Posts

Was Powell’s Speech That Bullish? No. Here’s Why.

What’s in Today’s Report:

  • Was Powell’s Speech That Bullish?  No.  Here’s Why
  • Jobs Report Preview
  • EIA Update and Oil Market Analysis

Futures are slightly lower as markets digest yesterday’s post-Powell speech rally and focus on key economic data today (manufacturing PMI) and tomorrow (jobs report).

Global economic data underwhelmed overnight, as the Euro Zone manufacturing PMI missed estimates (47.1 vs. (E) 47.3) while the UK manufacturing PMI remained firmly in contraction territory (46.5 vs. (E) 46.2).

Looking forward to today, there are three important economic reports including (in order of importance):  ISM Manufacturing Index (E: 49.9), Core PCE Price Index (E: 0.3% m/m, 5.0% y/y), and Jobless Claims (E: 235K).  Markets will want to see 1) More evidence of easing price pressures in the ISM Manufacturing PMI and Core PCE Price Index and 2) Further labor market deterioration in jobless claims if the data is to help extend yesterday’s rally.

We also get three Fed speakers today, Logan (9:25 a.m. ET), Bowman (9:30 a.m. ET), and Barr (3:00 p.m. ET), but their commentary should be largely overshadowed by Powell’s less hawkish-than-feared remarks yesterday and I don’t expect them to move markets.

What the Bulls Believe (Four Assumptions)

What’s in Today’s Report:

  • Four Bullish Assumptions Currently in the Market
  • Weekly Market Preview:  All About Powell (Speech on Friday)
  • Weekly Economic Cheat Sheet:  How Solid Is the Economy?  (Important Growth Data This Week)

Futures are sharply lower as markets price in a greater chance of a hawkish speech from Fed Chair Powell this Friday.

Markets are reversing some of the “Fed Pivot” gains of the past few weeks ahead of Chair Powell’s speech in Jackson Hole on Friday, as investors fear the markets’ expectations for the Fed have become too dovish.

Economically, China cut interest rates again to stimulate the economy, although the rate cuts were small and stocks declined anyway, as the Chinese economy continues to face numerous large challenges (Zero COVID policy, drought, property market decline, etc.).

Today there are no Fed speakers and only one notable economic report, the Chicago Fed National Activity Index (E: -0.19), and as has been the case markets will want to see stability in the date to reinforce that the U.S. economy is not moving closer to stagflation.

Sevens Report Analyst Quoted By FXDailyReport on July 27th, 2022

Crude Oil Rallies After Larger-Than-Expected US Supply Withdrawal

Our technical view of oil has now shifted from cautiously bullish to neutral with rising risks to the downside, especially after WTI closed below that aforementioned support at the March and April double bottom lows ($95.18) for a second time in a week yesterday. Wrote analysts at Sevens Report Research, in a note. Click here to read the full article.

Why the Transmission Protection Instrument Matters to Markets

What’s in Today’s Report:

  • Why the Transmission Protection Instrument Matters to Markets
  • ECB Decision Takeaways (Not Hawkish Enough)
  • Another Sign Inflation Has Peaked?

Stocks are resilient this morning as futures are only slightly lower despite disappointing overnight earnings and ugly economic reports from Europe.

Earnings overnight were bad with several ugly reports including SNAP (-30%), COF (-3.5%), and STX (-13%).

Economically, July flash PMIs from the EU were also ugly as the composite PMI fell into contraction territory at 49.6 vs. (E) 51.0.

Hope that inflation has peaked is the reason stocks are resilient lately, so today’s focus will be on the July Flash Manufacturing PMI (E: 51.8) and the July Flash Services PMI (E: 52.3).  If these reports show meaningful drops in the price indices (like we’ve seen in the Empire and Philly Fed surveys) then that will further the idea that inflation is peaking and support stocks (as long as the headline readings aren’t huge misses).

On the earnings front, results to watch today include TWTR (-$0.06), VZ $1.34), and AXP ($2.37).

Dow Theory Update (Bearish)

What’s in Today’s Report:

  • Dow Theory Update (Bearish)
  • VIX Analysis Update

Futures are moderately higher following positive China COVID news.

