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Why Fed Rate Hike Expectations Are Still Rising

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What’s in Today’s Report:

  • Why Fed Rate Hike Expectations Are Still Rising
  • Did Yesterday’s Economic Data Signal Stagflation?
  • EIA Analysis and Oil Market Update

Futures are extending Wednesday’s declines and are moderately lower as more global inflation data came in hotter than expected.

Euro Zone HICP rose 8.5% vs. (E) 8.2% y/y and joined French, Spanish and German CPIs as signaling a bounce back in inflation.  That’s pushing global yields higher and weighing on futures (just like it weighed on stocks on Wednesday).

Today focus will remain on economic data and the key report is Unit Labor Costs (E: 1.4%).  Wages are a major source of inflation the Fed is trying to bring down, so if Unit Labor Costs are lower than expected, that will likely cause a bounce in stocks and bonds.  Other notable events today include Jobless Claims (E: 200K) and two Fed speakers, Waller (4:00 p.m. ET) and Kashkari (6:00 p.m. ET), although they shouldn’t move markets.

Equity Risk Premium Hits 2007 Levels

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What’s in Today’s Report:

  • Equity Risk Premium at 2007 Levels
  • February Composite PMI Flash Takeaways
  • Why Are Rising Rates Causing Stocks to Drop Now?
  • S&P 500 Chart: Trend Support From the October Lows In Focus

U.S. equity futures are little changed this morning following yesterday’s steep losses as Treasuries have stabilized ahead of today’s Fed meeting minutes release.

Economically, German CPI met estimates at 8.7% y/y but that remains a historically very high reading which continues to warrant aggressive policy from the ECB in the months ahead.

Looking into today’s session, there are no notable economic reports which will leave investors primarily focused on the FOMC meeting minutes release (2:00 p.m. ET). Before that release, the Treasury will hold a 5-Yr Note auction at 1:00 p.m. ET which could move bond markets, and if we see new highs in yields, expect additional pressure on stocks.

Finally, the Fed’s Williams speaks after the close at 5:30 p.m. ET and his comments could move markets in after-hours trading if he is materially hawkish.

Tom Essaye Quoted in Benzinga on February 17th, 2023

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3 Reasons The 2023 Stock Market Rally May Be ‘Another Bull Trap’

Tom Essaye, founder of Sevens Report Research, said Friday there are at least three warning signs that the rally could be yet another bull trap for investors. Market expectations for Fed rate hikes are now showing a 56% probability of a June rate hike, up from basically 0% just four weeks ago!” he said. Click here to read the full article.

Technical Update: Is This Another Bull Trap?

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What’s in Today’s Report:

  • Technical Update:  Is This Another Bull Trap?
  • EIA Analysis and Oil Market Update

Futures are flat following a quiet night and as solid CSCO earnings are helping stocks hold yesterdays’ gains.

CSCO beat estimates and raised guidance and the stock is up 4% pre-market and that’s helping broader sentiment.

Economically, the only notable number was the Chinese Home Price Index (in-line at –1.5%).

Today focus will remain on economic data and the key reports are (in order of importance):  Philly Fed (E: -7.2), PPI (E: 0.4%m/m, 5.5% y/y), Jobless Claims (E: 200K) and Housing Starts (E: 1.365M).  As has been the case, solid data that implies a “No Landing’ scenario should support stocks, as long as yields don’t spike too much.

We also have several Fed speakers today including Mester (8:45 a.m. ET), Bullard (1:30 p.m. ET) and Cook (4:00 p.m. ET) although they shouldn’t move markets.

What the CPI Data Means for Markets

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What’s in Today’s Report:

  • What the CPI Means for Markets
  • CPI Data Takeaways
  • How Will Russia’s Production Cut and the New SPR Release Impact Oil Markets?

U.S. equity futures are lower despite a stable Treasury market and better-than-feared inflation data overseas as investors continued to assess post-CPI Fed policy expectations.

U.K. CPI fell to 10.1% vs. (E) 10.3% in January down from 10.5% in December which sent the pound lower. Despite the bigger than expected drop, however, inflation remains far too high in the U.K. and more aggressive policy will be warranted to get price pressures back down towards the BOE’s target over time.

Today, focus will be on economic data as there are several important reports due to be released including: Retail Sales (E: 1.7%), Empire State Manufacturing Index (E: -18.5), Industrial Production (E: 0.5%), and the Housing Market Index (E: 37).

As has been the case lately, investors will be looking for signs of moderation in growth metrics (but not an all out collapse) and faster declining price readings to keep the hopes of a soft/no landing alive. Otherwise, it will be difficult for stocks to resume their 2023 advance.

