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The Market Impact of Global Political Developments

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What’s in Today’s Report:

  • What the Political News from the U.K. and China Mean for Markets
  • October Flash Composite PMI Takeaways

Futures are modestly lower as the Chinese yuan fell to a 14-year low overnight while traders look ahead to big tech earnings.

Economically, the German Ifo Survey was better than feared with Business Expectations up to 75.6 vs. (E) 74.8.

Looking into today’s session, there are several economic reports due to be released: Case-Shiller Home Price Index (E: -0.8%), FHFA House Price Index (E: -0.7%), and Consumer Confidence (E: 106.0). Since Friday’s renewed hopes for peak-hawkishness, the bad news is good news for markets so further softening in the data could keep downward pressure on yields and support a continued rebound in equities today.

There is also a 2-Yr Treasury Note auction at 1:00 p.m. ET that could shed some light on bond traders’ outlook for the terminal rate as a weak outcome could send yields higher and ultimately see the stock market give back some of the Friday/Monday gains.

Finally, earnings season is becoming the market’s primary focus and there are a lot of big names reporting today including: UPS ($2.84), KO ($0.64), GM ($1.89), MMM ($2.61), JBLU ($0.24), and SYF ($1.42) before the bell, while GOOGL ($1.25), MSFT ($2.30), and V ($1.86) are due to report after the close.

Three Keys to a Bottom Updated

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What’s in Today’s Report:

  • Three Keys to a Bottom Updated
  • Was Friday’s WSJ Article A “Fed Pivot?”  No.  Here’s Why.
  • Weekly Market Preview:  The Height of Earnings Season
  • Weekly Economic Cheat Sheet:  More Hints of Stagflation?

Futures are slightly higher as momentum from Friday’s close offset steep losses in Chinese markets.

The Hang Seng fell 6% as Premier Xi emerged from China’s National Conference with an even tighter grip on power, ensuring continued “zero COVID” policies and heightened tensions with the West.

Economically, the Euro Zone and UK flash PMIs missed estimates as both remained below 50 (47.1 and 47.2 respectively).

This week will being a deluge of critical earnings reports but that doesn’t’ start until tomorrow, so focus today will be on the flash PMIs (October Flash Manufacturing PMI (E: 51.2), October Flash Services PMI (E: 49.3)) and if those numbers show solid activity and falling prices, stocks can extend the rally.

Why the U.K. Budget Drama Matters to You

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What’s in Today’s Report:

  • Why the U.K. Budget Drama Matters (Hint: Spiking Yields)
  • Two Technical Takeaways from Yesterday’s New Lows

Stock futures are trading cautiously higher while yields and the dollar ease from yesterday’s highs after the Fed’s Evans made some less hawkish commentary overnight.

While speaking on “Squawk Box Europe” early this morning, Charles Evans said he was getting nervous about the Fed’s pace of tightening and that if inflation peaks, the FOMC could cut rates as soon as early 2023 which has sparked a relief rally across risk assets amid renewed hopes for “peak hawkishness.”

Economically, Chinese Industrial Profits declined -2.2% in August from -1.1% in July but slowing global growth is largely priced into the market at this point.

Looking into today’s session there are multiple economic reports to watch including: Durable Goods (E: -1.2%), S&P Case-Shiller Home Price Index (E: 0.3%), New Home Sales (E: 498K), and Consumer Confidence (E: 104.3). Investors will be continuing to look for slowing growth, a moderating labor market and most importantly any further signs of easing price pressures as those are all necessary components in getting the Fed to “peak hawkishness.”

Regarding the Fed, there are several officials speaking today: Powell (7:30 a.m. ET), Daly (8:35 a.m. ET), and Bullard (9:55 a.m. ET). And while it is unlikely any of them echo Evans’ dovish tone form earlier this morning, if they do come across as less hawkish, we could see a violent relief rally play out as stocks have become oversold in recent sessions.

What the Latest Fed Speak Means for Markets (Updated)

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What’s in Today’s Report:

  • What the Latest Fed Speak Means for Markets (Updated for Powell, the ECB, and RBA).

Futures are sharply higher on encouraging Chinese inflation data and a drop in the U.S. Dollar.

Chinese PPI (2.3% vs. (E) 2.8% y/y) and CPI (2.3% vs. (E) 3.2% y/y) both declined from last month and came in under expectations, providing more evidence that the global economy has hit “peak inflation.”

The encouraging Chinese inflation data combined with yesterday’s hawkish ECB is pushing the dollar 1% lower.

Today there are no notable economic reports but there are several Fed speakers, including Evans (10:00 a.m. ET), Waller (12:00 p.m. ET) and George (12:00 p.m. ET).  If they sound optimistic on inflation, that will help extend this morning’s rally.

Three Keys to a Bottom (Updated)

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What’s in Today’s Report:

  • Three Keys to a Bottom Updated (Some Progress But Not There Yet)
  • Economic Takeaways – Goldilocks Trends Emerging
  • Weekly Economic Cheat Sheet

There is a tentative risk-on tone to trading this morning as U.S. equity futures track global shares higher thanks to new stimulus measures in China and easing natural gas prices in Europe.

