Tom Essaye Quoted in Barron’s on October 25th, 2022

Stocks Rise A Third Day Ahead of Tech Earnings

Since Friday’s renewed hopes for peak-hawkishness, bad news is good news for markets,” wrote Sevens Report’s Tom Essaye. Click here to read the full article.

Sevens Report Analysts Quoted in Market Watch on October 25th, 2022

Oil prices finish higher with supply concerns back in focus

“The negative China headlines and soft U.S. economic data were demand-side negatives for oil. However, hopes for peak-hawkishness bolstered risk assets” analysts at Sevens Report Research wrote in a Tuesday newsletter. Click here to read the full article.

A Critical Week for Stocks

What’s in Today’s Report:

  • A Critical Week for Stocks
  • Weekly Market Preview:  Will the Fed confirm smaller rate hikes in the months ahead?
  • Weekly Economic Cheat Sheet:  Is the U.S. economy quickly losing momentum?

Futures are modestly lower following disappointing inflation data and as Russia suspended grain shipments from Crimea.

EU HICP (their CPI) ran hotter than expected, rising 10.7% vs. (E) 10.2% y/y while Core HICP rose 5.0% vs. (E) 4.8%, again showing that inflation pressures are not easing.

Russia suspended grain shipments in response to rocket attacks on Crimea, sending wheat prices sharply higher which will add to inflation pressures.

Today there are no economic reports but there are some notable earnings, especially from the semi-conductor companies and some companies we’re watching include:  ON ($1.31), NXPI ($3.62), CAR ($14.80).

A Tale of Two Markets?

What’s in Today’s Report:

  • A Tale of Two Markets?

Futures are moderately lower following another disappointing night of earnings.

AMZN became the latest mega-cap tech stock to miss earnings and the stock fell more than 10% after hours.  AAPL posted “ok” results and rose 1% overnight.

Economically, the Italian CPI was hotter than expected (11.9% vs. (E) 9.7% yoy) as inflation remains sticky in the EU.

Focus today will be on inflation data, specifically the Core PCE Price Index (0.5% m/m, 5.2% y/y).  If this number comes in under expectations, that’ll be a mild positive for markets.  Also on the inflation front, the Employment Cost Index (E: 1.2% q/q, 5.0% y/y) will be closely watched by the Fed, while the University of Michigan Five Year Inflation Expectations will be released inside of the Consumer Sentiment report (E: 59.7).  If those five-year expectations can drop further below 3%, that will be a positive for markets.

Other notable releases today include Pending Home Sales Index (E: -3.8%) and a few notable earnings results:  XOM ($3.88), CVX ($5.02), CL ($0.74).

How Far Could This Relief Rally Run?

What’s in Today’s Report:

  • Technical Support for a Near Term Bottom and How Far This Relief Rally Could Run
  • Chart: 10-Yr Note Futures Test Trend Resistance
  • Housing Market Update

Stock futures are trading lower this morning as soft tech earnings are overshadowing a continued bounce in bonds.

MSFT and GOOGL both fell roughly 6% overnight after delivering disappointing quarterly results yesterday afternoon which is dragging the broader tech sector lower in premarket trading.

Today, there are two economic reports to watch in the morning: International Trade in Goods (E: -$87.8B) and New Home Sales (E: 585K), while there is a 5-Yr Treasury Note auction in the early afternoon (1:00 p.m. ET).

Earnings will remain in focus today with BA (-$0.01), BMY ($1.83), HLT ($1.25), KHC ($0.55), and HOG ($1.45) reporting before the bell, and META ($1.88), F ($0.31), and CP ($0.77) releasing results after the close.

Bottom line, soft earnings out of mega-cap tech are weighing on the market this morning however stable bond markets are limiting losses. If we see Treasuries roll over today and yields begin to climb again, expect pressure on equities to pick up as both earnings expectations and multiple compression will weigh on stocks broadly.

The Market Impact of Global Political Developments

What’s in Today’s Report:

  • What the Political News from the U.K. and China Mean for Markets
  • October Flash Composite PMI Takeaways

Futures are modestly lower as the Chinese yuan fell to a 14-year low overnight while traders look ahead to big tech earnings.

