Market Multiple Levels: S&P 500 Chart

What’s in Today’s Report:

  • Market Multiple Levels: S&P 500 Chart

U.S. equity futures fell with global stocks overnight amid ongoing stagflation fears but optimism that the House will pass the debt ceiling bill today has helped stocks stabilize.

Economically, the German ZEW Survey slightly missed estimates while the NFIB Small Business Optimism Index was 99.1 vs. (E) 99.5 but neither report is materially moving markets this morning.

Looking into today’s session, there is just one economic report to watch: August JOLTS (E: 11.013M) but it would take a meaningful surprise in the release to impact markets as it is a very dated report.

Meanwhile, there are no Fed officials scheduled to speak but there are two notable Treasury auctions to watch: 3-Yr Note (11:30 a.m. ET) and 10-Yr Note (1:00 p.m. ET).

Outside any potential surprises from Congress regarding the bill to raise the debt limit, if we see rates continue to accelerate higher on inflation worries today, then stocks could remain volatile and potentially test last week’s lows.

Tom Essaye Quoted in Barron’s on October 7, 2021

The Dow Closes Higher on Debt Ceiling Deal and Ahead of Friday’s Critical Jobs Report

For Friday’s trading, if the employment result shows more than 750,000 jobs were added…writes Tom Essaye, founder of Sevens Report Research. Click here to read the full article.

Jobs Day

What’s in Today’s Report:

  • Jobs Report Preview (Abbreviated Version)

Futures are little changed as the debt ceiling extension was made official during an otherwise quiet night.

Economic data was mixed as the Chinese Service Sector PMI beat estimates (53.4 vs. (E) 49.1) while Japanese House Hold Spending missed expectations (-3.0% vs. (E) -1.9%), but those numbers aren’t moving markets.

The debt ceiling extension was signed late last night and the proverbial “can” has been kicked to late December.

Today focus will be on the Employment Situation report are expectations are as follows:  E: Job Adds: 475K, UE Rate:  5.1%, Wages:  0.4% m/m 4.6% y/y.  Treasury yields remain buoyant (the 10-year yield was above 1.60% overnight) so risk remains that a “Too Hot” number spikes yields and hits stocks.


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Jobs Report Preview

What’s in Today’s Report:

  • Is a Debt Ceiling Deal a Bullish Catalyst?
  • Jobs Report Preview
  • EIA Data Takeaways and Oil Update

Stock futures are trading higher with global shares this morning as investors cheer the likely deal to extend the debt ceiling while falling energy prices, particularly in Europe, are helping ease broader inflation concerns.

Economically, German Industrial Production for August was very disappointing with a -4.0% headline drop in August (E: -0.4%) however the data is not materially moving markets this morning.

Looking into today’s session, there is just one economic report to watch: Jobless Claims (E: 348K), but a meaningful beat or miss in the headline could cause a hawkish or dovish reaction in markets ahead of tomorrow’s September jobs report.

Additionally, there are a few central bank events that could move markets: ECB Minutes (7:30 a.m. ET) and Cleveland Fed President Loretta Mester speaks (11:45 a.m. ET).

Beyond those potential catalysts, markets will remain focused on the debt ceiling negotiations in Washington and bond yields. And as long as there is not material deterioration in the former or a major resurgence higher in the latter, then stocks should be able to maintain yesterday’s upside momentum.

How Bad Was the News Last Week?

What’s in Today’s Report:

  • How Bad Was the News Last Week?
  • Weekly Market Preview:  Can Democrats Close the Gap?
  • Weekly Economic Cheat Sheet:  Jobs Report Friday.

Futures are modestly lower following a mostly quiet weekend of news as investors digested last week’s volatility.

On the Debt Ceiling and other Washington issues, there was no major progress over the weekend although Democrats continue to narrow the gap and progress is occurring towards a compromise deal between liberals and moderates (the compromise is likely at $1.5 trillion and the current negotiations are just above $2 trillion, down from $3.5 trillion).

Trade will be in focus again today as the Biden Administration gives a China trade and tariff update at 10:00 a.m. although no new tariffs are expected.

Today there are no notable economic reports although there are two Fed speakers, Bullard and Rosengren, both at 10:00 a.m. ET.  So, focus will be on the trade speech at 10:00 and on the Democrat’s ongoing negotiations.  Any signs of further progress towards a deal could help extend Friday’s rally.

Dow Theory Update

What’s in Today’s Report:

  • Dow Theory Update

Futures are modestly lower to start the fourth quarter as House Democrats failed to pass infrastructure legislation, while economic data was better than expected.

House Democrats remain divided about the size of the infrastructure and reconciliation bills, and the Debt Ceiling can’t be increased until a compromise is found.

EU and UK global final PMIs slightly beat estimates while EU Core HICP (their CPI) was slightly hot (1.9% yoy vs. (E) 1.8% yoy), implying the global recovery remains on track and that inflation pressures are still firm.

