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Another Hot Economic Report

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What’s in Today’s Report:

  • Another Hot Economic Report (Philly Fed)

Futures are modestly lower on negative global COVID headlines.

Austria because the first European country to reimpose a national lockdown due to rising COVID cases and markets fear more countries could follow (especially Germany).

Inflation and economic data again implied a “hot” recovery as German PPI rose 3.8% vs. (E) 1.6% while UK retail sales rose 0.8% vs. (E) 0.5%.

There are no economic reports today although there are two Fed speakers, Waller (10:45 a.m. ET) and Clarida (12:15 p.m. ET).  Clarida’s comments will we watched but he is likely to repeat Powell’s dovish mantra (gradual tapering and no rate hikes until late 2022).  Beyond the Fed, COVID headlines are again driving short term trading, so if we see more restrictions from Europe that will be an increased headwind for stocks.

A Critical Six Weeks for Markets

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What’s in Today’s Report:

  • Why the Next Six Weeks Will be Critical for this Market
  • Weekly Market Preview:  Fed Tapering Plans Revealed
  • Weekly Economic Cheat Sheet:  What’s the State of the Global Recovery?

Futures are sharply lower on momentum from Friday’s declines, following a quiet weekend of news.

The reasons for the drop this morning are the same as last week:  China concerns (Evergrande, regulation, COVID), Fed tapering, and possible tax hikes, but nothing new occurred on any of those fronts this weekend to justify this mornings’ declines (meaning this is more about momentum than actual fundamental deterioration).

On taxes, headlines were actually slightly positive as Axios reported Senator Manchin wants to delay any increased spending/tax hikes until 2022.

Today the calendar is quiet as the only economic report is the Housing Market Index (E: 75), so pre-Fed positioning and momentum will drive trading today.  Ideally, we’d like to see stocks open deeply lower and then rally throughout the day (which would be the opposite of what we saw last week and imply a near-term bottom may be in).

The Current Risks to the Rally

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What’s in Today’s Report:

  • The Current Risks to the Rally
  • Weekly Market Preview:  Increasing Headline Volatility?
  • Weekly Economic Cheat Sheet:  How Hot is Inflation and How Much Damage Has COVID Done to the Recovery?

Futures are modestly higher as global markets bounced from Friday’s declines, following a quiet weekend of news.

Tax hike chatter continued to rise over the weekend as Democrats proposed a 26.5% corporate tax (up from the current 21%) and a “top-tier” capital gains tax rate of 28.8% (up from the current 23.8%).

These changes aren’t likely or imminent, but it underscores the market will face tax hike headlines over the coming weeks and months.

There was no notable global economic data overnight.

Today there are no economic reports and no notable Fed speakers, so the focus will be on any more tax hike headlines and on short-term technicals.  Last week stocks were able to rally early in the day and faded in the afternoon.  If that happens again this morning look for downside momentum to pick up a bit and for more moderate declines.

What the ECB’s Surprise Taper Means for Markets

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What’s in Today’s Report:

  • What the ECB’s Surprise Taper Means for Markets
  • EIA Analysis and Oil Update

Futures are modestly higher following potentially positive news out of China.

First, on the geopolitical front, Biden and Xi held a call on Thursday night where they discussed avoiding conflict.  Second, Chinese regulators clarified they just slowed video game approvals, not halted them and that’s helping Chinese tech and internet stocks to rally.

On COVID, Biden’s mask mandates are getting a lot of headlines but they won’t have any direct market implications.

Today’s focus will be on PPI (E: 0.6%, 8.3%), which will give us the latest insights into inflation and if the number is materially higher than estimates, it will likely cause some mild volatility.  We also have one Fed speaker, Mester at 9:00 a.m. ET, and markets will look for confirmation that the Fed will start tapering QE this year, but it will be gradual.

Market Multiple Chart

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What’s in Today’s Report:

  • Market Multiple Chart
  • Why the Rally Has Stalled This Week (Three Reasons)

Futures are moderately lower thanks to more regulatory fears in China and earnings guidance cuts from U.S. companies.

China has warned tech companies about online gaming activities in the latest volley of potential regulations.

United Airlines (UAL) cut guidance as demand for air travel has softened recently due to rising COVID cases, adding to a surprisingly high number of guidance cuts this week.

Today the key event is the ECB Rate Decision (Press Release 7:45 a.m., Press Conference 8:30 a.m.) and markets will be looking to see if the ECB formally announces tapering is coming (it’s possible but not the consensus expectation).  Away from the ECB, we also get Jobless Claims (E: 344K) and numerous Fed speakers today (nine speeches in total) but only Williams (2:00 p.m.) is leadership and we already know what he thinks from his comments yesterday (tapering will start in late 2020 but be gradual).

Jobs Report Preview (Why It’s the Most Important Jobs Report of the Year)

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What’s in Today’s Report:

  • Jobs Report Preview (Why It’s the Most Important Jobs Report of the Year)
  • EIA Analysis and Oil Market Update

Futures are moderately higher following a very quiet night of news as investors position for tomorrow’s jobs report.