The PBOC announced new measures to help stabilize the yuan and bolster the economy in the face of renewed Covid lockdowns and recent signs of slowing growth which was welcomed by markets overnight.

In Europe, German Manufacturers Orders fell -1.1% vs. (E) -0.4% but that is helping dial back some of the recently more hawkish policy expectations ahead of this week’s ECB meeting.

Looking into today’s session, there is one economic report to watch: ISM Services Index (E: 55.4), and no Fed officials are scheduled to speak.

That should leave the focus on currency and bond markets in the U.S. if both the dollar and short-duration yields can stabilize, and not move materially higher, then stocks should be able to make an attempt to stabilize after Friday’s late session reversal lower.

Additionally, if we see natural gas prices in Europe continue to pull back from Friday and yesterday’s rise, that should help the risk-on mood in markets persist as the Nord Stream 1 halt was the main catalyst for stocks rolling over on Friday.

Jobs Report Preview

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What’s in Today’s Report:

  • Jobs Report Preview
  • EIA Analysis and Oil Update

Futures are solidly lower as negative China/COVID headlines and lackluster economic data weighed on markets.

Chinese authorities put the city of Chengdu (population 17 million) in a COVID lockdown, reminding markets “Zero COVID” is still in effect.

Economically, global manufacturing PMIs were underwhelming as all major regions (EU, UK and China) posted numbers below 50 (signaling contraction).

Today focus will be on economic data and the most important number is the ISM Manufacturing PMI (E: 52.2).  Markets need to see an in-line reading, because if it’s a very strong number that will increase hawkish concerns about the Fed, and if it’s a very weak number (below 50) that will spike stagflation concerns.  Outside of the PMI we also get Jobless Claims (E: 248K) and Unit Labor Costs (E: 10.7%) and there’s also one Fed speaker, Bostic at 3:30 p.m. ET.

What the Bulls Believe (Four Assumptions)

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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.

Market Set Up Into Today’s CPI Report

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What’s in Today’s Report:

  • Market Set Up Into Today’s CPI Report
  • Are Semiconductor Stocks Forecasting the Slowdown?

Futures are slightly higher on mildly positive geo-political news and ahead of the CPI report.

China ended the military exercises around Taiwan and while that was always expected it’s still a mild positive as it reduces the chances of any accidental conflict.

Economically, the Chinese CPI rose 2.7% vs. (E) 2.9% allowing China to continue to actively stimulate its economy.

Today’s focus will be on the CPI report and expectations are as follows: Headline CPI:  0.2% m/m, 8.7% y/y. Core CPI: 0.5% m/m, 6.1% y/y.  Markets remain in a “glass half full” mood on inflation so unless the numbers are solidly above expectations, we’d expect stocks to weather the number with only modest declines (while a soft number will likely spur an additional rally).

We also get two Fed speakers, Evans (11 a.m. ET) and Kashkari (2 p.m. ET) but they shouldn’t move markets.

Jobs Day

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What’s in Today’s Report:

  • Jobs Day
  • Why the BOE Hiked 50 bps Yesterday

Futures are flat ahead of today’s jobs report and following a generally quiet night of news.

The only notable economic report was German Industrial Production and it beat estimates rising 0.4% vs. (E) -0.4%.

Geo-politically, China suspended military, climate, and drug enforcement communications with the U.S in retaliation for the Pelosi visit to Taiwan.  But, unless retaliation from China impacts U.S./China trade or commodities prices, markets will largely ignore it.

Today the focus will be on the jobs report and the key for markets is that it shows easing wage pressures and moderation in the labor market.  So, a mildly underwhelming reports vs expectations (E: 250K job adds, 3.6% UE Rate, 5.0% y/y wage growth) is the best outcome for stocks.

There’s also one Fed speaker today, Barkin at 8:00 a.m. ET, but he shouldn’t move markets.

Jobs Report Preview

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What’s in Today’s Report:

  • Jobs Report Preview (First of Two Key Economic Reports)
  • EIA and OPEC Meeting Analysis

Futures are slightly higher on momentum from Wednesday’s rally and as the market again ignored soft economic data.

Economic data from Europe was again disappointing as German Manufacturers’ Orders slightly missed estimates (-9.0% vs. (E) -8.9%) as did the UK Construction PMI (48.9 vs. (E) 52.0).

Geo-politically, China began massive military drills around Taiwan, although they were previously announced.

Today focus will be on the Bank of England rate decision (E: 50 bps hike) and on weekly Jobless Claims (E: 260K).  Specifically, markets will want to see if the BOE implies more 50 bps hikes are ahead (if so that’s a mild negative for the region).  On jobless claims, will they continue to move methodically towards 300k? (That would be a mild positive as it implies slowing in the labor market, which the Fed needs to get to peak hawkishness).

From a Fed speak standpoint, Mester speaks at 12:00 p.m. ET.