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Fed Pause Playbook & Powell Preview

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What’s in Today’s Report:

  • Fed Pause Playbook
  • Powell Testimony Preview
  • Chart – Return Comparison After the Last Rate Hike Pauses

U.S. equity futures are trading with tentative gains amid a stable bond market following good data out of Europe as focus shifts to Powell’s Congressional testimony today.

The ECB’s latest consumer survey showed a notable drop from 3.0% to 2.5% in three year inflation expectations which is helping bonds stabilize while German Manufacturers Orders came in at 1.0% vs. (E) -0.6%, underscoring a resilient Eurozone economy.

This morning, focus will be exclusively on Powell testimony before the Senate which begins at 10:00 a.m. ET as investors will be looking for any new insight on the pace of future rate hikes (25 or 50 basis point hike this month?) and/or the expected terminal rate (currently priced in near 5.375%). If Powell strikes a hawkish tone, expect volatility in stocks amid a potentially sharp rise in yields.

Looking into the afternoon, there is a 3-Yr Treasury Note auction at 1:00 p.m. ET which should offer some clues to how the bond market digests Powell’s first day of Congressional testimony (a badly tailing auction could further weigh on stocks), while there is one economic report due out late in the day: Consumer Credit (E: $26.4B), but unless the number comes in well above estimates, it should not move markets.

Sevens Report Co-Editor, Tyler Richey, Quoted in Market Watch on March 2nd, 2023

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Demand optimism lifts oil futures to their highest finish in 2 weeks

“Optimism surrounding China’s economic recovery are offsetting more hot inflation data in Europe and the U.S.,” which sparked further hawkish money flows early Thursday, said Tyler Richey, co-editor at Sevens Report Research. The Chinese government is “simultaneously raising their growth outlook for 2023, and considerably so,” he told MarketWatch. That’s “being seen as a balancing factor for any economic slowdown the West.” Click here to read the full article.

Tom Essaye Quoted in Forbes on March 1, 2023

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These U.S.-Listed Stocks Surge—Alibaba, Baidu And More—After China’s Economic Rebound

The unexpected gain indicates that China’s post-pandemic recovery, which has long been marred by ongoing Covid lockdowns that ushered in the economy’s second-worst showing since 1976 last year, is gaining momentum, says Sevens Report analyst Tom Essaye, who notes the data helped fuel optimism across global markets on Wednesday. Click here to read the full article.

Fed Wildcard to Watch

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What’s in Today’s Report:

  • Wildcard to Watch: Powell’s Press Conference
  • Employment Cost Index Takeaways
  • Key Technical Levels to Watch in the Wake of the Fed – Chart

Global markets are rallying on the back of favorable economic data in Europe while large cap tech shares are dragging U.S. futures lower following dismal SNAP earnings (shares of the company are down ~15% in pre-market trading).

Economically, the Eurozone Manufacturing PMI met estimates at 48.8 while the HICP Flash (their CPI) cooled to 8.5% vs. (E) 9.1% which is being received as mildly dovish ahead of this week’s all-important central bank meetings.

Looking into today’s session, we will get our first look at January jobs data with the ADP Employment Report (E: 158K) ahead of the bell while JOLTS (E: 10.2 million) and the ISM Manufacturing Index (E: 48.0) will be released at the top of the 10:00 a.m. hour ET.

From there focus will shift to the Fed with the FOMC Decision at 2:00 p.m. ET (E: +25 bp to 4.50% – 4.75%) followed by Powell’s Press Conference at 2:30 p.m. ET.

There are also a few notable earnings releases to watch today: TMUS ($1.39), META ($2.12), and ALL (-$1.37).

Bottom line, investors will be looking for further moderation in the morning economic data but not a sharp drop off indicating a deep recession looming while an as-expected or dovish Fed decision and press conference would likely see January’s gains extended in the afternoon. Conversely, a hawkish press conference (like the Jackson Hole speech in August) would very likely trigger a surge in volatility into the final hour of the day.

Economic Breaker Panel: January Update

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What’s in Today’s Report:

  • Economic Breaker Panel – January Update
  • January Composite PMI Data Takeaways

U.S. stock futures are lower this morning, led by mega-cap tech after MSFT earnings topped estimates but guidance disappointed which is weighing on sentiment broadly.

Economically, the Business Expectations component of the German Ifo Survey notably firmed to 86.4 vs. (E) 85.0 further supporting hopes that Europe will avoid a recession in 2023 but concerns about the global tech sector is offsetting the good economic data this morning.

There are no notable economic reports and no Fed officials are scheduled to speak today which will leave the focus on earnings.

Notable companies releasing quarterly results today include: BA ($0.30), T ($0.58), and FCX ($0.40) ahead of the bell, and TSLA ($1.15), IBM ($3.60), CSX ($0.47), and STX ($0.08) after the close.

