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CPI Preview: Good, Bad, and Ugly

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CPI Preview: Good, Bad, and Ugly: Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • CPI Preview – Good, Bad, and Ugly
  • Middle East Update: Understanding the Situation with Rafah

U.S. equity futures are lower with European shares as investors await today’s critical inflation data ahead of the bell while most Asian markets are closed for holidays.

Economically, the German ZEW Survey was mixed as Current Conditions deteriorated to -81.7 vs. (E) -79.0 but Economic Sentiment Improved to +19.9 vs. (E) +18.0. The headline miss is one more of several recent data points that suggests the German economy is slowing more rapidly than most anticipated.

Domestically, the NFIB Small Business Optimism Index was disappointing as it fell to 89.9 vs. (E) 92.4 underscoring a downbeat and cautious mood among small business owners despite economic data otherwise pointing to continued resilience in the U.S. economy.

Today, focus will be almost exclusively on the CPI report (8:30 a.m. ET) with the headline expected to come in at 0.2% m/m and 3.0% y/y while the Core CPI figure is expected to come in at 0.3% m/m and 3.7% y/y (full scenario analysis in today’s report).

There are no Fed speakers on the calendar or Treasury auction scheduled for today which will leave the session likely dominated by how the market digests the latest inflation data. Market-based Fed policy rate expectations are currently pricing in a 16% chance of a March rate cut and a 56% chance of a May cut. If those two figures decline materially, especially the latter one, expect an extension of yesterday’s intraday pullback.

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What Could Interrupt This Rally?

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What Could Interrupt This Rally? Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • What Could Interrupt This Rally?
  • Weekly Market Preview:  Can Inflation and Growth Data Push Stocks Even Higher?
  • Weekly Economic Preview:  CPI Tomorrow, Key Growth Readings Thursday.

Futures are little changed following a mostly quiet weekend of news, although geo-political risks continued to creep higher over the weekend.

Israel is reportedly planning a ground offensive into the southern Palestinian province of Rafah and that’s met with pushback from numerous nations in the region and risks to further reduce any chances for a cease fire.

Today trading should be mostly quiet as the majority of Asian markets are closed for a holiday, but focus will be on the NY Fed Consumer Inflation Expectations (E: 3.00%) and any number below expectations will support Fed rate cut expectations (and support stocks).  We also have three Fed speakers today, Bowman (9:20 a.m. ET), Barkin (12:00 p.m. ET) and Kashkari (1:00 p.m. ET) but they shouldn’t move markets.

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Is NYCB the Canary in the Commercial Real Estate Coal Mine?

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Is NYCB the Canary in the Commercial Real Estate Coal Mine? Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • Is NYCB the Canary in the Commercial Real Estate Coal Mine?
  • EIA Update and Oil Market Analysis

Futures are slightly lower following more disappointing Chinese economic data and on dimming hopes for an Israel/Hamas ceasefire.

Chinese CPI fell more than expected (-0.8% vs. (E –0.5%) and increased deflation concerns for that economy.

Geopolitically, Secretary of State Blinken returned from the Mid-East without a Israel/Hamas cease fire deal and oil is rallying as a result.

Today focus will be on Jobless Claims (E: 222K), which rose to a one-month high last week and if claims move closer towards 250k, it will get people’s attention as a hint the labor market is starting to soften (something that’s not priced into stocks).  We also have one Fed speaker, Barkin (8:30 a.m. and 11:30 a.m. ET), but he shouldn’t move markets.

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Key Technical Levels to Watch on Fed Day

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Key Technical Levels to Watch: Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • Key Technical Levels to Watch on Fed Day (Shareable PDF Available)
  • Jobs Report Preview

Stock futures are in the red this morning after mega-cap tech earnings failed to meet overly optimistic estimates (but were not that bad, all things considered), Chinese Manufacturing PMI missed estimates, and French CPI was higher than expected.

On the earnings front, AMD (-11%), GOOGL (-6%), and MSFT (-1%) are all lower in the pre-market despite generally healthy quarterly reports with most earnings and revenue figures topping analysts estimates while some corporate guidance was not as strong as hoped.

