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Yield Curve Update

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What’s in Today’s Report:

  • Yield Curve Update

Futures are little changed following a night of mixed earnings and economic data.

Earnings overnight were disappointing with SNAP (down 20%) and INTC (down 3%) posting disappointing results, although they aren’t hitting the market broadly.

Economic data was mixed as UK flash PMI beat estimates (56.8 vs. (E ) 54.0) while the Euro Zone PMI slightly missed expectations (54.3 vs. (E ) 55.2).  But, neither number is materially moving markets.

Today the key economic report is the October Flash Manufacturing PMI (E: 60.7) and markets will want to see continued stability in the economic recovery.  We also get two Fed speakers, Daly (10:00 a.m.) and Powell (11:00 a.m.), although we do not expect anything incremental regarding tapering expectations (everyone now expects tapering to start in November).

On the earnings front, three notable reports we’ll be watching today are: AXP ($1.78), HON ($2.01) and SLB ($0.36).

Focus Turns to Earnings and Yields

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What’s in Today’s Report:

  • Focus Turns to Earnings and Yields (And Away from Washington, For Now)
  • Weekly Market Preview:  Will Earnings Results Ease Market Anxiety?
  • Weekly Economic Cheat Sheet:  Key Inflation and Growth Data this Week

Futures are modestly lower on a resumption of the commodity rally following an otherwise quiet weekend.

Energy prices (oil, natural gas, coal) are all rallying again (up 2% – 3%) and that’s increasing global inflation anxiety, which is weighing moderately on futures.

Global bond yields are also rising as two hawkish Bank of England members warned of a possible rate hike this year, although that is not the consensus expectation (although a rate hike from the BOE in early 2022 is looking more likely).

Today is Columbus Day and the U.S. bond markets are closed and there are no economic reports today, although there is one Fed speaker: Evans (6:00 p.m. ET).  So, commodity prices are Treasury yields should drive trading today.  The more they rise, the stronger the headwind on stocks will become.

As Tech Goes, So Goes the SPY (And Tech Is Facing Headwinds)

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What’s in Today’s Report:

  • As Tech Goes, So Goes the SPY (And Tech Is Facing Headwinds)

Futures are enjoying a modest bounce following yesterdays’ declines after a generally quiet night of news.

Economic data was solid overnight as both EU (56.2 vs. (E) 56.1) and UK (54.9 vs. (E) 54.1) September Composite PMIs beat estimates, reflecting stability in the global economic recovery.

On inflation, Euro Zone PPI rose 1.1% vs. (E) 1.3%, implying inflation pressures could be starting to ease.

Today focus will be on economic data and specifically the ISM Services PMI (E: 60.0).  Markets will want to see stability in this number to further confirm the COVID spike in July/August didn’t have a lasting impact on the recovery.  We also get two Fed speakers today, Barkin (10:30 a.m. ET) and Quarles (1:15 p.m. ET), and markets will continue to be on the lookout for any signs of a compromise on the reconciliation/debt ceiling bill (although nothing material is expected today).

Dow Theory Update

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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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Is Stagflation Possible? Yes.

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What’s in Today’s Report:

  • Is Stagflation Possible?  Yes.

Futures are little changed ahead of this morning’s jobs report.

Economic data underwhelmed overnight with Japanese Household Spending falling –3.2% while German Industrial Production missed estimates (-1.3% vs. (E) 0.5%).

On COVID, headlines remain net negative as cases continue to rise and analysts look for any signs of a loss of economic momentum (so far there’s nothing concrete).

Today the focus is on the jobs report and expectations are as follows:  Job Adds:  900K, UE Rate:  5.7% and Wages: 0.3% m/m and 3.8% y/y.  Again, the biggest risk to markets is for a “Too Hot” jobs number that shifts the tapering timeline, and if that occurs we should brace for volatility.

Tom Essaye Quoted in Barron’s on August 4, 2021

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GM Drops, Under Armour Rises, and Stocks Are Falling After Weak Jobs Data

Markets look ahead to key economic data in the…wrote Tom Essaye, founder of Sevens Report Research before the jobs report hit the wires. Click here to read the full article.

Why Economic Data is Stronger Than it Appears

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What’s in Today’s Report:

  • Why Economic Data Is Stronger Than It Appears

Futures are drifting slightly higher following a mostly quiet night of news.

COVID headlines were mixed as Los Angeles reimposed an indoor mask mandate (negative) while President Biden said the U.S. could ease travel restrictions from Europe soon (positive).  Bottom line, concerns about the Delta variant are a market influence (mild headwind) but at this point, it’s not enough to cause a material pullback.

Economic data was minimal as EU HICP met expectations (0.3% m/m and 1.9% y/y).

Today, focus will be on economic data, specifically Retail Sales (E: -0.4%) and the inflation expectations component in Consumer Sentiment (E: 87.0).  As has been the case, markets will want “Goldilocks” results for both retail sales and inflation expectations (so strong, but not too strong).  There is also one Fed speaker, Williams (9:00 a.m. ET), but he shouldn’t move markets.

Second Half Outlook

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What’s in Today’s Report:

  • Second Half Outlook
  • Weekly Economic Cheat Sheet

Stock futures are little changed with investors focused on OPEC+’s failure to reach a new output policy agreement yesterday while economic data was mixed overnight.

OPEC+ called off a follow-up meeting yesterday after the UAE would not agree to extending production cuts through 2022 which drove oil to new multi-year highs in overnight trading as current cuts will remain in place by default, deepening supply deficit expectations for the second half of the year.

Economically, Final Composite PMI reports were mostly as expected while EU Retail Sales topped estimates but none of the data materially moved markets overnight.

Today, there is just one notable economic report to watch: ISM Services Index (E: 63.5), and no Fed officials are scheduled to speak. That will leave investors focused on the oil market in the wake of the OPEC+ developments as well as awaiting any news on infrastructure as the calendar is otherwise fairly quiet as we start the holiday-shortened trading week today.

Why Did Cyclicals Collapse Yesterday?

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What’s in Today’s Report:

  • Why Did Cyclicals Collapse Yesterday? (Reflation vs. No-Flation)

Futures are slightly lower following a generally quiet night of news.

Economic data was mixed overnight as UK Retail Sales missed estimates (-1.4% vs. (E) 1.8%) while both Japanese and German inflation metrics (CPI and PPI) slightly beat estimates.

The Bank of Japan made no change to policy and extended its COVID lending programs by 6 months (as expected).

Today there are no Fed speakers and no notable economic reports so focus will be on the “micro-economic” and whether we see a continuation of the large tech outperformance from yesterday. Also, there is a quadruple witching options expiration today which will cause large volumes (and possibly volatility) into the close.

Why Treasury Yields Keep Falling

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What’s in Today’s Report:

  • Why Treasury Yields Keep Falling

Futures are slightly higher on some mild infrastructure optimism.

A group of 10 bipartisan Senators reached a compromise on an infrastructure bill worth about $1T total that includes $600 billion of new spending over 5-8 years and contains no corporate tax hikes.   But, this compromise is still very unlikely to ever become law, mainly because the spending is paid for via an increase in the gas tax, which Democrats have previously been against.

Economic data underwhelmed as UK Industrial Production (1.3% vs. (E) 1.2%) and UK GDP both missed estimates.

Today focus will be on Consumer Sentiment (E: 84.0) and specifically inflation expectations, and if we see a big rise in the one and five year inflation expectations that could cause a rally in Treasury yields, which would pressure stocks.  However, barring that event, the path of least resistance for markets right now is higher.