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Headline and Core CPI – The Important Difference

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Difference Between Headline and Core CPI: Strengthen your market knowledge with a free trial of The Sevens Report.

What’s in Today’s Report:

  • The Important Difference Between Headline and Core CPI
  • NFIB Small Business Optimism Index Contradicts the “No-Landing” Scenario

U.S. stock futures are tracking global shares lower this morning following more disappointing economic data in the Eurozone and continued pressure on the tech sector.

AAPL shares are extending yesterday’s post-product launch declines this morning, therefore, weighing on the tech sector broadly in pre-market trading.

Economically, U.K. GDP dropped to -0.5% vs. (E) -0.2% in July after hot wage data yesterday, bolstering stagflation fears while EU Industrial Production fell -1.1% vs. (E) -0.7%. Despite the recently soft data, rates markets continue to price in a 75% chance of an ECB rate hike this week.

Today, focus will primarily be on inflation data and how Treasuries react to the release: CPI (0.6% m/m, 3.6% y/y), Core CPI (E: 0.2% m/m, 4.4% y/y).

There are no Fed speakers or Treasury auctions today so a “hot” CPI report will likely spark cross-asset volatility while a Goldilocks release will setup a possible extension of the early September relief rally.

Headline and Core CPI

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CPI Preview Scenarios: Good, Bad, Ugly

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CPI Preview Scenarios: Strengthen your market knowledge with a free trial of The Sevens Report.

What’s in Today’s Report:

  • CPI Preview Scenarios: Good, Bad, Ugly
  • Table: CME FedWatch Tool Shows No Additional Rate Hikes This Cycle

Stock futures are modestly lower today as ORCL offered disappointed revenue guidance after yesterday’s close. And, while economic data was largely disappointing overnight.

Economically, the German ZEW Survey’s Current Conditions Index fell to -79.4 vs. (E) -71.3. U.K. Also, wage growth rose to 8.5% vs. (E) 8.2% stoking stagflation concerns in Europe.

Domestically, the NFIB Small Business Optimism Index fell to 91.3 vs. (E) 91.7 in August. This was well below the long-term average of 98.0 pointing to deteriorating sentiment among small business owners.

Today, there are no additional economic reports today and no Fed officials are scheduled to speak which will leave equity traders focused on AAPL’s new product event. Tech shares have been driving the major stock indices so far this week (TSLA and QCOM yesterday, ORCL this morning) so any meaningful reaction in AAPL shares will likely move the broader indices as focus turns ahead to CPI tomorrow.

Finally, there is a 10-Yr T-Note auction at 1:00 p.m. ET that could move fixed-income markets and see equities reprice inflation expectations ahead of tomorrow’s widely anticipated inflation release, but no major moves are expected before tomorrow’s CPI print.

CPI Preview

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Is the Bullish Argument for Stocks Becoming Unsustainable?

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The Bullish Argument for Stocks: Strengthen your market knowledge with a free trial of The Sevens Report.

What’s in Today’s Report:

  • Is the Bullish Argument for Stocks Becoming Unsustainable?
  • Weekly Market Preview:  Does Disinflation Continue or Reverse?
  • Weekly Economic Cheat Sheet:  CPI on Wednesday is the Key Report This Week

Futures are moderately higher on encouraging Chinese economic data. As well as multiple financial publications predicted the Fed is done with rate hikes.

Chinese New Yuan Loans rose 1,360 billion vs. (E) 1,200 billion hinting the Chinese economy may be stabilizing.

Reuters, Bloomberg and the WSJ have published articles since Friday essentially saying the Fed is done with rate hikes and while that’s not new news, it’s helping futures rally this morning.

Today there are no notable economic reports nor any Fed speakers. Today’s focus will remain on Treasury yields and if yields are relatively stable, then stocks can rebound from last week’s losses.

Join us for an in-depth exploration of the stock market’s current trajectory. 

Bullish argument

Join hundreds of advisors from huge brokerage firms like Morgan Stanley, Merrill Lynch, Wells Fargo Advisors, Raymond James, and more… To start your quarterly subscription and see how The Sevens Report can help you grow your business, click here. 

Why Could CPI Be Poised to Drop Further?

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What’s in Today’s Report:

  • Why Could CPI Be Poised to Drop Further?
  • Chart: Zillow Observable Rent Index

U.S. stock futures are slightly higher this morning, tracking modest gains in global shares thanks to news that China is considering deeper rate cuts on deposits and mortgages while important economic data due later in the week remains in focus.

Economically, the German GfK Consumer Climate Index for September fell to -25.5 vs. (E) -24.3 underscoring widely held concerns about the future of the Eurozone economy.

Looking into today’s session, there are three economic reports due out this morning: Case-Shiller Home Price Index (E: 1.1%), Consumer Confidence (E: 116.5), JOLTS (E: 9.559M).

Markets will be looking for easing, but still healthy consumer confidence readings and a declining, but not collapsing JOLTS figure to support the thesis that the economy is slowing at a pace consistent with a soft landing. Data that is too strong or too weak will likely weigh on equities.

Additionally, there is a 3-Yr Treasury Note auction at 1:00 p.m. ET and if the outcome is weak pushing rates higher, that will create a headwind on risk assets.