Today is lining up to be a very busy day full of catalysts. Starting with the economic data, we get the first look at January labor market data with the ADP Employment Report (E: 130K) while Q4 Employment Cost Index (E: 1.0%) will offer a look at wage pressures from late 2023.

The Treasury will release the official Refunding Announcement details before the open (8:30 a.m. ET) before focus will turn to the Fed with the FOMC Decision (2:00 p.m. ET) and Powell’s press conference (2:30 p.m. ET) in the afternoon.

There are no “Mag7” earnings today, but a few notables to watch include: MA ($3.08), QCOM ($2.37), and MET ($1.95).

Bottom line, equities are on edge in pre-market trade this morning with all of today’s catalysts looming, but, if the Treasury Refunding Announcement supports the bond market (keeps a lid on yields) and the Fed doesn’t not offer a hawkish surprise, we should be able to see markets stabilize. Conversely, any disappointments or hawkish reactions will support further volatility into the back half of the week.

Computer chips

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Fed Meeting Preview

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What’s in Today’s Report:

  • Why the Treasury Refunding Estimate Moved Markets
  • FOMC Meeting Preview

U.S. futures are slightly lower as yesterday’s late session rally is digested ahead of the Fed and key earnings reports.

Economically, Australian Retail Sales data from December missed (-2.7% vs. E: -0.6%) but the EU GDP Flash was slightly better than feared at 0.1% vs. (E) 0.0% Y/Y in Q4.

Today there are multiple economic reports beginning with housing market statistics ahead of the open: Case-Shiller Home Price Index (E: 0.4%) and FHFA House Price Index (E: 0.3%). Some moderation in home prices would be welcomed ahead of the Fed today.

After the open, two more closely followed releases on the health of the consumer: Consumer Confidence (E: 112.5) and state of the labor market: JOLTS (E: 8.70 million) will be released. With the FOMC meeting beginning today and some mega-cap tech names reporting earnings after the close, it will take a big surprise in the data to materially move markets this morning.

Regarding earnings, we have entered the peak of the reporting season with several notables reporting this morning: GM ($1.08), UPS ($2.44), and SYY ($0.88) while some of the biggest tech names, MSFT ($2.76) and GOOGL ($1.60) will report after the close. AMD ($0.77), and SBUX ($0.93) are two other notable releases to watch.

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Market Multiple Table Chart

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Market Multiple Table Chart: Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • Market Multiple Table Chart
  • EIA and Oil Market Analysis

Futures are slightly higher ahead of this morning’s CPI report after another dovish pivot by a global central bank and despite an potential uptick in geo-political tensions.

South Korea’s central bank made a dovish pivot and added to the idea global central banks are turning dovish.

Geopolitically, expectations are rising for a joint U.S./U.K strike on Houthi’s attacking ships in the Red Sea.

Today focus will be on CPI and expectations are as follows: Headline CPI (0.2% m/m, 3.2% y/y) and Core CPI (E: 0.2% m/m, 3.8% y/y).  The key here is that we see continued declines in at least one of the two metrics as that will likely be enough to keep investors believing in disinflation and March rate cuts.  If both metrics rise from last month, looking for an increase in volatility.

The other notable events today include Jobless Claims (E: 209K) and one Fed speaker, Barkin (12:40 p.m. ET) although they shouldn’t move markets barring a major surprise.

multiple

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CPI Preview: Good, Bad, and Ugly

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CPI Preview: Good, Bad, and Ugly: Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • CPI Preview: Good, Bad, & Ugly
  • Chart: S&P 500 in Typical Holding Pattern – Two Levels to Watch
  • NFIB Small Business Optimism Index – Inflation Concerns and Declining Earnings

There is a cautious bid in equity futures today as the 10-Yr yield hovers just under 4%. This is following an importantly steady inflation print in Europe and dovish leaning ECB chatter.

Economically, Norwegian CPI rose 4.8% in December, unchanged from November. Which is just below estimates of 4.9% which is a favorable development following last week’s concerning uptick in German CPI.

ECB Vice President Luis de Guindos was mildly dovish in a speech overnight, citing the possibility that the economy fell into a technical recession in late 2023 which could support the case for a more accommodating policy stance and that is helping keep yields in check this morning.

