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What The Hot CPI Report Means for Markets

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What’s in Today’s Report:

  • What the Hot CPI Report Means for Markets
  • EIA Analysis and Update (Demand Falling)

Futures are sharply lower as markets digest the hot CPI amidst numerous hawkish central bank decisions.

Global central banks are aggressively tightening policy and that was displayed yesterday and overnight as the Bank of Canada and the central banks of Singapore, Philippines, and, Chile all hiked more than expected.

Meanwhile, U.S. Fed Fund Futures are now pricing in a 100-bps hike in July.

Today we get two notable economic reports via Jobless Claims (E: 234K) and PPI (0.8% m/m, 10.4% y/y).  Starting with PPI, if we see a big drop (which isn’t expected but possible) that will be a mild positive as PPI is sometimes a leading indicator for broader inflation.  Jobless claims, meanwhile, should continue to tick higher towards 250k.

On the earnings front, Q2 earnings season unofficially kicks off today with results from JPM ($2.85) and MS ($1.55) and in addition to wanting to see earnings beats, markets will be looking for commentary from management on the state of the economy, and if that commentary is cautious it’ll be a headwind on stocks.

Market Multiple Levels: S&P 500 Chart

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What’s in Today’s Report:

  • Market Multiple Levels: S&P 500 Chart

Stock futures are trading with cautious gains this morning as inflation data overseas met expectations as traders look ahead to today’s all-important CPI report in the U.S.

Economically, German and French CPI headlines both met estimates in June, holding steady from May levels which is offering hope that global inflation pressures have peaked while several growth metrics in the EU topped estimates.

Today, the focus will almost entirely be on the June CPI report with the headline expected to rise 1.1% m/m and 8.8% y/y from 8.6% in May while core CPI is expected to moderate with a rise of 0.5% m/m and 5.8% y/y from 6.0% previously.

There are no Fed officials scheduled to speak today but the Treasury will hold a 30-Yr Bond auction at 1:00 p.m. ET that could move markets in the afternoon.

Bottom line, markets are at a tipping point here and today’s CPI report could cause a breakout if the data suggests we are beyond peak inflation and peak Fed hawkishness, while conversely, we could see sharp declines if the data comes in hot again

CPI Preview (Good, Bad & Ugly)

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What’s in Today’s Report:

  • CPI Preview (Good, Bad & Ugly)

Futures are modestly lower following more disappointing economic data from Europe and as the dollar again surged to fresh multi-decade highs.

The German ZEW Economic Sentiment Index collapsed, falling to –53.8 vs. (E) -38.0, adding to quickly rising recession worries in the EU.

The bad ZEW reading further weighed on the euro and boosted the dollar, which rose to another 20+ year high.

Today there are no notable economic reports and just one Fed speaker, Barkin at 12:30 p.m. ET.  So, like Monday, we’d expect positioning ahead of tomorrow’s CPI report and any potential COVID headlines from China to move markets (and if there’s a path of least resistance today, it’s lower into the CPI print).

Market Multiple Table

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What’s in Today’s Report:

  • July Market Multiple Table (Important Changes)
  • Weekly Market Preview:  All About Inflation (and CPI on Wednesday)
  • Weekly Economic Cheat Sheet: Important Inflation and Growth Data This Week

Futures are modestly lower following new COVID-related shutdowns in China.

Macau will close most businesses, including casinos, for one week following a COVID outbreak while Shanghai will continue with massive testing, in what is a signal that the “Zero COVID” policy is at least partially still in effect.

Geo-politically, Canada released a turbine to Gazprom (a Russian energy company) and the hope is that will result in increased natural gas flows to Europe in the coming weeks, putting more pressure on commodity prices.

Today there are no notable economic reports and just one Fed speaker, Williams at 2:00 p.m. ET.  Futures are taking the new lockdowns in China somewhat in stride but if headlines imply anything like a repeat of the Shanghai lockdowns of March-May, expect stocks to drop as a result.

A Historical Reason to be Optimistic for the Second Half

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What’s in Today’s Report:

  • A Historical Reason to Be Optimistic for the Second Half

Futures are slightly lower following another high-profile guidance cut and more mixed economic and inflation data.

Micron (MU) materially cut forward guidance, sighting a steep drop in demand at the end of the second quarter and becoming the latest company to warn of deteriorating business conditions.

Economic and inflation data was mixed as EU headline HICP (their CPI) was hotter than expected but Core HICP underwhelmed, while the EU and UK final manufacturing PMIs reflected the slowing growth sweeping the globe.

