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The Current Reality Facing Stocks (Not Good)

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What’s in Today’s Report:

  • The Current Reality Facing Stocks (Not Good)
  • Technical Update:  Watch the VIX
  • Weekly Economic Cheat Sheet:  CPI Thursday is the Key Number
  • Weekly Market Preview:  Can Earnings Hold Up?

Futures are slightly lower as markets digest the implications of Friday’s strong jobs report following a mostly quiet weekend.

Friday’s jobs report won’t make the Fed any more hawkish, but it’ll keep stocks facing a dual headwind of aggressive Fed and earnings pressure, and that’s weighing on futures.

There were no notable economic reports overnight.

Today is Columbus Day so there are no economic reports while the banks and bond market will be closed, likely leading to slow trading in stocks.  There is one Fed speaker, Evans (9:00 a.m. ET), but he shouldn’t move markets (at this point it’s well-known what the Fed plans to do).

FOMC Preview

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What’s in Today’s Report:

  • FOMC Preview

Futures reversed from overnight gains and are now tracking EU markets lower following more very hot inflation data and an aggressive policy hike by the Riksbank.

In Europe, German PPI surged 7.9% vs. (E) 1.5% in August (45.8% vs. E: 37.2% y/y) while Sweden’s Riksbank raised rates by 100 bp vs. (E) 75 bp. Both developments are driving hawkish, risk-off money flows ahead of the Fed.

Today, focus will begin to shift to the Fed as the September FOMC Meeting begins however there is one report on the housing market that will get some attention when it is released mid-morning: Housing Starts (E: 1.440M) and Permits (E: 1.621M).

Beyond that one report, there is a 20-Yr Treasury Bond auction at 1:00 p.m. ET. The auction may not move markets today with the Fed looming but it will be worth watching because if it is weak like last week’s 3-Yr and 10-Yr auctions ahead of the CPI report, it could be forecasting a more hawkish than expected Fed decision Wednesday.

Why Stocks Dropped Again

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What’s in Today’s Report:

  • Why Stocks Dropped (Again)
  • A Question About Silver

Futures are sharply lower following a very negative earnings pre-announcement from FedEx (FDX).

FedEx (FDX) earnings were terrible as the company reported EPS of $4.37 vs. (E) $5.10 and guidance was even worse with estimates of $2.75 vs. (E) $5.46.  The company sited significant macro-economic deterioration and the CEO warned about a “worldwide recession.”

Economically results were mixed as Chinese data beat estimates while UK Retail Sales were soft (–5.4% vs. –3.9%).

Today focus will be on Consumer Sentiment (E: 59.9) and more specifically the five-year inflation expectations.  In August they were 2.9% and if they rise back above 3.0% that’ll only compound the damage from Tuesday’s CPI and push stocks lower, while a decline below 2.9% will help offset CPI and help support stocks (although I think it’d take a sharp from below 2.9% for stocks to fully erase these early losses).

Sevens Report Co-Editor Tyler Richey Quoted in Market Watch on September 13th, 2022

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Oil prices finish lower after stronger-than-expected U.S. inflation reading

The “hot” CPI print also brought a 100 basis point rate hike into play at the September meeting. A more aggressive Fed in the months ahead, “will choke off growth and ultimately weigh on broader consumer demand, including demand for refined products…said Tyler Richey, co-editor of Sevens Report Research. Click here to read the full article.

 

Why the Decline in Core Inflation Could Be Slower than Expected

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What’s in Today’s Report:

  • Why the Decline in Core Inflation Could Be Slower than Expected
  • EIA Analysis and Oil Market Update

Futures are slightly lower following a mostly quiet night of news as markets await a deluge of economic data later this morning.

The most notable headline overnight was that negotiators have reached a tentative deal to avoid a U.S. rail strike, although this was never a major concern for markets so the headline isn’t causing a rally.

There were no notable economic reports overnight.

Today the market will be focused on economic data and the key reports will be Jobless Claims (E: 227K), Philadelphia Fed Manufacturing Index (E: 3.5), and the Empire State Manufacturing Index (E: -14.5) as they give us the latest insights into growth and inflation.  If the price indices in Empire and Philly drop notably, that’ll help offset some of the concerns on inflation from the CPI report.

Other data today includes Retail Sales (E: 0.0%) and Industrial Production (E: 0.2%) but they’ll have to be material surprises to move markets.

Was the CPI Report a Bearish Gamechanger?

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What’s in Today’s Report:

  • Was the Hot CPI Report a Bearish Gamechanger?
  • CPI Takeaways
  • Chart: Real Rates Surge – 5-Yr TIPS Yield Tops 1%

Equity futures are bouncing modestly relative to yesterday’s steep declines as Treasury yields are steady and the dollar is easing back with investors continuing to digest the hotter than expected August CPI report.

Economically, U.K. inflation data came in cooler than feared (PPI unexpectedly declined and CPI undershot estimates) but Eurozone Industrial Production for July badly disappointed at -2.3% vs. (E) -0.8%.

Looking into today’s session, there are no Fed officials scheduled to speak and no potentially market-moving Treasury auctions which will leave the focus on the PPI report due out ahead of the bell(-0.1%, Core: +0.3%).