Looking into today’s session, there are no notable economic reports but one Fed speaker on the schedule who could move markets: Williams (3:15 p.m. ET).

In the early afternoon, three is a 10-Yr Treasury Note auction (1:00 p.m. ET) and investors will want to see more evidence of strong demand as was seen in yesterday’s 3-Yr auction as weak demand could send the benchmark yield up through 4% creating a renewed headwind for equity markets.

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A Volatile Start to 2024, But Don’t Read Too Much Into It

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A Volatile Start to 2024, But Don’t Read Too Much Into It: Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • A Volatile Start to 2024, But Don’t Read Too Much Into It
  • SPDR Reveals Nearly 5% Divergence Between Best and Worst Sectors Yesterday
  • Chart – S&P Global Manufacturing PMI Remains in Contraction Territory

Stock futures are modestly lower and Treasury yields are extending their early 2024 gains as some of the dominant money flows from late last year continue to unwind to start 2024.

Economically, Germany’s Unemployment Rate held steady, as expected, at 5.9% in December which is not moving markets.

Today, trader focus will be on two key economic reports in early trade with the ISM Manufacturing Index (E: 47.2) and JOLTS (E: 8.75 million) report both due out shortly after the opening bell. Motor Vehicle Sales (E: 15.4 million) will also be released today.

Additionally, there is one Fed speaker: Barkin (8:00 a.m. ET) that will be closely watched ahead of the release of the December FOMC Meeting Minutes this afternoon (2:00 p.m. ET).

Bottom line, start-of-year portfolio rebalancing is likely to continue to dominate the tape today, however, if economic data comes in “Goldilocks” and the Fed Minutes don’t derail the market’s dovish policy expectations for 2023, stocks and bonds should both be able to stabilize as calendar-driven volatility begins to subside.

A Volatile Start

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Why Last Week’s Price Action is Important for 2024

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Why Last Week’s Price Action is Important for 2024: Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • Why Last Week’s Price Action Is Important for 2024.

Futures are slightly higher following a mostly quiet holiday weekend and on more signs inflation is falling globally.

Singapore’s CPI dropped to 3.6% vs. (E) 3.9% yoy and down handily from 4.7% in October, providing more evidence that inflation is declining globally.

Geo-politically, U.S./Iran tensions rose after U.S. forces struck Iranian backed militants in Iraq, although oil (the best geo-political barometer) is little changed on the news.

Today will be a quiet day as most European markets and Hong Kong are closed, but there are two notable housing reports we’ll be watching: Case-Shiller Home Price Index (E: 0.06% m/m, 5.0% y/y) and the FHFA House Price Index (E: 0.5%).  Declines is housing prices is part of the reason investors remain convinced CPI will continue to fall in early 2024 so these home price metrics need to show declines in housing prices, otherwise investors may be too optimistic on falling CPI and Fed rate cuts in the new year.

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Five Measurable Similarities to 2006/2007

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Five Measurable Similarities to 2006/2007: Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • Five Measurable Similarities to 2006/2007: A Market Cycle Update

Futures are little changed ahead of the holiday weekend as poor Nike (NKE) earnings weigh on sentiment.

Earnings this week haven’t been great and that continued overnight as Nike (NKE) missed on revenues and cut revenue guidance. The stock is down –12% pre-market.

Economically, UK data was mixed as quarterly GDP declined (-0.1% vs. (E) 0.0%) while retail sales were strong.

Otherwise, the focus will remain on economic data and the key report today is the November Core PCE Price Index (E: 0.2% m/m, 3.4% y/y), which is the Fed’s preferred inflation metric.  It is expected to show declines in the pace of headline and core inflation from October and if that happens, it should support stocks and bonds and reinforce rate cut expectations.

Other notable data today includes Durable Goods (E: 2.4%), New Home Sales (E: 690K) and Consumer Sentiment (E: 69.4, 1-Yr inflation: 3.1%). But barring a major surprise from them, they shouldn’t move markets.

Meanwhile the bond market closes at 2:00 p.m. today with the looming holiday weekend. So, we expect activity to quiet considerably in the markets as the trading day goes on.

Finally, from all of us at Sevens Report Research, please have a happy and safe holiday weekend.

Five Measurable Similarities

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