There are no Fed officials scheduled to speak today but there is a 20-Yr Treasury Bond auction at 1:00 p.m. ET and if demand is weak and yields begin to add to yesterday’s upward moves, stocks could come for sale.

Market Multiple Levels: S&P 500 Chart

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What’s in Today’s Report:

  • Market Multiple Levels: S&P 500 Chart (Printable/Shareable PDF Available)
  • NY Fed Inflation Expectations Data Takeaways
  • Key Levels to Watch Today in the Dollar and Treasuries

Stock futures are modestly higher thanks to good economic data overnight as traders await today’s U.S. CPI report and more Fed speak.

Economically, the U.K.’s Unemployment Rate held steady below 4% but wage growth favorably slowed to 5.9% in January from 6.5% in December.

Meanwhile the NFIB Small Business Optimistic Index in the U.S. met estimates at 90.3 which saw S&P 500 futures hit new pre-market highs at the top of the 6:00 a.m. hour ET.

Today, focus will be on economic data early with CPI (E: 0.5% m/m, 6.2% y/y) and Core CPI (E: 0.3% m/m, 5.5% y/y) due out before the opening bell. Cooling inflation pressures have largely been priced in recently so a low print could see stocks add to YTD gains, but the risk is for a hot print to spark a significant wave of selling amid further hawkish shifting money flows across asset classes.

Moving through the day, there are three Fed speakers to watch: Logan (11:00 a.m. ET), Harker (1:00 p.m. ET), and Williams (2:05 p.m. ET) and they will all likely echo the hawkish tone coming from other Fed officials recently but their comments should not have a major impact on markets.

Earnings season is winding down but a few notable companies reporting today include: KO ($0.45), MAR ($1.84), ABNB ($0.27).

Tom Essaye Quoted in Blockworks on January 12th, 2023

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Crypto Miners Log Double-digit Stock Price Gains After CPI Report

Tom Essaye, the founder of Sevens Report Research, said Wednesday before the CPI print that inflation metrics would need to continue falling quickly if the market hopes to sustain a broader rally. Click here to read the full article.

Tom Essaye Quoted in Yahoo on January 11th, 2023

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Stocks End on High Note With ‘Risk-On’ CPI Wagers: Markets Wrap

Now the caveat is that if the headline number drops, but core CPI doesn’t, the report won’t be that positive, wrote Tom Essaye, a former Merrill Lynch trader who founded The Sevens Report newsletter. Click here to read the full article.

Fed Speak and Updated Rate Expectations

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What’s in Today’s Report:

  • Fed Speak and Updated Rate Expectations
  • CPI Takeaways

Futures are slightly lower following mixed economic data, as markets continue to digest increased hopes for an economic “soft landing.”

Chinese exports declined but fell less than expected (-9.9% vs. (E) -11.1%), offering more “not as bad as feared” news.

Today’s focus will switch to earnings (and that’s true for next week too) and key reports today include:  JPM ($ 3.11), BAC ($ 0.76), C ($ 1.18), UNH ($5.17), WFC ($0.63) and BLK ($ 8.00).  If earnings are better than feared, that should help stocks extend yesterday’s gains.

Economically the focus will stay on inflation with Import & Export Prices (E: -0.9%, -0.7%) and Consumer Sentiment (E: 60.0) while we get another Fed speaker: Harker (10:20 a.m. ET).  As has been the case, anything that implies declining inflation and/or a 25 bps rate hike in February will help stocks rally.

Market Multiple Table Chart

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What’s in Today’s Report:

  • Market Multiple Table Chart
  • EIA Analysis and Oil Market Update

Futures are little changed as overnight economic data was in-line with expectations while investors look ahead to this morning’s CPI Report.

Economically, Chinese CPI was the only notable number and it largely met expectations at 1.8% y/y (vs. (E) 1.9%).  That reading will keep Chinese authorities actively stimulating the Chinese economy, which is a positive for the global economy.

Today focus will clearly be on the CPI report (E: 0.0, 6.6%), but remember the Core CPI report is the more important number (E: 0.3%, 5.7%).  Markets need to see continued declines in CPI to underwrite recent gains in stocks and bonds.

Away from CPI, we get the latest Jobless Claims reading (E: 215K) and this number needs to move higher to reflect a better balance in the labor market.  Finally, there are multiple Fed speakers today including Harker (7:30 a.m. ET), Bullard (11:30 a.m. ET), and Barkin (12:40 p.m. ET) and while we should expect typically hawkish rhetoric, they shouldn’t reveal anything new (and as such shouldn’t move markets).