If the wholesale inflation data comes in “cooler” than expected, leaving yields and the dollar to give back some of yesterday’s gains, stocks should be able to attempt to stabilize, however, another “hot” print would likely mean further losses in the midst of renewed dollar strength and likely rising rates.

The Ukraine Counteroffensive and Markets

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What’s in Today’s Report:

  • What the Ukraine Counteroffensive Means for Markets

Stock futures are extending recent gains this morning while the dollar continues to fall ahead of today’s CPI report.

In Europe, German CPI for August was unchanged at 7.9% y/y which met expectations and is being well-received by investors ahead of today’s U.S. inflation data.

Domestically, the NFIB Small Business Optimism Index came in at 91.8 vs. (E) 90.5, underscoring the resilience of the U.S. economy in the face of Fed policy tightening so far.

Today, the main event will be the release of the August CPI data (E: -0.1% m/m, 8.1% y/y) ahead of the open. If the data is inline or below estimates, specifically the core figure, then stocks should be able to extend the recent rally as expectations for the “terminal rate” will likely fade lower however a hot print could send yields and the dollar sharply higher and cause a potentially sharp reversal of the recent gains.

The only other potential catalyst today is a 30-Yr Treasury Bond auction at 1:00 p.m. ET. Yesterday’s 3-Yr and 10-Yr auctions did notably move Treasury markets as yields jumped but stocks shrugged off the soft auction outcomes with focus on today’s CPI. If the 30-Yr auction is weak and yields move higher with the CPI data already released as of this morning, that could act as a strengthening headwind on equities in the afternoon.

Why Stocks Rallied Last Week (And Is It Sustainable?)

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What’s in Today’s Report:

  • Why Stocks Rallied Last Week (And Is It Sustainable?)
  • Weekly Market Preview:  Can Inflation Fall Quickly and Growth Stay Resilient?
  • Weekly Economic Cheat Sheet:  CPI Tomorrow is the Key Report

Futures are moderately higher as the U.S. Dollar extended Friday’s declines thanks to a hawkish ECB article.

The euro is surging another 1% and pushing the Dollar Index lower following a hawkish ECB Reuters article that stated the ECB may have to raise rates to 2% to curb inflation, which is higher than current expectations.

Economic data was slightly underwhelming as UK Industrial Production (0.1% vs. (E) 0.3%) and UK Monthly GDP (0.2% vs. (E) 0.4%) both missed estimates.

Today there are no notable economic reports nor any major Fed speakers, so we’d expect stocks to continue to follow the dollar ahead of tomorrow’s CPI report.  If the dollar extends this morning’s declines, stocks should be able to hold this early rally.

What Currencies and Bonds Are Saying About the Fed

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What’s in Today’s Report:

  • Better-Than-Feared WMT and HD Earnings Drive Trading
  • Why Currency and Bond Markets Are Not Signaling a “Less Hawkish” Fed
  • Chart: S&P 500 Quietly Closes at Fresh Highs
  • Economic Takeaways: Housing Starts and Industrial Production

U.S. futures are tracking European shares lower following disappointing economic data out of the EU ahead of today’s release of the July FOMC meeting minutes.

U.K. CPI jumped to a new multi-decade high of 10.1% vs. (E) 9.8% in July while the Q2 Eurozone GDP Flash dipped to 3.9% vs. (E) 4.0%, rekindling concerns about stagflation.

Looking into today’s session, focus will be on economic data early with Retail Sales (E: 0.1%) due out before the bell as well as more retailer earnings including: TGT ($0.71), LOW ($4.63), and TJX ($0.68).

Then there is one Fed speaker, Bowman, at the open (9:30 a.m. ET) before focus will shift to the July FOMC meeting minutes which will be released at 2:00 p.m. ET.

Bottom line, the market will want to see more good earnings and guidance out of the remaining major retailers due to report quarterly results today as well as a not-as-hawkish-as-feared set of Fed minutes released this afternoon, if this latest leg higher in stocks is going to continue. Otherwise, we could be set up for a pullback into the back half of the week as stocks have become near-term overbought without any new meaningfully positive catalysts.

Market Set Up Into Today’s CPI Report

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What’s in Today’s Report:

  • Market Set Up Into Today’s CPI Report
  • Are Semiconductor Stocks Forecasting the Slowdown?

Futures are slightly higher on mildly positive geo-political news and ahead of the CPI report.

China ended the military exercises around Taiwan and while that was always expected it’s still a mild positive as it reduces the chances of any accidental conflict.

Economically, the Chinese CPI rose 2.7% vs. (E) 2.9% allowing China to continue to actively stimulate its economy.

Today’s focus will be on the CPI report and expectations are as follows: Headline CPI:  0.2% m/m, 8.7% y/y. Core CPI: 0.5% m/m, 6.1% y/y.  Markets remain in a “glass half full” mood on inflation so unless the numbers are solidly above expectations, we’d expect stocks to weather the number with only modest declines (while a soft number will likely spur an additional rally).

We also get two Fed speakers, Evans (11 a.m. ET) and Kashkari (2 p.m. ET) but they shouldn’t move markets.