury Note Auction at 1:00 p.m. ET. If the results are weak and yields move higher, expect that to be a headwind for equities today. Conversely, a strong auction could push rates to new lows and power stocks higher into the end of the month.

Bull vs. Bear Case

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Sevens Report – Is Conflicting Data Signaling a Shift in the Economy?

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What’s in Today’s Report:

  • Is Conflicting Data Signaling a Shift in the Economy?
  • Weekly Market Preview:  Earnings Take Center Stage (Lots of Key Reports This Week)
  • Weekly Economic Cheat Sheet:  Is Disinflation Continuing? (Key Inflation Stats on Friday)

Futures are sightly lower following a quiet weekend of news as markets look ahead to key earnings reports and economic data this week.

Economically, the only notable report was German IFO Business Expectations, which slightly beat estimates.

Debt ceiling headlines will increase this week as Republicans try to pass a debt ceiling bill, and if it fails to pass that will increase debt ceiling anxiety in the markets.

Today there is only one economic report, Chicago Fed National Activity Index (E: -0.02), and barring a major surprise that shouldn’t move markets.

Focus then will be on earnings, and especially the First Republic results after the close (estimates are $0.72/share).  Markets will want to see stability from what’s viewed as one of the most vulnerable regional banks.  Other notable earnings today also include KO ($0.65) and WHR ($2.44) which will give us insight into consumer spending.

 

Special Technical Market Update Delivered Today

The special technical report will be delivered via email later this morning.

Due to increased demand for more detailed technical insights from our subscribers, we have prepared a separate, special market update that provides detailed analysis of the current technical state of this market, including:

  • Major stock indices
  • Stock sectors
  • Investment styles (growth vs. value) and
  • Major trends in Treasury, commodity, and currency markets.

As the economy (and possibly markets) approach a tipping point and the Fed readies for the likely final rate hike, we can expect more volatility and conflicting fundamental economic data. Having high quality, plain-English technical analysis can help us better navigate this market.

Tyler Richey, Sevens Report CMT, has been the lead analyst on this special report, and we are all excited to deliver this value-add research to subscribers today.

Bull Case vs. Bear Case Part II (Tactical Ideas and My Opinion)

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What’s in Today’s Report:

  • Bull Case vs. the Bear Case Part II (Tactical Ideas and My Opinion)

Futures are little changed as global inflation and regional bank liquidity stress both remain elevated.

The Fed’s balance sheet shrank slightly as discount window borrowing dropped –22 bln. while BTFP lending increased 10.7 bln. as bank liquidity stress didn’t get much worse, but it didn’t get much better, either.

On inflation, EU HICP fell to 6.9% from 8.5% y/y, but core HICP rose to 5.7% from 5.6%, reflecting still sticky inflation.

For the final day of the first quarter focus will be on inflation and specifically the Core PCE Price Index (E: 0.4%, 4.7%) and investors need to see that number at or below expectations to further the “Fed Pivot” idea that’s supporting stocks.  We also get Consumer Sentiment (E: 63.4) and the five-year inflation expectations and there’s one Fed speaker Williams (3:05 p.m. ET).  As mentioned, if the data and Williams support the “Fed Pivot” idea, stocks can extend the rally.  If they refute that idea, stocks could give back some of the recent gains.

The Bull Case vs. the Bear Case

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What’s in Today’s Report:

  • The Bull Case vs. the Bear Case
  • Weekly Oil Update and EIA Analysis

Futures are modestly higher and are extending Wednesdays’ gains following better than expected inflation data overnight.

Spanish CPI, which was the first inflation indicator to warn of the stall in disinflation, rose just 3.3% y/y, less than the 3.8% expectation and much lower than the 6% y/y reading last month. That’s offering some initial hope that disinflation has restarted.

Today focus will be on economic data, with Jobless Claims (E: 195K) the key report, although we also get the Final Q4 GDP (E: 2.7%).  There are also two Fed speakers today, including Collins (12:45 p.m. ET) and Barkin (12:45 p.m. ET) and markets will look for additional confirmation that the Fed has finally pivoted.

Is the Market Pendulum Swinging Back?

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What’s in Today’s Report:

  • Is the Market Pendulum Swinging Back?
  • Weekly Economic Cheat Sheet

Stock futures are lower while the dollar and Treasury yields move higher as part of a continuation of last week’s hawkish money flows, partially thanks to strong data overnight.

Economically, the EU Composite PMI jumped to 52.3 vs. (E) 50.7 due to strength in the service sector, bolstering expectations for increasingly aggressive monetary policy in the months ahead which is weighing on risk assets globally this morning.

Today, economic data will be in focus early with the key report in the U.S. being the PMI Composite Flash (E: 47.2) while Existing Home Sales (E: 4.10M) will also be released. A hot PMI print like we saw in Europe earlier this morning would likely add to the hawkish tone and weigh further on stocks today while a weaker, but not terrible report, could see yields and the dollar ease back and allow for a modest relief rally.

As far as other catalysts go, there are no Fed officials scheduled to speak but there is a 2-Yr Treasury Note auction at 1:00 p.m. ET and if yields continue higher in the wake of the auction, expect more pressure on stocks, especially higher valuation/growth names.

Finally, earning season is winding down but a pre-market release by WMT ($1.52) should shed some light on the health of the consumer and could impact markets as well.