Economically, the German Ifo Survey was better than feared with Business Expectations up to 75.6 vs. (E) 74.8.

Looking into today’s session, there are several economic reports due to be released: Case-Shiller Home Price Index (E: -0.8%), FHFA House Price Index (E: -0.7%), and Consumer Confidence (E: 106.0). Since Friday’s renewed hopes for peak-hawkishness, the bad news is good news for markets so further softening in the data could keep downward pressure on yields and support a continued rebound in equities today.

There is also a 2-Yr Treasury Note auction at 1:00 p.m. ET that could shed some light on bond traders’ outlook for the terminal rate as a weak outcome could send yields higher and ultimately see the stock market give back some of the Friday/Monday gains.

Finally, earnings season is becoming the market’s primary focus and there are a lot of big names reporting today including: UPS ($2.84), KO ($0.64), GM ($1.89), MMM ($2.61), JBLU ($0.24), and SYF ($1.42) before the bell, while GOOGL ($1.25), MSFT ($2.30), and V ($1.86) are due to report after the close.

How (and Why) We Calculate Real Interest Rates

What’s in Today’s Report:

  • How (and Why) We Calculate Real Interest Rates

Futures are moderately lower following a disappointing night of earnings.

Thursday night was the first bad night of earnings as SNAP and WHR both posted underwhelming results, while numerous European companies also missed estimates.

Economically, the Japanese CPI ran hot (3.0% vs. (E) 2.9%), like virtually every other inflation indicator this week.

Today there are no economic reports and just one Fed speaker, Williams (9:10 a.m. ET), but he shouldn’t move markets.

Instead, the focus will continue to shift toward earnings and the markets needs some good results to rally today.  Reports we’re watching today include: VZ ($1.28), AXP ($2.38), SLB ($0.55), HCA ($3.89).

Economic Breaker Panel

What’s in Today’s Report:

  • Economic Breaker Panel (October Edition)
  • Oil Update and EIA Analysis

Futures are slightly lower following a night of mixed earnings results and yet another firm inflation report.

TSLA missed on revenue and production targets and the stock fell –5% after hours, although overall earnings reports were more mixed than negative overnight.

German PPI was the latest global inflation indicator to run hotter than estimates (2.3% vs. (E) 1.5%) reinforcing that global inflation is proving “sticky.”

Today’s focus will be on economic data and the key reports are (in order of importance): Philly Fed (-5.0), Jobless Claims (E: 235K), and Existing Home Sales (E: 4.695M).  If we can see a moderation in the data (especially in the price indices in Philly Fed) then stocks can rally.  We also get numerous Fed speakers including: Harker (12:00 p.m. ET), Jefferson (1:30 p.m. ET), Cook (1:45 p.m. ET), and Bowman (2:05 p.m. ET) but none of them should move markets.

Finally, earnings season rolls on although the critically important results really increase next week.  Some reports we’re watching today include:  AAL ($0.54), SNAP ($0.00), and WHR ($5.59).

Incremental Positive Developments

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.

Is the UK Fiscal Crisis Over?

What’s in Today’s Report:

  • Is the U.K. Fiscal Crisis Over? (If So, What Does It Mean for Markets?)
  • Empire State Manufacturing Index Takeaways

U.S. equity futures are up more than 1% in sympathy with EU markets following mixed messages about BOE policy.

An FT article overnight said the BOE would delay QT plans further in an attempt to insure stability in U.K. markets which fueled a continued rebound in risk assets, however, the BOE later said the report was “inaccurate” which has seen some of those pre-market moves unwind.

Looking into today’s session, there are two economic reports to watch: Industrial Production (E: 0.1%) and the Housing Market Index (E: 44) while there are two Fed officials scheduled to speak: Bostic (2:00 p.m. ET) and Kashkari (5:30 p.m. ET).

Earnings season will continue to pick up today with GS ($7.47), JNJ ($2.49), and LMT ($6.60) reporting ahead of the bell while NFLX ($2.11), UAL ($2.21), and JBHT ($2.46) releasing results after the close.

Bottom line, risk assets remain buoyant following last week’s volatility, and as long as fixed-income markets continue to stabilize and earnings do not materially disappoint, the relief rally that stocks enjoyed yesterday should be able to extend higher today.