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Is Stagflation Possible? Yes.

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What’s in Today’s Report:

  • Is Stagflation Possible?  Yes.

Futures are little changed ahead of this morning’s jobs report.

Economic data underwhelmed overnight with Japanese Household Spending falling –3.2% while German Industrial Production missed estimates (-1.3% vs. (E) 0.5%).

On COVID, headlines remain net negative as cases continue to rise and analysts look for any signs of a loss of economic momentum (so far there’s nothing concrete).

Today the focus is on the jobs report and expectations are as follows:  Job Adds:  900K, UE Rate:  5.7% and Wages: 0.3% m/m and 3.8% y/y.  Again, the biggest risk to markets is for a “Too Hot” jobs number that shifts the tapering timeline, and if that occurs we should brace for volatility.

Jobs Report Preview (Too Hot is the Risk)

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What’s in Today’s Report:

  • Jobs Report Preview (Too Hot is the Risk)
  • Oil Update and Inventory Analysis

Futures are slightly higher following a quiet night as markets tentatively bounce back from Wednesday’s losses.

Economic data was mixed overnight as German Manufacturers’ Orders beat estimates (4.1% vs. (E) 1.5%) while the UK Construction PMI missed estimates (58.7 vs. (E) 63.8).

On COVID, Los Angeles could  follow NYC in requiring proof of vaccination for indoor activities (if this becomes widespread policy in large cities it’ll be an economic headwind.)

Today we have a Bank of England meeting (No Change to Rates Expected), Jobless Claims (E: 381K), and one Fed speaker, Waller at 10:00 a.m. ET (who could be hawkish again, remember he called for tapering to start as early as September).

But, unless there’s a major surprise from the BOE or jobless claims, then COVID headlines will drive markets, and any signs of restrictions or behavior changes in people will cause volatility (and a decline in stocks).

Micro Positives vs. Macro Negatives

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What’s in Today’s Report:

  • Micro-Economic Positives vs. Macro-Economic Negatives
  • Weekly Market Preview:  COVID Trends and Economic Data
  • Weekly Economic Cheat Sheet:  Jobs Week

Futures are moderately higher following solid economic data and positive lockdown comments from Dr. Fauchi.

Global July manufacturing PMIs were generally solid, as the EU PMI beat estimates (62.9 vs. (E) 62.6) while the UK PMI was in line (60.4).  The Chinese PMI missed estimates (50.4 vs. (E) 50.8) but remained above 50.  Overall, the PMIs implied the global economic recovery was on going.

Dr. Fauchi stated over the weekend that he did not think the U.S. would reinstitute lockdowns despite rising COVID cases (which is a positive for the economy).

Today the key economic report will be the ISM Manufacturing PMI (E: 60.8) and markets will be looking for a “Goldilocks” number – one that meets or exceeds expectations but is not so strong that it makes the Fed less dovish.  COVID headlines will also potentially move markets but unless there are signs of people changing their behavior (TSA Throughput, consumer surveys) then COVID headlines shouldn’t move markets.

Economic Breaker Panel (Some Loss of Momentum)

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What’s in Today’s Report:

  • Economic Breaker Panel (Some Loss of Momentum)

Futures are moderately lower on disappointing earnings and more negative COVID commentary.

AMZN earnings disappointed investors and the stock was down –6% after hours and that’s weighing on futures.

On COVID, a CDC internal memo called the Delta variant potentially as contagious as Chickenpox, although markets remain generally optimistic given positive corporate commentary on economic activity.

Today the key number will be the Core PCE Price Index (E: 0.5%, 3.7%) which is the Fed’s preferred measure of inflation.  If that number runs well above expectations (so above 4% yoy) expect a “hawkish” reaction from markets (yields up, stocks flat to down).   Also today we get Consumer Sentiment (E: 80.8) and have one Fed speaker, Bullard at 9:00 a.m. ET, but they shouldn’t move markets.

On the earnings front, much of the discussion this morning is on AMZN but there are some other notable reports out this morning including:  PG ($1.08), CAT ($2.38), XOM ($1.02), ABBV ($3.11), CVX ($1.54).

