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Incremental Positive Developments

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What’s in Today’s Report:

  • Bottom Line – Incremental Positive Developments, But Not Enough for a Bottom
  • Industrial Production Takeaways
  • Chart: 5-Yr Breakevens Continue to Trend Lower Amid Confidence in the Fed
  • Housing Market Index Underscores Cooling Real Estate Market

Futures are slightly higher in more cautious trade this morning as strong earnings from NFLX (+14%)  and UAL (+3%) are helping offset hot inflation data overseas.

UK CPI rose 0.2% to 10.1% vs. (E) 10.0%, revisiting a 40-year high which is bringing inflation back into focus today.

From a catalyst standpoint, there is one economic report to watch today: Housing Starts (1.475M), and two Fed speakers to watch: Kashkari (1:00 p.m. ET) and Evans (6:30 p.m. ET).

There is also a 20-Yr Treasury Bond Auction at 1:00 p.m. ET. If yields rise in the wake of the auction, that could once again weigh on equities.

Finally, earnings continue with: ALLY ($1.73), PG ($1.55), CFG ($1.21), and WGO ($2.99) reporting ahead of the bell, and TSLA ($1.01), IBM ($1.78), AA ($0.09), and PPG ($1.67) releasing their results after the bell.

Bottom line, there have been some incremental fundamental positives that have helped support the relief rally in stocks this week, and if fixed-income markets can remain orderly and earnings continue to surprise to the upside, the S&P 500 could continue towards 3,800 or beyond today.

Market Multiple Table Chart

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What’s in Today’s Report:

  • Market Multiple Table Chart
  • CPI Preview:  Good Bad and Ugly

Futures are slightly higher ahead of this morning’s CPI as reports suggest UK PM Truss will have to abandon more of her fiscal spending and tax cut plan.

Positively, conservative members of Parliament continued to push back against PM Truss’s fiscal plan and that’s helping the Pound rally and GILT yields to decline.

Negatively, Chinese authorities are reimposing some restrictions in Shanghai as COVID cases rise and as Chinese officials hold on to the “Zero COVID” policy.

Focus today will be on CPI and estimates are as follows: Headline: 0.2% m/m and 8.1% y/y. Core:  0.4% m/m and 6.5% y/y.  For CPI to spark a material rally, markets will want to see outright declines in CPI (so less than 8.1% and 6.3% respectively).  Conversely, year over year CPI coming in higher than September readings will reinforce the idea that inflation is not declining, and the market is a long, long way from a Fed pivot.  The other notable report today is Jobless Claims (E: 225K) but that shouldn’t move markets.

Market Multiple Table: Headwinds Building

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What’s in Today’s Report:

  • Market Multiple Table: Headwinds Building

Stock futures are higher this morning as Treasury markets are steady despite more turmoil in the Gilts market with the 30-Yr jumping another 20+ bp back towards 5.00%.

Economic data was mixed overnight as U.K. GDP dropped off further than expected in August (-0.3% vs. E: -0.1%) while EU Industrial Production for the same month was solid at 1.5% vs. (E) 0.5%.

Today, there is one inflation data point to watch pre-market: Producer Price Index (E: 0.2%) and if it runs hot, it would likely send yields to new highs and pressure risk assets ahead of the bell.

After the open, the focus will shift to the Fed with two officials speaking through the middle of the day: Kashkari (10:00 a.m. ET) and Barr (1:45 p.m. ET) before the most recent FOMC Meeting Minutes are due to be released at 2:00 p.m. ET.

In the minutes, investors will be looking for any new indication of a timeline for a policy “pivot” or what might result in one as that is still a major catalyst needed in order for stocks to bottom.

Finally, there is a 10-Yr Treasury Note Auction at 1:00 p.m. ET and if the outcome is weak, as was the case with yesterday’s 3-Yr Note auction, and yields begin to rise, that will likely be a renewed headwind on equities in the afternoon.

Bottom line, yields are still the primary driver of the stock market this week and if we see Treasuries remain stable as they are this morning, then stocks could break their multi-day losing streak, however, if yields do rise meaningfully it will be hard for the major indices to hold this week’s lows.

Sevens Report Analysts Quoted in Yahoo on October 6th 2022.

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U.S. Stock Futures Slip as Investors Mull Fed Policy Path

“The key to tomorrow’s jobs report will be whether it keeps the hopes for a Fed pivot alive. If the jobs report is ‘Too Hot’ that kills the idea of a Fed pivot, and we should expect the S&P 500 to drop back towards levels where we ended the third quarter,” Sevens Report analysts said in a note. Click here to read the full article.

Tom Essaye Quoted in Forbes on October 4th, 2022

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Job Openings Post Biggest Drop In Two Years In ‘Ominous Sign’ For Labor Market

Analyst Tom Essaye of the Sevens Report said investors will want to see such signs of easing demand—and a more rapid decline in inflation metrics—in order to continue the recent relief rally. Click here to read the full article.

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.