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Market Multiple Table

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What’s in Today’s Report:

  • July Market Multiple Table (Important Changes)
  • Weekly Market Preview:  All About Inflation (and CPI on Wednesday)
  • Weekly Economic Cheat Sheet: Important Inflation and Growth Data This Week

Futures are modestly lower following new COVID-related shutdowns in China.

Macau will close most businesses, including casinos, for one week following a COVID outbreak while Shanghai will continue with massive testing, in what is a signal that the “Zero COVID” policy is at least partially still in effect.

Geo-politically, Canada released a turbine to Gazprom (a Russian energy company) and the hope is that will result in increased natural gas flows to Europe in the coming weeks, putting more pressure on commodity prices.

Today there are no notable economic reports and just one Fed speaker, Williams at 2:00 p.m. ET.  Futures are taking the new lockdowns in China somewhat in stride but if headlines imply anything like a repeat of the Shanghai lockdowns of March-May, expect stocks to drop as a result.

Jobs Report Preview

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What’s in Today’s Report:

  • Jobs Report Preview

Futures are slightly higher despite negative COVID news from China and after British Prime Minister Boris Johnson announced he intends to resign.

COVID cases rose in Shanghai to the highest level since late May, prompting mass testing and increasing concerns of another lockdown.

Politically, British Prime Minister Boris Johnson will announce his resignation, but this shouldn’t impact stocks.

Today’s focus will be on Jobless Claims (E: 230K) and a continued slow drift higher will imply the jobs market is softening, which is needed if the Fed is going to get to “Peak Hawkishness” sooner than later.  We also have two Fed speakers, Bullard (1:00 p.m. ET) and Waller (1:00 p.m. ET) and we should expect their commentary to be hawkish (they’re two of the louder hawks on the Fed).

What Would A Recession Mean for Markets?

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What’s in Today’s Report:

  • What Would A Recession Mean for Markets?

Futures are moderately higher thanks mostly to momentum from Thursday’s close and despite more underwhelming economic data.

Economically, UK Retail Sales met expectations but fell sharply (–4.7% yoy) while the German Ifo Business Expectations Index missed estimates (85.8 vs. (E) 87.3).

Geo-politically, Russia continues to advance in the Donbas as Ukraine has withdrawn from the city of Severodonetsk.

Today focus will be on the inflation expectations in the University of Michigan Consumer Sentiment Index, and if we see a decline below 3.3% that could further the idea that inflation is peaking (and extend the rally in stocks).  Other data today includes New Home Sales (E: 587K) and one Fed speaker, Daly at 4:00 p.m. ET, but they shouldn’t move markets.

Tom Essaye Quoted in CNBC on June 6, 2022

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Nasdaq rises slightly to start week, shaking off jump in bond yields

Since those lows near 3,800 in the S&P 500 there has been real progress: China is reopening and hopefully the economy will be close to operating at near-full capacity within a month. That will add a large tail-wind to the global economy, and perhaps most importantly, ease supply chain stress…Tom Essaye of the Sevens Report said in a note. Click here to read the full article. 

 

Bounce or Bottom? A Key Level to Watch

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What’s in Today’s Report:

  • Bounce or Bottom?  A Key Level to Watch

Futures are slightly higher following a night of mixed earnings and continued reopening in China.

Shanghai continued to reopen and Beijing is still avoiding the most draconian lockdowns and that’s helping broader market sentiment.

Economic data was sparse as the only notable report was Euro Zone M3 (6.2% vs. (E) 6.3%) but that’s not moving markets.

Today the key report is the Core PCE Price Index (E: 0.3%, 4.9%) and if it underwhelms vs. expectations and furthers the idea that inflation has peaked, look for a continuation of this week’s rally.  We also get Consumer Sentiment (E: 59.1) and the key there will be the five-year inflation expectations.  If they drop below 3.0%, that’ll be an additional positive for stocks today.

Value vs. Growth Technical Outlook

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What’s in Today’s Report:

  • Value vs. Growth Technical Outlook

Futures are moderately higher following a surprise rate cut by Chinese authorities.

Officials in China announced a larger than expected rate cut to the 5-year Loan Prime Rate (15 bps vs. (E) 5 bps) in a move that potentially signals greater ongoing support for the economy (if China can reopen and authorities substantially support the economy that would remove a big headwind on stocks).

Economic data was mixed overnight as German PPI remained hot (2.8% vs. (E) 1.2% m/m) while UK Retail Sales modestly beat estimates (rising 1.4% vs. (E) 0.2%) but neither number is altering the rate hike outlooks for the ECB or BOE (both are expected to continue to hike rates over the summer).

Today there are no notable economic reports and no Fed speakers scheduled so look for momentum and shorter-term technicals to drive trading.

A Critical Time for the Yield Curve

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What’s in Today’s Report:

  • A Critical Time for 10s-2s
  • Empire State Manufacturing PMI Takeaways

There is a clear risk-on tone in markets this morning with stock futures sharply higher amid optimism that China will ease regulation on the tech sector (the Hang Seng rallied 3%) while economic data surprised to the upside.

Economically, the Q1 Eurozone GDP Flash came in at 5.1% vs. (E) 5.0% Y/Y which helped ease recently elevated concerns about global growth which may have been overdone.

Looking into today’s session, focus will be on economic data early with several reports due to be released including: Retail Sales (E: 0.7%), Industrial Production (E: 0.4%), Housing Market Index (E: 75). Investors will be looking for solid data that helps further ease fears about a potential slowdown in the economy.

There are also multiple Fed speakers today: Harker (9:15 a.m. ET), Powell (2:00 p.m. ET), Mester (2:30 p.m. ET), and Evans (6:45 p.m. ET). Powell will be the main focus but the market will want to see officials collectively strike a less hawkish tone if we are going to see these early gains in equities hold.

Bottom line, the overnight rally in equity futures came on very light volume and it should not be surprising to see the market gravitate back towards yesterday’s levels this morning as investors assess the new economic data and slew of Fed speakers. But with good news flow, we could see the relief rally resume today.

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Dow Theory Update (Bearish)

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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).

Tom Essaye Quoted in CNBC on May 9th, 2022

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10-year Treasury yield rises to its highest level since November 2018

To start the year, we knew that central bank tightening would make for a challenging market, but that has been compounded by two surprise events: The Russia/Ukraine war (no one expected that in January) and Chinese lock-downs (it’s quasi-shocking the Chinese are still adopting these policies and crushing their economy)…wrote Tom Essaye of The Sevens Report. Click here to read the full article.

Tom Essaye Quoted in Barron’s on May 5th, 2022

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The Dow Lost More Than 1,000 Points as Wednesday Gain Vanishes

China’s PMI this morning was horrific, that underscores that the Chinese economy is a huge drag on global growth right now. It’s a risk to keep inflation high…said Tom Essaye, founder of Sevens Report Research. Click here to read the full article.