FOMC Preview

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What’s in Today’s Report:

  • FOMC Preview
  • Positive COVID News?

Futures are modestly lower again for the same reasons as Monday:  Global equity pressure following another sharp decline in Chinese shares (Hang Seng was down 4% again).

There was no new regulatory news from China overnight but fears remain and sellers remained aggressive.

There were no notable economic reports overnight.

Today there are three notable economic reports, Durable Goods (E: 2.1%), Cash-Shiller Home Price Index (E: 1.5%) and U.S. Consumer Confidence (E: 124.9) but unless there’s a major surprise from one or more, I don’t expect them to move markets and with the Fed looming tomorrow and key earnings after the close, today shouldn’t be too volatile.

On the earnings front, today is probably the biggest single day of earnings of the season, and key reports (mostly after the close) include:  AAPL ($1.00), AMD ($0.54), MSFT ($1.90), GOOGL ($19.89), UPS ($ 2.75), and MMM ($2.25).

All About Demand

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What’s in Today’s Report:

  • All About Demand
  • Weekly Market Preview:  The Fed and Inflation
  • Weekly Economic Cheat Sheet:  Fed Meeting, Core PCE Price Index and GDP.

Futures are marginally lower as increased concerns about regulation in China caused a sharp drop in Chinese shares, and that’s weighing on global equities.

The Hang Seng dropped more than 4% on Monday on fears of increased regulation from the Chinese government, following reports China was going to make the education business sector “not for profit.”

COVID headlines remained generally unchanged over the weekend as cases continued to rise in the U.S, although governments continue to resist restrictions and lockdowns.

Today there’s only one notable economic report, New Home Sales (E: 800k), and that shouldn’t move markets.  On the earnings front, the key report today comes after the close (TSLA $0.96), so focus will be on COVID headlines and if there are any reports of increased restrictions or lockdowns here in the U.S., that will hit stocks.

Tom Essaye Quoted in Barron’s on July 21, 2021

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Stocks Close Up. Investors Focus on Earnings and Covid.

Companies like Chipotle and United Airlines said the increase in COVID cases was not…writes Tom Essaye, founder of Sevens Report Research. Click here to read the full article.

 

Tom Essaye Interviewed by BNN Bloomberg on July 22, 2021

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I’d buy COVID dips in this market: Sevens Report Research’s Tom Essaye

Tom Essaye, founder and president of Sevens Report Research, joins BNN Bloomberg with his market outlook. He says he’d buy… Click here to watch the full interview.

ECB Preview (Dovish Surprise?)

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What’s in Today’s Report:

  • ECB Preview (Dovish Surprise?)
  • Did Small Caps Just Bottom?

Futures are marginally higher following another night of generally solid earnings and ahead of the ECB decision.

Delta variant fears continued to recede as governments appear to be focusing on re-masking as a policy response, not economic restrictions.

Today focus will be on the ECB Rate Decision & Press Conference (7:45 & 8:30 a.m. ET) and economic data via Jobless Claims (E: 350k) and Existing Home Sales (E: 5.90M).  Markets will want to see a dovish ECB and continued improvement in claims to reinforce that the global recovery is on going, and that central banks will remove accommodation very, very slowly.

On the earnings front, there are several more notable reports today:  T ($0.78), AAL (-$1.70), FCX ($0.73), TWTR ($0.07), INTC ($1.06).

Why Did Stocks Rally?

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What’s in Today’s Report:

  • Why Did Stocks Rally?

Futures are modestly higher thanks to continued momentum from Tuesday’s rebound combined with solid earnings reports.

Earnings overnight were good and importantly companies like CMG and UAL said the increase in COVID cases was not hurting business, which helped reassure markets that the Delta variant isn’t changing consumer’s behavior.

There were no economic reports overnight and there are no economic reports later today, so focus will remain on earnings and COVID trends.  If earnings are solid and commentary remains upbeat, and we don’t get any negative COVID headlines, then the rebound can continue today.

Some earnings we’ll be watching today include (in order of importance):  TXN ($1.82), JNJ ($2.28), KO ($0.57), VZ ($1.29), STX ($2.87), LVS (-$0.19), CSX ($0.37), DFS ($3.58).