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FOMC Preview: Is a Dovish Surprise Looming?

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What’s in Today’s Report:

  • FOMC Preview – Is a Dovish Surprise Looming?
  • Chart: An End to QT Means More Liquidity, More Stimulus

Futures are flat while most international markets are modestly lower as traders digest the sizeable two-day rally in stocks ahead of the October Fed meeting decision and several Mag-7 earnings releases.

Today, there are a handful of private-sector economic releases to watch including the Case-Shiller Home Price Index (E: 1.9%), the FHFA House Price Index (E: 0.1%), the Richmond Fed Manufacturing Index (E: -14), and Consumer Confidence (E: 93.4).

With the October FOMC meeting getting underway, expect a growing sense of Fed paralysis in equity markets to begin to take hold, however there is a 7-Yr Treasury Note auction at 1:00 p.m. ET that could move yields and shake up stocks on an intraday basis.

Earnings season continues to peak this week with notable reports today including SOFI ($0.09), UNH ($2.80), PYPL ($1.19), UPS ($1.31), V ($2.97), BKNG ($96.10), and RCL ($5.67).

Bottom line, positive earnings and upbeat economic data would offer equity market tailwinds today with a Fed rate cut all but a certainty tomorrow, however, the trade war situation remains a “wildcard” risk that could spark risk-off money flows into tomorrows FOMC decision.

 

Is the Dovish Fed Decision A Bullish Gamechanger?

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Is the Dovish Fed Decision A Bullish Gamechanger? Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • Is the Dovish Fed Decision A Bullish Gamechanger?
  • What Sectors and Assets Benefit Most from the Surprisingly Dovish Fed?

Futures are modestly higher on continued momentum from yesterday’s surprisingly dovish Fed decision.

Global investors aggressively embraced the idea of global rate cuts as the 10-year yield fell below 4% overnight.

On earnings, they’ve been soft this week and that continued with disappointing ADBE results (stock down 5% pre-market) although that’s not impacting the markets more broadly.

The busy week continues today with a BOE Rate Decision (E: No Change) and an ECB Rate Decision (E: No Change) and markets expect no rate cuts but dovish tones from both central banks.  If that’s the reality, it’ll just add more fuel to the dovish rally.

Economically, the key reports today are Jobless Claims (E: 223k) and Retail Sales (E: -0.1%).  The Fed’s dovish pivot will overshadow these reports unless they show a sudden deterioration (so spike in claims and drop in retail sales) and barring those results, they shouldn’t move markets.

Bullish

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FOMC Meeting Minutes Takeaways

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FOMC Meeting Minutes Takeaways: Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • FOMC Meeting Minutes Takeaways (Dovish in Hindsight)
  • Existing Home Sales Data Offers Mixed Signals

Futures are modestly higher this morning as a pullback in oil futures is pushing bond yields lower while investors digest a volatile reaction to mostly positive NVDA earnings.

Economically, U.K. CBI Industrial Trends saw the headline Orders Balance fall -35% vs. (E) -25% in November which is driving dovish money flows this morning.

Today’s economic calendar is a busy one with Durable Goods Orders (E: -3.2%), Jobless Claims (E: 225K), and Consumer Sentiment (E: 60.5, 1-Yr Inflation Expectations: 4.4%) all due to be released before 10:00 a.m. ET.

There are no Fed speakers today so markets will trade off of the data. If the reports are largely in line, expect mostly sideways price action with the Thanksgiving Day break looming, however, hawkish or dovish surprises will still move markets despite thin attendance and low volumes.

The Treasury will hold auctions for 4-week and 8-week Bills at 11:30 a.m. ET. While auctions for these securities usually don’t move markets, investors are more closely watching auction results following the recent weak 30-Yr auction that roiled markets. As there is potential the outcomes impact equities in an otherwise quiet environment ahead of Thanksgiving.

FOMC Meeting Minutes Takeaways

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Fed Takeaways

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What’s in Today’s Report:

  • Is the More-Dovish-Than-Expected Fed Decision a Bullish Gamechanger? No. Here’s Why
  • Fed Decision Takeaways
  • EIA Data Takeaways and Oil Update

U.S. equity futures are rebounding modestly this morning but the price action is tentative as yesterday’s volatile reaction to the Fed decision and Yellen’s push back on “blanket” deposit guarantees are digested.

Looking overseas, the Swiss National Bank moved forward with a 50 bp rate hike overnight which showed policy makers’ increased confidence in the global banking system and continued commitment to reign in inflation pressures.

Looking into today’s session, there are a few economic reports to watch including: Jobless Claims (E: 195K) and New Home Sales (E: 645K).

There are no Fed officials scheduled to speak today but there is a 10-Yr TIPS auction at 1:00 p.m. ET which could offer some insight to the market’s view of long term inflation trends.

Bottom line, the late day selloff in equities yesterday was once again led by bank stocks after Treasury Secretary Yellen pushed back on the idea of expanded deposit insurance levels and today, that means bank stocks will again be in focus. If banks are able to stabilize, stocks broadly should be able to as well, but if we see more selling pressure, expect more volatility over the course of the day.

Is a Dovish Hike the Same as a Fed Pivot? No.

