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Technical Market Update

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What’s in Today’s Report:

  • Technical Market Update
  • Why are Small Caps Outperforming?
  • How Bad Was Economic Data Yesterday? (Answer:  Bad)

Futures are extending Wednesday’s losses following more disappointing earnings and as worries about the economy grow.

Alcoa (AA), Allstate (ALL), and Discovery Financial (DFS) posted soft earnings or negative guidance overnight.

Today we get several important economic reports including, in order of importance: Philly Fed (E: -10.3), Jobless Claims (E: 215K), and Housing Starts (E: 1.362M).

There are also several Fed speakers and the most important one is Brainard (1:15 p.m. ET) and if she’s slightly dovish, that will help markets stabilize.  Collins (9:00 a.m. ET) and Williams (6:35 p.m. ET) also speak today.

Finally on the earnings front, we get more important results today and the market needs some good news.  Reports we’re watching include:  PG ($1.58), FAST ($0.42), NFLX ($0.45), and PPG ($1.15).

Has the Outlook for China Finally Turned Positive?

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What’s in Today’s Report:

  • Has the Outlook for China Finally Turned Positive?
  • Chart – FXI (China) vs. S&P 500 Divergence
  • Empire State Manufacturing Survey Takeaways

Stock futures were volatile o/n as the BOJ doubled down on their bond-buying program, sending the yen lower by nearly 3% but markets have stabilized as focus turns to a busy morning of economic data and more earnings in the U.S.

Economically, Eurozone HICP met estimates at 9.2% y/y and the Narrow Core also met estimates at 5.2% y/y.

Looking into today’s session, focus will be on earnings in the pre-market with SCHW ($1.10) and PNC ($3.95) due to release earnings ahead of the bell while DFS ($3.58) will report after the close.

There is also a slew of economic data due out this morning including: Retail Sales (E: -0.8%), PPI (E: -0.1%, 6.8%), Industrial Production (E: -0.1%), and the Housing Market Index (E: 31). The market wants to see data continue to point to slowing, but not collapsing growth (as we saw with the Empire report yesterday) and a continued deceleration in inflation metrics to maintain bets for a soft landing.

As far as other catalysts go, there are two Fed speakers to watch this morning: Bostic (9:00 a.m. ET) and Bullard (9:30 a.m. ET) and then a 20-Yr Treasury Bond auction at 1:00 p.m. ET.

Bottom line, much of the recent rally has been based on hopes for a soft landing and less hawkish pivot by the Fed and anything that contradicts those two possibilities would likely trigger a wave of volatility today.

Is a Soft Landing More Likely Now?

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What’s in Today’s Report:

  • Is a Soft Landing Really More Likely Than Before?
  • Weekly Economic Cheat Sheet – Stagflation or Soft Landing?

Stock futures are lower and bond yields are climbing on the back of strong economic data and hawkish ECB chatter.

Chinese economic data was strong overnight while the German ZEW Survey surprised to the upside and U.K. wage growth rose to a record 6.4% vs. (E) 6.1%.

Meanwhile, the ECB’s Chief Economist, Philip Lane, made hawkish comments about rates rising into restrictive territory overnight which is weighing on recently dovish-leaning investor sentiment.

Today, focus will be on earnings early with: GS ($5.25), MS ($1.25), CFG ($1.30) all reporting ahead of the bell while UAL ($2.07) will release results after the close.

Economically, there is one important report this morning: Empire State Manufacturing Index (E: -7.5) and there is one Fed speaker to watch this afternoon: Williams (3:00 p.m. ET).

Fed Speak and Updated Rate Expectations

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What’s in Today’s Report:

  • Fed Speak and Updated Rate Expectations
  • CPI Takeaways

Futures are slightly lower following mixed economic data, as markets continue to digest increased hopes for an economic “soft landing.”

Chinese exports declined but fell less than expected (-9.9% vs. (E) -11.1%), offering more “not as bad as feared” news.

Today’s focus will switch to earnings (and that’s true for next week too) and key reports today include:  JPM ($ 3.11), BAC ($ 0.76), C ($ 1.18), UNH ($5.17), WFC ($0.63) and BLK ($ 8.00).  If earnings are better than feared, that should help stocks extend yesterday’s gains.

Economically the focus will stay on inflation with Import & Export Prices (E: -0.9%, -0.7%) and Consumer Sentiment (E: 60.0) while we get another Fed speaker: Harker (10:20 a.m. ET).  As has been the case, anything that implies declining inflation and/or a 25 bps rate hike in February will help stocks rally.

Why Friday’s Data Wasn’t As Positive As the Market Implied

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What’s in Today’s Report:

  • Why Friday’s Data Wasn’t As Positive As The Market Implied
  • Weekly Market Preview:  Can Inflation Fall Faster than Growth?
  • Weekly Economic Cheat Sheet:  All About Inflation (CPI the Key Report)

Futures are modestly higher mostly on momentum from Friday’s close, following a quiet weekend of news.