Today’s focus will be on the ISM Manufacturing Index (E: 55.0) and the key here is moderation – markets need to see a slowing of growth but not a dramatic collapse.  If we see moderation, stocks can rally to start the second half.

Is the Yield Curve Signaling an Imminent Recession?

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What’s in Today’s Report:

  • Is the Yield Curve Clearly Signaling an Imminent Recession?
  • Chart: Oil Testing Critical Support

Stock futures are sharply lower with global shares as much of yesterday’s rally is being given back amid a resurgence in growth concerns ahead of Powell’s testimony today.

U.K. CPI met estimates at 9.1% but Input PPI jumped 22.1% vs. (E) 19.4% stoking fears that central banks will have to be even more aggressive to get inflation under control in the months ahead.

There are no notable economic reports today but there are multiple Fed speakers: Barkin (9:00 a.m. & 12:00 p.m. ET), Powell (9:30 a.m. ET), Evans (12:55 p.m. ET), and Harker (1:30 p.m. ET).

Then in the afternoon, there is a 20-Yr Treasury Bond auction at 1:00 p.m. ET that could move yields and impact equity markets.

Bottom line, the focus will be on Powell’s testimony before the House this morning as there has been a resurgence in concerns about global growth in the face of the latest broad shift to more aggressive central bank policy in response to sticky and elevated inflation pressures globally. And if Powell is seen as getting more hawkish, or the market shows signs of losing confidence in the Fed’s policy plans, we could potentially see stocks test the 2022 lows.

Why Stocks Dropped Yesterday

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What’s in Today’s Report:

  • Why Stocks Dropped Yesterday
  • ECB Takeaways and Why Fragmentation Matters to Markets

Futures are slightly lower as markets look ahead to today’s latest read on inflation via the CPI report while news from China was again mixed.

Negatively, Shanghai residents will undergo mandatory COVID testing this weekend (another potential setback to fully reopening).

Positively, Chinese CPI came in under expectations, rising 2.1% yoy vs. (E) 2.3% yoy, allowing for more stimulus.

Today focus is on CPI and expectations are as follows: 0.7% m/m, 8.2% y/y; Core: 0.5% m/m, 5.9% y/y.  Given yesterday’s late declines, unless we see an outright increase in CPI from April, I don’t think a firm CPI number should cause much more selling, while a slightly underwhelming CPI could prompt a solid rebound.  The other notable report today is Consumer Sentiment (E: 58.5) and we’ll look for five-year inflation expectations to stay below 3.0%.

The State of Inflation (CPI Preview and Inflation Expectations Update)

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What’s in Today’s Report:

  • The State of Inflation:  CPI Preview and Inflation Expectations Update
  • EIA Data and Oil Market Analysis (How High Can The Rally Go?)

Futures are modestly higher as markets bounce back from Wednesday’s declines following mixed news from China.

Positively, Chinese authorities may allow ANT Group to IPO, which is another sign China is easing pressure on tech companies. Additionally, Chinese exports handily beat estimates (16.9% vs. (E) 8.0%).

Negatively, Shanghai and Beijing reimposed some COVID restrictions, showing “Zero COVID” remains in effect.

Today focus will be on the ECB Rate Decision, and while no rate hike is expected, President Lagarde is expected to hint that a rate hike is coming in July and another rate hike is coming later this year (if it’s more hawkish than that, that will be a headwind on global stocks).  We also get Jobless Claims (E: 210K) but that shouldn’t move markets.

Market Multiple Levels: S&P 500 Chart

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What’s in Today’s Report:

  • Market Multiple Levels Chart: S&P 500

U.S. futures are tracking European shares lower this morning amid hawkish money flows ahead of tomorrow’s ECB meeting announcement.

Economically, Eurozone Q1 GDP was revised up to 0.6% vs. (E) 0.3%, bolstering bets that the ECB could raise rates by 50 bp in July which is driving bond yields higher and pressuring equities this morning.

There are no notable economic reports and no Fed officials are scheduled to speak today but there is a 10-Yr Treasury Note auction at 1:00 p.m. ET.

Bottom line, investors remain focused on high inflation and uncertain economic growth right now and if we see rates begin to meaningfully move higher again today, especially in the wake of the 10-year auction, then the S&P 500 test and potentially break down through key near term support at 4,080 today.

Tom Essaye Quoted in Courthouse News Service on June 3, 2022

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Markets dip slightly on conflicting jobs report data

Tom Essaye of the Sevens Report noted that “very strong data would incur more Fed hawkishness while really soft data would spike stagflation concerns — and ‘moderating’ was just what we got from the ADP jobs report.” Click here to read the full article.