Intraday, the Treasury will hold a 5-Yr Note auction at 1:00 p.m. ET, and as we saw with yesterday’s 2-Yr auction which sent stocks to new session highs, the outcome of the auction could move markets before focus returns to post-market earnings reports.

Why Is Tech/Growth Rallying So Hard?

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What’s in Today’s Report:

  • Why Is Tech/Growth Rallying So Hard?
  • Leading Indicators – Data Takeaways
  • Chart: Dollar Index Approaches Key Long-Term Technical Support

Futures are slightly lower as yesterday’s gains are digested while focus shifts to the start of big tech earnings.

Economically, Flash PMI data was mixed overnight with the broader Eurozone figure topping estimates but the U.K. headline badly missing expectations. The Solid Eurozone data is helping shore up recently more hawkish policy expectations for the ECB and that is weighing on EU shares this morning.

Today, the U.S. Composite PMI Flash will be in focus right after the opening bell. The report is comprised of two parts: the PMI Manufacturing Flash (E: 46.5) and the PMI Services Flash (E: 45.5) and investors will want to see some degree of stabilization in the data.

There are no Fed speakers today however the Treasury will hold a 2-Yr Note auction at 1:00 p.m. ET and the results could shed light on the market’s latest policy expectations ahead of next week’s Fed meeting, and weak demand (higher yields out of the auction) could weigh on stocks.

Finally, earnings season is continuing to pick up with: JNJ ($2.22), VZ ($1.21), MMM ($2.34), UNP ($2.75), and TRV ($3.50) reporting before the bell while the big report will be MSFT  ($2.29) after the bell. COF ($3.81) will also report after the close.

Has the Outlook for China Finally Turned Positive?

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What’s in Today’s Report:

  • Has the Outlook for China Finally Turned Positive?
  • Chart – FXI (China) vs. S&P 500 Divergence
  • Empire State Manufacturing Survey Takeaways

Stock futures were volatile o/n as the BOJ doubled down on their bond-buying program, sending the yen lower by nearly 3% but markets have stabilized as focus turns to a busy morning of economic data and more earnings in the U.S.

Economically, Eurozone HICP met estimates at 9.2% y/y and the Narrow Core also met estimates at 5.2% y/y.

Looking into today’s session, focus will be on earnings in the pre-market with SCHW ($1.10) and PNC ($3.95) due to release earnings ahead of the bell while DFS ($3.58) will report after the close.

There is also a slew of economic data due out this morning including: Retail Sales (E: -0.8%), PPI (E: -0.1%, 6.8%), Industrial Production (E: -0.1%), and the Housing Market Index (E: 31). The market wants to see data continue to point to slowing, but not collapsing growth (as we saw with the Empire report yesterday) and a continued deceleration in inflation metrics to maintain bets for a soft landing.

As far as other catalysts go, there are two Fed speakers to watch this morning: Bostic (9:00 a.m. ET) and Bullard (9:30 a.m. ET) and then a 20-Yr Treasury Bond auction at 1:00 p.m. ET.

Bottom line, much of the recent rally has been based on hopes for a soft landing and less hawkish pivot by the Fed and anything that contradicts those two possibilities would likely trigger a wave of volatility today.

Sevens Report Analysts Quoted in MarketWatch on January 11th, 2023

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Oil ends higher even as the EIA reports one of its biggest weekly crude supply increases on record

Trader conviction “is low given renewed hopes for a soft landing and optimism about China reopening (bullish) being weighed against economic uncertainties and growing concerns about the Department of Energy’s commitment to buy oil at $70/barrel due to funding and liquidity issues (bearish),” wrote analysts at Sevens Report Research in a Wednesday note. Click here to read the full article.

Jobs Report Preview

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What’s in Today’s Report:

  • Jobs Report Preview
  • What Political Dysfunction Means for Markets (Not Now, But Later)

Futures are slightly higher following more signs of disinflation in the EU.

Euro Zone PPI fell more than expected (-0.9% vs. (E ) -0.5%) and that’s the third EU inflation statistic this week to imply inflation has peaked and is receding.

Politically, Rep. McCarthy failed to become Speaker again yesterday although he is expected to win eventually.

Focus today will be on economic data and the key reports are all employment related:  Challenger job cuts (Previous 76,835), ADP Employment Report (E: 145K) and Jobless Claims (E: 228K).  Again, markets want to see a moderation in this employment data so underwhelming reports will be embraced by the market.  Finally, we also have two Fed speakers, Bostic (9:20 a.m. ET) and Bullard (1:20 p.m. ET), but data will move markets more than Fed speak at this point.

Tom Essaye Quoted in Barron’s on December 29th, 2022

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The Nasdaq Jumped Over 2% as Markets Staged a Relief Rally

“In China, Covid-19 cases continue to explode higher and there were reports of overwhelmed hospitals, but officials are proceeding with a full economic reopening.” said Tom Essaye, the founder of Sevens Report Research. Click here to read the full article.