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What’s in Today’s Report:

  • Is a Dovish Hike the same as a Fed Pivot?  No.  Here’s Why.
  • EIA Update and Oil Analysis

Futures are little changed as rising hope of smaller than expected future rate hikes is being offset by ugly tech earnings.

Meta (FB) missed earnings and posted underwhelming guidance and the stock fell nearly 20% after hours, continuing this week’s trend of disappointing tech earnings.

Today will be a busy day of earnings and economic data.  The most important events of the day will come after the close via the AAPL ($1.26), AMZN ($0.22), INTC ($0.34) earnings, and given the disappointing tech earnings so far this week, the market will need solid numbers today.

Outside of those earnings, other key events today include the ECB Rate Decision (E: 75 bps hike), Durable Goods Orders (E: 0.6%), Jobless Claims (E: 223K) and Preliminary Q3 GDP (E: 2.3%) and the market will be looking for “just right” outcomes from each (an ECB that’s not too hawkish, and U.S. economic data that’s not too good or not too bad).

Sevens Report Analysts Quoted in ETF Trends on August 25th, 2022

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Gold ETFs Could Still Find a Place in a Diversified Portfolio

If the market responds to Powell in a dovish manner that should send inflation expectations even higher, while the dollar and yields should pull back, which would all result in tailwinds on gold. However, a hawkish and ‘growth-insensitive’ Powell would likely send gold back down towards $1,700, potentially by Friday’s close…analysts at Sevens Report Research said in a note. Click here to read the full article.

What Could Send Stocks Higher from Here (Three Factors)

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What’s in Today’s Report:

  • What Could Send Stocks Higher from Here (Three Factors)

Futures are slightly higher as comments by San Francisco Fed President Daly are being interpreted as slightly dovish. San Francisco Fed President Daly spoke after the close Thursday and said that Wednesday’s CPI was a “welcome sign” that could lead to a “slowing” in the pace of rate hikes (to 50 bps in September, not 75 bps).

Economic data was better than expected as both UK and EU Industrial Production slightly beat estimates.

Today focus will be on the University of Michigan 5-Year Inflation Expectations (E: 2.9%) as that’s the first inflation reading in August, and if it drops below expectations we should see a continued tailwind on stocks.

Understanding Fed Hawks vs. Fed Doves

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What’s in Today’s Report:

  • Understanding Fed Hawks vs. Fed Doves (Table)

Easing geopolitical tensions are driving risk on money flows this morning with U.S. stock futures higher by well over 1% while bonds and other safe havens decline.

Multiple news outlets reported overnight that Russian troops completed their drills and were returning to their bases, reducing fears of an imminent invasion of Ukraine.

There were a few economic reports overnight including the U.K. Labour Market report and the German ZEW Survey but both largely met estimates and neither meaningfully moved markets.

Looking into today’s session, there are no Fed speakers or Treasury auctions but there are two notable economic reports to watch: PPI (E: 0.5%, 9.2%) and Empire State Manufacturing Index (E: 10.0).

Bottom line, this is a headline driven market right now and investors will want to see continued de-escalation in the Russia-Ukraine conflict (German Chancellor Scholz meets with Russian President Putin) as well as a PPI print that is not too hot and Empire report that shows growth is not materially slowing for the overnight relief rally to extend higher.

Tom Essaye Quoted in Barron’s on August 30, 2021

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Affirm Holdings Soars, Moderna Falls — And What Else Is Happening in the Stock Market Monday

Futures are slightly higher mostly on momentum from Friday’s ‘dovish Powell’ rally, following…writes Tom Essaye, founder of Sevens Report Research. Click here to read the full article.

Using the Yield Curve to Measure Taper Expectations

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What’s in Today’s Report:

  • Using the Yield Curve to Measures Taper Expectations
  • Strong 2-Year Note Auction Implies a Dovish Powell

U.S. stock futures are slightly higher in very quiet trading this morning as investors assess the state of the pandemic against expectations about the Fed’s taper plans ahead of the Jackson Hole Economic Symposium later in the week.

Economically, the German Ifo Survey was slightly soft with the Business Climate headline falling to 99.4 vs. (E) 100.4 and Business Expectations declining to 97.5 vs. (E) 100.0.

Looking into today’s session, there is one economic report ahead of the bell: Durable Goods Orders (E: -0.2%, Core Capital Goods: +0.5%). As has been the case recently, the market will be looking for a report that is good enough to not suggest the recovery is losing momentum but not too strong that it would influence a sooner-than-later taper by the Fed.

As the day goes on, we will hear from one Fed official: Daly who is scheduled to speak at 1:00 p.m. ET however her comments should not move markets will focus already moving ahead to Powell’s speech on Friday.

Finally, there is a 5-Yr Treasury Note auction at 1:00 p.m. ET. If we see strong demand like we saw in yesterday’s 2-Year auction, then that could offer a modest, dovish tailwind to equities as it will suggest expectations for Powell’s speech are shifting more dovish.

Bottom line, there are a few potential market catalysts today, but the odds that the market makes a material move one way or another are low given the sense of Fed paralysis ahead of Powell’s speech on Friday.