Finally, there is one Fed official scheduled to speak today: Barr (3:00 p.m. ET). Considered a centrist, his comments will be closely scrutinized for any clues of a shift in policy expectations following Powell’s Jackson Hole speech Friday.

Tom Essaye Quoted in Business Insider on August 22nd, 2023

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Wall Street is declaring victory too early — the US is still headed for a recession

Tom Essaye, the founder of Sevens Report Research, which counts some of the biggest institutions on Wall Street among its clients, said while inflation on a year-over-year basis has come down significantly, the cumulative price increases we’ve seen since the start of the pandemic will eventually force consumers to cut back on spending.

“People get very excited about CPI and say, ‘Hey, CPI went up only 0.1% over the past month and it’s only up 3% over the past year,'” Essaye said. “Well, think about that in practical terms. If I go to buy my kids a bag of Skittles, in 2019 it cost $0.75. Now it costs $1.50. Am I supposed to get excited because next year it costs $1.55?”

Click here to read the full article.

Tom Essaye Quoted in Barron’s on August 11th, 2023

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Stocks Eked Out a Very Small Gain, Snapped Their Losing Streak

“The market already assumes continued disinflation, so the fact that inflation declined modestly in July just met existing (and already priced in) expectations,” Sevens Report Research founder Tom Essaye told Barron’s. “And, much of the gains in the morning were technical, on a rebound from Wednesday’s drop and an anticipation of the CPI report. But, when it failed to provide a new, positive catalyst, we saw trade exit positions as this market needs something new and positive to rally, not just confirmation of what we already assume and have priced in.”

Click here to read the full article.

Tom Essaye Quoted in Barron’s on August 9th, 2023

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Stocks Pause Ahead of Inflation Data

“The Italian government clarified that a windfall tax on bank profits would be capped, sparking a relief rally in European financials and general risk-on trade in global markets,” Tom Essaye writes. “There are no notable economic reports and no Fed officials are scheduled to speak today which is setting the session up to be fairly quiet as traders await tomorrow’s CPI release.” Click here to read the full article.

Hard Landing/Soft Landing Scoreboard Update

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What’s in Today’s Report:

  • Hard Landing/Soft Landing Scoreboard Update

Futures are little changed as markets digest Thursday’s failed rally amidst more conflicting economic data.

Chinese money supply growth missed estimates and again underscored existing recession risks and that modestly weighed on sentiment.

UK economic data was better than expected, however, with  GDP (0.2% vs. (E) 0.0%) and manufacturing (2.4% vs. (E) 0.2%) both beating estimates.

Today focus will remain on inflation, as we get headline PPI (E: 0.2% m/m, 0.7% y/y) and Core PPI (E: 0.2% m/m, 2.3% y/y) along with the University of Michigan inflation readings within Consumer Sentiment (E: 71.3).  As CPI showed, an in-line inflation number that shows on going and modest disinflation won’t spark a rally, as that’s already priced in, but it will help support stocks around current levels.  A hotter than expected number, however, will likely spark another market decline.

Will Today’s CPI Report Extend the Pullback?

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What’s in Today’s Report:

  • Market Multiple Table Chart (August Update)
  • CPI Preview
  • EIA Analysis and Oil Market Update

Futures are modestly higher as markets bounce back ahead of this morning’s CPI report and following some positive U.S./China geopolitical headlines.

The U.S. unveiled Chinese investment restriction rules that were less intense than feared, while China removed restrictions on group travel to the U.S. (providing small steps towards a more normal U.S./China relationship).

Today focus will be on CPI and estimates are as follows: E: 0.2% m/m, 3.3% y/y, Core CPI E: 0.2% m/m, 4.8% y/y.  As we state in the CPI Preview, the risk for markets is that CPI is more resilient than expected, because at these levels investors are already assuming continued disinflation.

The other notable economic report is Jobless Claims (E: 230K) and markets will want to see that number gradually move higher to reduce the likelihood of one more rate hike. Finally, there’s one Fed speaker today, Harker (4:15 p.m. ET), but he shouldn’t move markets.

What’s Causing the Increased Volatility in Stocks?

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What’s in Today’s Report:

  • What’s Causing the Increased Volatility in Stocks?
  • Weekly Market Preview:  Do the Three Pillars of the Rally Stay Intact?
  • Weekly Economic Cheat Sheet:  Key Inflation Data This Week (CPI on Thursday)

Futures are rebounding modestly from last week’s declines following a quiet weekend of news and ahead of an important week of inflation data.

Economically, the only notable number was German Industrial Production, which fell more than expected (-1.5% vs. (E.) -0.5%) and again underscored growing recession risks in Europe.

Today the key economic report is the Manheim Used Vehicle Value Index (9:00 a.m. ET) as this is viewed as an anecdotal reading on inflation, and markets will want to see a further decline in car prices.

We also get Consumer Credit (E: $13.00B) and there are two Fed speakers, Harker (8:15 a.m. ET) and Bowman (8:30 a.m. ET), and markets will want to see those events reinforce the Goldilocks narrative (solid consumer spending and the Fed basically done with rate hikes).