Why Stocks Dropped Yesterday (It Wasn’t CPI)

What’s in Today’s Report:

  • Why Stocks Dropped Yesterday (It Wasn’t CPI)
  • EIA Analysis and Oil Market Update

Futures are enjoying a mild bounce following Wednesday’s losses as global yields are stable while U.S. bond markets are closed.

10 year Bund and GILT yields are little changed and that, combined with the bond market closure in the U.S., is allowing stocks to rebound.

Economically, British IP missed estimates (-0.4% vs. (E) 0.1%) while monthly GDP slightly beat (0.6% vs. (E) 0.5%).

Today is Veterans Day and as such, the bond markets are closed and there will be no economic reports and no Fed speakers.  So, GILT and Bund yields will partially dictate trading and as long as they don’t rise, stocks can continue this early rebound from yesterday’s losses.

Market Multiple Levels: S&P 500 Chart

What’s in Today’s Report:

  • Market Multiple Levels: S&P 500 Chart

Stock futures are mildly lower and Treasury yields are rising with the dollar this morning after hotter than expected Chinese inflation data is prompting some hawkish money flows ahead of today’s U.S. CPI report.

Economically, Chinese CPI rose slightly more than forecast in October (1.5% vs. E: 1.4%) but PPI surged 13.5% vs. (E) 12.0% which was the highest reading since 1995.

Looking into today’s session there are a few potential catalysts to move markets with the October CPI release (E: 0.5%) being the primary focus but Jobless Claims data (E: 267K) will also warrant attention. Both reports are due out at 8:30 a.m. ET.

After those pre-market releases, the schedule is pretty clear with no Fed officials speaking over the course of the day but there is a 30-Year Treasury Bond auction at 1:00 p.m. ET that could move yields and potentially stocks.

Finally, earnings season is already beginning to wind down however DIS ($0.50) will report quarterly results after the closing bell.

Bottom line, focus is on inflation data and if today’s CPI report runs hot, we could see taper expectations, as well as the market’s rate hike outlook, take a hawkish turn which would spur broad market volatility.


Inflation Update

What’s in Today’s Report:

  • Inflation Update
  • Inflation Expectations Chart

Stock futures are slightly higher this morning while global shares were mixed overnight ahead of fresh U.S. inflation data and the unofficial start to the Q3 earnings season.

Economically, German CPI met expectations while Eurozone Industrial Production beat estimates, which is helping ease recent stagflation concerns this morning.

Looking into today’s session, focus will be on inflation data with the September CPI report due at 8:30 a.m. ET (E: 0.3%, 5.3%) as well as the start of Q3 earnings season with JPM ($3.00) and DAL ($0.15) reporting results before the open.

Then in the afternoon, we will get the FOMC Meeting Minutes (2:00 p.m. ET) and multiple Fed speakers: Brainard (3:30 p.m. ET), Bowman (8:00 p.m. ET).

Finally, there is a 30-Yr Treasury Bond auction at 1:00 p.m. ET that could impact yields and ultimately move equity markets (especially if yields make new highs).

Microeconomics vs. Macroeconomics

What’s in Today’s Report:

  • Why Market Technicals, Internals, and Derivatives Are Weighing On Stocks Despite Mostly Good Fundamentals
  • The True Driver of This Pullback Remains Microeconomic, not Macroeconomic
  • CPI Takeaways

Futures are bouncing today while most international markets declined overnight amid stagflationary economic data.

Chinese Industrial Production, FAI, and Retail Sales data all missed estimates with the latter underwhelming by the largest margin which weighed on risk assets overnight, sparking renewed concerns about the pace of the global recovery.

Meanwhile, in Europe, CPI in the U.K. jumped from 2.0% to 3.2% in August, the largest monthly increase since 1997 which rekindled concerns about global inflation pressures despite yesterday’s soft CPI print in the U.S.

Today, focus will be on economic data early with the Empire State Manufacturing Index (E: 18.6), Import & Export Prices (E: 0.3%, 0.5%) and Industrial Production (E: 0.5%) all due out by mid-morning.

Investors will be looking for good growth (but not “too hot”) and fading inflation pressures (specifically in the Empire release as it is a September data point). Otherwise, more signs of stagflation, like we saw in the data overnight, could cause further selling across risk assets including stocks today.

Inflation Expectations

What’s in Today’s Report:

  • Inflation Expectations

Stock futures are trading cautiously higher this morning while international markets were mixed overnight ahead of key U.S. inflation data.

Economically, the NFIB Small Business Optimism Index for August rose to 100.1 vs. (E) 99.0 which is helping U.S. equity markets edge higher in pre-market trade.

Today, there are no Treasury auctions or Fed officials scheduled to speak which will leave markets focused on the one major economic report today: CPI (E: 0.4%, 5.3%).