Stocks rallied on Friday thanks to increasing hopes for an economic soft landing, and nothing happened over the weekend to offset that hope.

Economic data met expectations as German Industrial Production and EU Unemployment were both in-line.

Today focus will be on the NY Fed Inflation Expectations (Previous:  4.0% one-year, 3.8% three-year), and if they decline from previous levels that will be positive.  We also get one Fed speaker, Bostic (12:30 p.m. ET).

Jobs Day

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What’s in Today’s Report:

  • Why Yesterday’s Employment Data was Bad for Stocks and Bonds
  • Answering a Question About the Bond Market

Futures are little changed ahead of the jobs report and following mixed European economic data.

EU HICP (their CPI) was disappointing on balance as the headline rose less than expected (9.2% vs. (E) 9.5%) but the more important Core HICP gained 5.2% vs. (E) 5.0%. This report partially refutes the encouraging inflation data from earlier this week.

Today focus will be on the Jobs Report and expectations are as follows:  Job Adds 200K, UE Rate 3.7%, Wages 0.4% m/m, 5.0% y/y.  If we get another solid number above 200k, expect more weakness in stocks and bonds as that will be viewed as “hawkish” data, while a job adds number close to 100k could spark a sharp rally, given yesterday’s declines.

The jobs report isn’t the only important economic report today, however, as the ISM Services Index (E: 55.0) is released later this morning.  Markets will want to see a moderation in both the headline and prices readings.

Finally, there are three Fed speakers today:  Cook (11:15 a.m. ET), Bostic (11:15 a.m. and 3:30 p.m. ET), and Barkin (12:15 p.m. ET).

Jobs Report Preview

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What’s in Today’s Report:

  • Jobs Report Preview
  • What Political Dysfunction Means for Markets (Not Now, But Later)

Futures are slightly higher following more signs of disinflation in the EU.

Euro Zone PPI fell more than expected (-0.9% vs. (E ) -0.5%) and that’s the third EU inflation statistic this week to imply inflation has peaked and is receding.

Politically, Rep. McCarthy failed to become Speaker again yesterday although he is expected to win eventually.

Focus today will be on economic data and the key reports are all employment related:  Challenger job cuts (Previous 76,835), ADP Employment Report (E: 145K) and Jobless Claims (E: 228K).  Again, markets want to see a moderation in this employment data so underwhelming reports will be embraced by the market.  Finally, we also have two Fed speakers, Bostic (9:20 a.m. ET) and Bullard (1:20 p.m. ET), but data will move markets more than Fed speak at this point.

Three Keys to a Bottom: Update

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What’s in Today’s Report:

  • Three Keys to a Bottom: Update
  • Weekly Economic Cheat Sheet – Jobs Report in Focus

U.S. equity futures have a tentative bid to start the new year today as tech stocks are outperforming amid a sharp pullback in Treasury yields.

Economically, China’s Manufacturing PMI fell to 49.0 in December from 49.4 in November while the U.K.’s Manufacturing PMI came in at 45.3 vs. (E) 44.7 last month. Both figures remained well below 50, in contraction territory, and that is seeing some of the recent hawkish central bank expectations unwind as we begin the new year.

Looking into today’s session, there are two economic reports to watch in the U.S., the Manufacturing PMI (E: 46.2) and Construction Spending (E: -0.4%).

Investors will be looking for data that points to a continued slowdown in growth but a more pronounced drop in price readings as that should help further ease hawkish policy expectations and allow the early but tentative risk-on money flows to continue.

There are no Fed officials scheduled to speak and no notable Treasury auctions today. That will leave investors focused on Treasuries as a continued drop in yields today should support a continued bid in tech stocks and equities more broadly as traders reposition into the new year.

 

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Why There’s Some Cause for (Cautious) Optimism

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What’s in Today’s Report:

  • Why There’s Some Cause for Cautious Optimism

Futures are slightly lower following a quiet night of news as markets digest Thursday’s rally.

Economically the only notable number was the UK Home Price Index, which like the U.S. readings this week saw smaller than expected declines, falling –0.1% vs. (E) -0.7%.

Geopolitically, Russia continued Thursday’s missile bombardment of Ukraine is a clear signal that fighting will rage on as the New Year begins.

Trading today will be dominated by book squaring and year-end positioning but there is one notable economic report, Chicago PMI (E: 41.0), and if it’s weak it could weigh on markets moderately.

The Key Events to Start 2023

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What’s in Today’s Report:

  • The Key Events to Start 2023

Futures are slightly higher following a quiet night of news as markets bounce following Wednesday’s declines.

The economic calendar was mostly quiet overnight and the only notable economic report was Euro Zone Money Supply while was essentially in-line with expectations, rising 5.4% vs. (E) 5.5%.

In China, COVID cases continue to explode higher and there were reports of overwhelmed hospitals, but officials are proceeding with a full economic reopening.

Today the focus will be on Jobless Claims (E: 222K) and markets will want to see this number move higher towards 250k (and ultimately 300k).  If claims remain stubbornly low, that could weigh on stocks (like it did last week).