Euro Zone PPI was much hotter than expected, rising 2.3% vs. (E) 1.2%, and that is the second consecutive strong inflation number from the EU.

There were no new infrastructure or COVID headlines overnight, and investors continue to add exposure ahead of an anticipated “Goldilocks” jobs report.

Today’s focus will be on economic data, especially Jobless Claims (E: 350K) and Unit Labor Costs (which is contained in Productivity & Costs).  Unit Labor Costs are expected to rise 1.0% but if the number comes in decidedly higher than that, it will add to inflation fears (and could be a mild headwind on stocks today).

Powell Speech Preview

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What’s in Today’s Report:

  • Powell Speech Preview

Futures are modestly higher as markets bounce back from Thursday’s declines ahead of Powell’s speech.

There were no new developments in Afghanistan overnight as evacuations continued.  The tragedy temporarily hit stocks but it won’t be an ongoing influence on markets.

Expectations for more stimulus from China rose overnight as chatter regarding a Reserve Ration cut grew louder and this, combined with some pre-Powell positioning, are the main reasons futures are higher.

Today the key event is obviously the Powell speech (10:00 a.m. ET) but as a reminder, he won’t announce anything specific regarding tapering (that will come at the Sept 22nd Fed meeting).  Instead, the key will be how much Powell discusses the Delta variant as an economic headwind (the more he mentions it, the more dovish the speech will be taken) and if he reaffirms the Fed is getting close to being able to taper QE (which will mean before year-end).

Outside of Powell, the Core PCE Price Index (E: 0.3% m/m, 3.6% y/y) is the key economic report this morning but as long as it’s much higher than expectations, it won’t move markets.

Why Does the Market Think COVID Has Peaked?

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What’s in Today’s Report:

  • Why Does the Market Think COVID Has Peaked?
  • EIA Analysis and Oil Market Update

Futures are slightly lower following a quiet night of news as markets digest this week’s rally.

Chinese shares saw profit taking (Hang Seng down –2%) and that’s weighing on global stocks slightly, but there was no materially negative news out of China overnight.

Economic data was sparse as the German Gfk Consumer Climate slightly missed expectations (-1.2 vs. –1.0) while the Euro Zone money supply met estimates (up 8.1%).

Today we do get two economic reports including Jobless Claims (E: 340K) and revised Q2 GDP (E: 6.6%) but neither number should move markets unless they are major surprises.  Instead, pre-Powell speech positioning will likely dominate markets today (Powell’s speech is tomorrow) and given stocks hit new highs this week, don’t be surprised if there’s some mild profit taking ahead of Powell’s speech tomorrow.  Finally, in the bond markets, there’s a seven year Treasury auction mid-day today, and if the results are soft look for a continued rally in the 10 year yield (and an improving technical outlook for that yield).

 

Thank You!

I wanted to say a heartfelt, “Thank you” to all of you who sent me condolences and well wishes over the past week.

While I wish I could respond to each individual email or call, there have literally been hundreds of them, and if I took on that endeavor I’d have no time to write the Report! I believe that continuing to stay focused on the

markets and helping us to navigate this unprecedented time successfully is the best way I can show you my thanks, and you can count on me to do just that.

Again, thank you all.  You have made this time easier.

Why Negative Headlines Still Aren’t Hurting Stocks

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What’s in Today’s Report:

  • Why Negative Headlines Still Aren’t Hurting Stocks (Three Reasons)
  • Weekly Market Preview:  Can Good Earnings Continue to Offset Negative Macro Headlines?
  • Weekly Market Cheat Sheet:  Flash PMIs and Powell’s speech Friday are the highlights.

Futures are modestly higher on momentum from Friday’s rally and following mixed (but not bad) global PMIs.

Economic data was mixed as the EU August flash composite PMI was solid (59.5 vs. (E ) 59.7) although the UK  PMI (55.3 vs. (E ) 58.4) missed expectations, as did the Japanese and Australian readings.  But, in aggregate, the numbers were good enough to show the global economic recovery is still on going (and that helped stocks rally this morning).

There was improvement on the COVID front as new cases in China continued to plunge with daily new cases falling to zero in many local precincts and that’s raising hopes the current COVID wave in China is subsiding.

Today focus will be on the August Flash Composite PMI (E: 59.5) and markets will want to see solid data (so close to last month’s reading and close to expectations).  If it’s a bad miss, that will likely weigh on stocks.  We also get Existing Home Sales (E: 5.83M) but that shouldn’t move markets.

Tom Essaye Quoted in Baystreet on August 16, 2021

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Where Does Wall Street Think Oil Is Heading?

If support holds, which it likely will as long as the news flow regarding COVID does not continue to…Tom Essaye of the Sevens Report has told MarketWatch. Click here to read the full article.