Chinese authorities said they hoped to end all lockdowns in Shanghai by May 20th as cases continue to fall.  If the Chinese economy can fully reopen in the coming weeks that will remove a big headwind from stocks.

Economically, EU Industrial Production wasn’t as bad as feared, as IP fell –1.8% vs. (E) -2.0%.

Today the focus will be on the inflation expectations contained in the Consumer Sentiment (E: 63.7) report and if five-year inflation expectations can decline from 3%, that will be another anecdotal signal that inflation pressures have likely peaked (and it should add incrementally to this morning’s rally).     We also get two Fed speakers, Kashkari (11:00 a.m. ET) and Mester (12:00 p.m. ET), but we don’t expect them to move markets (look for them to reiterate the current Fed mantra of two more 50 bps hikes).

Sevens Report Analyst Quoted in Market Watch on April 14th, 2022

Gold marks first loss in 6 sessions, but posts a gain for the week

Looking ahead, the outlook for gold is still bullish and “the level to beat for futures to begin a new leg in the current uptrend is the 2022 high close of $2,058” an ounce, analysts at Sevens Report Research wrote in Thursday’s newsletter. Click here to read the full article.

 

Is An Underwhelming CPI Report A Bullish Gamechanger?

What’s in Today’s Report:

  • Is An Underwhelming CPI Report A Bullish Gamechanger?
  • EIA Analysis and Oil Market Update

Futures are slightly lower following Wednesday’s rally and ahead of this morning’s CPI report.

Governments and central banks pushed back a bit overnight on the global hawkish narrative as the European Commission predicted inflation would return to 1.7% yoy in 2023 while the Swedish National Bank was dovish in its commentary (no rate hikes or QT anytime soon).

Economic data was sparse overnight although Chinese money supply did beat estimates, reflecting the continued accommodation in that economy.

Today the key event is the CPI Report (E: 0.5% m/m and 7.3% y/y) and an in-line or smaller than expected increase will likely spur a further rally in stocks as markets try and price in a “not as hawkish as feared” Fed (although we’d be skeptical of that rally – more on that in the Report).  We also get Jobless Claims (E: 230K) and one Fed speaker this evening: Barkin at 7:00 p.m. ET.

Sevens Report Co-Editor Tyler Richey Quoted in MarketWatch on September 27, 2021

Oil prices at a nearly 3-year high as natural-gas futures jump 11%

From a futures market standpoint, bullish energy calls from big banks including Goldman Sachs and major oil traders like…said Tyler Richey, co-editor at Sevens Report Research. Click here to read the full article.

Tom Essaye Quoted in Market Watch on August 30, 2021

Gold futures end lower, but prices hold above $1,800 to start week

The fundamentals are cautiously bullish for gold as a dovish taper outlook could…said analysts at Sevens Report Research, in Monday’s newsletter. Click here to read the full article.

 

 

Was Powell’s Speech a Bullish Gamechanger?

What’s in Today’s Report:

  • Was Powell’s Speech a Bullish Gamechanger?  No.
  • Oil Update – Another Bearish Report
  • The Unexpected Winner from Powell’s Speech (Yield Curve)

Futures are modestly lower on digestion of yesterday’s rally combined with worries about potential auto tariffs.

Rhetoric on U.S. auto tariffs continues to get louder and there is a growing fear they will be enacted this year.  That is not the consensus expectation at this point, but it’s not an insignificant (and it would be a new negative for stocks).

Economic data o/n was better than expected as Japanese Retail Sales, German Unemployment and EU Economic Sentiment all beat estimates.

Today focus will be on economic data, and the most important report will be the Core PCE Price Index (E: 1.9%).  That number needs to stick near 2.0% yoy to allow the Fed to continue to tilt dovish.  Other notable data today includes Jobless Claims (E: 219K) and Pending Home Sales Index (E: 0.3%).   There are also three Fed speakers today, (Mester and Evans (2:00 p.m. ET), Kaplan (3:00 p.m. ET)) although none should move markets given the Powell comments.

Finally, we can expect more preview articles about the Trump/Xi meeting but the bottom line is the market expects (and has priced in) a “truce” that sees no new tariffs and a period of intense negotiation.