If the CPI report supports the transitory inflation narrative and suggests that price pressures have already peaked, stocks are likely going to be able to further stabilize after yesterday’s bounce. However, a “hot” print could easily trigger a wave of hawkish money flows and pressure the major indexes back down to fresh multi-week lows today.

Inflation Update (Post CPI/PPI)

What’s in Today’s Report:

  • Inflation Update (Post CPI/PPI)

Futures are again little changed following another generally quiet night of news.

Economic data was minimal as the only notable report was EU exports, which missed expectations falling –0.7% vs. (E) 0.6%, but that’s not moving markets.

On the COVID front, there were mixed headlines.  ABNB said it has seen a small slowdown in bookings because of Delta (a negative), but COVID cases have potentially peaked in China (a positive).  In sum, the headlines were mixed enough that they aren’t moving markets, but we will continue to watch for more evidence that the Delta variant is altering consumer behavior.

Today the key report will be the inflation expectations in Consumer Sentiment (E: 81.4) but as long as that doesn’t spike higher, it shouldn’t move markets.  Instead, COVID headlines will continue to move markets and if there is more evidence the Delta variant is impacting travel/leisure, that will be a headwind on stocks.

CPI Takeaways

What’s in Today’s Report:

  • CPI Takeaways

Stock futures are little changed as Treasuries recover some of yesterday’s losses ahead of more U.S. inflation data and Congressional testimony from Fed Chair Powell today.

Economically, U.K. CPI was above estimates in June but PPI was unexpectedly soft while Eurozone Industrial Production also disappointed, but none of the data from overnight seems to be having a material impact on markets this morning.

Today, there is one more inflation report in the U.S., PPI (E: 0.6% m/m, 6.8% y/y) at 8:30 a.m. ET and then focus will turn to Fed speak with Chair Powell’s semiannual testimony before Congress beginning at 12:00 p.m. ET and Kashkari also speaking at 1:30 p.m. ET.

The start of Q2 earnings season will also remain in focus with notable reports coming from: WFC ($0.97), BAC ($0.78), C ($1.99), DAL (-$1.37), BLK ($9.24), and PNC ($4.22).

FOMC Preview

What’s in Today’s Report:

  • FOMC Preview
  • Gold Update: Technical Weakness Ahead of the Fed

Futures are little changed this morning as investors weigh dovish central bank developments against in-line inflation data in Europe as focus turns to U.S. data and the Fed.

The RBA minutes revealed policy makers are open to extending QE beyond the current September deadline while CPI reports in Europe all met estimates.

This morning is lining up to be a busy one from a potential catalyst standpoint with a slew of economic data due to be released including: PPI (E: 0.6%), Retail Sales (E: -0.4%), Empire State Manufacturing Index (E: 22.0), Industrial Production (E: 0.6%), and Housing Market Index (E: 83).

The June FOMC Meeting also begins today which will likely initiate a sense of market paralysis ahead of tomorrow’s announcement and Powell’s press conference however a 20-Year Treasury Bond auction at 1:00 p.m. ET could move Treasuries and ultimately impact stocks in the early afternoon.

Infrastructure Outlook: Good/Bad/Ugly

What’s in Today’s Report:

  • Infrastructure Outlook:  Good/Bad/Ugly
  • Oil Update & EIA Analysis (Can the Rally Keep Going?)

Futures are little changed following a quiet night and ahead of the week’s two big events, the ECB decision and U.S. May CPI report.

Economic data was sparse although Japanese PPI rose more than expected at 4.9% vs. (E) 3.8% yoy.  But, investors expect high inflation readings this month so it’s not moving markets.

Today the two key events are the ECB Rate Decision (E: No Change) and U.S. CPI (E: 0.4% m/m, 4.6% y/y).  Generally speaking, if the ECB is specific on tapering and core CPI runs close to 4.0% yoy (expectations are for 3.4% yoy in Core CPI) then we should expect volatility as the data will imply less central bank accommodation and more inflation. Conversely, if the ECB is vague on tapering and inflation largely meets expectations, then stocks can extend the rally.

The other notable event this morning is Jobless Claims (E: 369K) but given the issues with the labor market are supply driven (people not wanting to work) the market isn’t as focused on jobless claims any longer.

Why the JOLTS Report Matters to Markets

What’s in Today’s Report:

  • Why the JOLTS Report Matters to Markets

Stock futures are little changed this morning while overseas markets were down modestly overnight as a sense of trader paralysis grips global markets ahead of key catalysts due in the back half of the week.

Economically, Chinese PPI hit 9.0% vs. (E) 8.3% in May, the hottest reading since 2008, however, May CPI was 1.3% vs. (E) 1.5%, keeping inflation fears relatively subdued.

There are no market moving economic reports on the calendar for today and no Fed officials are scheduled to speak however the Treasury will hold a 10-Yr Note auction at 1:00 p.m. ET.

The Treasury auction could move markets today but only if there is a big surprise in the results as markets are more likely to continue to churn into tomorrow’s CPI report and ECB Announcement.