Today’s focus will be on important economic reports.  First, the Core PCE Price Index (E: 0.2%, 3.6%) is the Fed’s preferred measure of inflation and if it’s much hotter than expectations, that will push yields higher and be another headwind on stocks.  Also, the ISM Manufacturing PMI (E: 59.8) gets released and markets will want to see stability there.  We also get Consumer Sentiment (E: 71.0) and the inflation expectations component will be closely watched.  Finally, there are two Fed speakers today, Harker (11:00 a.m. ET) and Mester (1:00 p.m. ET) but neither should move markets.


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Why the Debt Ceiling Deal Isn’t a Positive for Markets, September 7, 2017

Bottom Line: Fischer & Debt Ceiling Not Market Positives

The two big news items Wednesday were the resignation of Fed Vice Chair Fischer, and the agreement on a three-month debt ceiling extension/government funding deal.

Starting with the former, Fischer’s resignation makes the Fed very slightly more dovish (Fischer was a modest hawk) but really the future path of Fed interest rates depends a lot more on inflation data than it does Fed personnel.

From a market standpoint, the odds of a December rate hike appropriately declined slightly Tuesday. But again, Fischer’s departure isn’t a dovish gamechanger, and if inflation metrics move higher between now and December we’ll still get a rate hike. From a stock standpoint, other than the temporary pop yesterday, I don’t see this news as an influence.

Turning to Washington, as usual, politicians have kicked the can down the road. On a positive note, we won’t see a debt ceiling drama or shutdown drama in late-September.

On a negative note, we likely will see an even more intense budget battle into the year-end. This will be all the more contentious because now tax cuts will be thrown into the mix, assuming Republicans have a concrete plan by then.

From a market standpoint, this is a very short-term positive in so much as it removes the possibility of a crisis over the next few weeks.

However, it sets up an even bigger potential negative into the end of the year. Bottom line, the debt ceiling/government funding agreement is not an incremental positive for markets, and we don’t expect it to push stocks higher from here.

In sum, both of Wednesday’s headlines had no real impact on our overarching macro view. We remain cautiously positive on stocks, but continue to believe that tax cuts and earnings hold the key to performance for the remainder of 2017.

Cut through the noise and understand what’s truly driving markets, as this new political and economic reality evolves. Start your free two-week trial of The Sevens Report today.


Shutdown vs. Debt Ceiling, August 30, 2017

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Washington will be at the epicenter of markets in September, and for four reasons: Progress (or lack thereof) on tax cuts, Fed balance sheet reduction, debt ceiling increase and government shutdown. I’ve covered the first two in the Report at length, but I haven’t spent a lot of time on the latter two events.

And, once media coverage moves on from the tragedy of Hurricane Harvey, as it undoubtedly will shortly, it will refocus on Washington, and specifically the debt ceiling and government shutdown, as both are coming up fast.

The shutdown and debt ceiling fight have the potential to cause a pullback in stocks, and both will undoubtedly be referenced by scary headlines on the financial media.

In reality, the chances of either event actually hitting stocks is low, and I want to spend a few minutes to give you the “need to know” on each event, and what needs to happen for either event to push stocks lower.

Government Shutdown Deadline Dates: September 30th. Why It’s A Potential Problem: The border wall. What Needs To Happen: Congress must pass a budget by that date or begin to close non-essential government services. Last Time It Happened: 2013. Will It Cause A Pullback? Almost certainly not.

The fight here seems to revolve around Trump’s border wall. The president wants funding for the wall included in the budget, but Democrats have vowed to vote against any budget that includes the border wall.

That stalemate could cause a shutdown as Republicans would have to vote as a block to pass the budget over Democrat opposition, and that’s just not something that’s likely to happen.

What Likely Happens: September 30th isn’t a hard deadline, as Congress can pass short-term “continuing resolutions” to keep the government funded and open while the negotiations get settled. Probability of a Shutdown: 20%.

Debt Ceiling. Deadline Date(s): September 30th, midOctober. Why It’s a Potential Problem: Because it’s Washington, and they can’t do anything easily (at least not so far). What Needs to Happen: Congress must pass a debt limit extension by the deadline. Last Time It Happened: Never. The government has never failed to raise the debt ceiling, although there was a big scare in 2011 that spooked markets. Will It Cause A Pullback? Almost certainly not.

There isn’t any specific issue that could cause the debt ceiling to not be extended, but again, it’s Washington—so nearly anything is possible.

What Likely Happens: Of the two issues (government shutdown and debt ceiling) the debt ceiling is the much more serious one, because there isn’t the ability to kick the can down the road like there is with funding the government (i.e. no short-term extensions). So, I’d expect the debt ceiling will be raised with (relatively) little drama. Probability of a Default (i.e. not raising the debt ceiling): 15% (and that’s probably a mild over estimation).

Bottom Line
These two events will dominate headlines in the coming weeks, but a cold, unemotional look at the facts strongly suggest these are not going to be material headwinds on the markets this fall.

Progress (or not) on tax cuts, earnings, economic data and geopolitical dramas are the major threats to this 2017 rally as we enter the stretch run into year end.

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