Posts

Why the Fed Wants Higher Rates

/in , /by

What’s in Today’s Report:

  • Why Would the Fed Keep Hiking Rates if Inflation Is Coming Down?
  • Jobless Claims Chart – Critical to See Further Move Higher

Equity futures are modestly higher this morning as traders weigh renewed optimism about Chinese growth against more hawkish policy speak from multiple ECB officials, including President Lagarde, reiterating the need for a “higher for longer” policy rate path.

Premier Li of China confirmed the government is committed to achieving their 5% GDP target overnight which helped Asian markets outperform and fueled modest risk-on money flows around the globe.

Today’s list of economic data releases is a long one with Durable Goods Orders (E: -1.0%), Case-Shiller Home Price Index (E: 0.5%), FHFA House Price Index (E: 0.4%), Consumer Confidence (E: 103.7), and New Home Sales (E: 663K).

Beyond those economic reports, there are no Fed officials scheduled to speak today but there is a 5-Yr Treasury Note Auction at 1:00 p.m. ET that could move yields and influence equity market trading.

Bottom line, in order for markets to stabilize here and stocks to resume their 2023 rally, we will need to see signs of slowing, but not collapsing growth in today’s economic data and no surprises in the Treasury auction. Looking ahead, trading may slow down some today as investors position into tomorrow’s Central Bank Forum hosted by the ECB in which Fed Chair Powell will participate.

Earnings Disappointments Rekindle Economic Worries

/in , /by

What’s in Today’s Report:

  • Earnings Disappointments From FDX and WGO Rekindle Economic Worries
  • What the Strong Housing Starts Mean for Markets
  • Bear Flattening Trend in Treasuries Underscores Hawkish Fed Expectations

Stock futures are falling with global markets and yields are rising this morning after more hawkish central bank decisions overnight as focus turns to the BOE.

In Europe, monetary policy decisions were net hawkish as Norway’s central bank raised rates 50 bp vs. (E) 25 bp to 3.75% while the Swiss National Bank met estimates with a 25 bp hike to 1.75%. The rate hikes are pressuring global bond markets (yields higher) and weighing on sentiment, dragging equity markets lower.

Looking into today’s session, early focus will be on the Bank of England as a 25 bp hike to 4.75% in the benchmark policy rate is expected but there is risk of a 50 bp hike to 5.00% which would be another hawkish surprise for markets and likely result in rising yields and more pressure on overbought equity markets.

In the U.S. there are two economic reports to watch: Jobless Claims (E: 261K) and Existing Home Sales (E: 4.250M). A further rise in claims could bring into question whether or not the labor market is suddenly beginning to deteriorate meaningfully while strong housing data would warrant a hawkish reaction after the much better than expected Housing Starts print earlier this week.

From there, focus will turn to the Fed as Chair Powell continues his semi-annual Congressional testimony at 10:00 a.m. ET while Mester will speak around the same time (10:00 a.m. ET).

Finally, there is a 5-Yr TIPS auction at 1:00 p.m. ET that could offer insight to inflation expectations and move yields, but most of the market-moving news will likely hit before the lunch hour today.

Hard vs. Soft Landing Scoreboard Update

/in , /by

What’s in Today’s Report:

  • Hard vs. Soft Landing Scoreboard Update (Cracks Emerging)

Futures are flat as investors digest a disappointing earnings forecast by FDX (down 3% premarket) and a hotter than expected inflation print overseas as focus turns to Powell’s testimony on Capitol Hill today.

U.K. CPI held steady at 8.7% vs. (E) 8.4% y/y in May which saw the odds of a 50 bp BOE hike tomorrow jump to 50% which is weighing modestly on bonds this morning.

There are no notable economic reports in the U.S. today which will leave investors focused on Powell’s semiannual testimony before Congress which begins at 10:00 a.m. ET. Investors will be looking for any clarity on the Fed’s future policy plans as the markets currently do not believe the FOMC’s dot plot showing two more rate hikes before year end.

Outside of the D.C., there are several other Fed speakers to watch including: Cook (10:00 a.m. ET), Jefferson (10:00 a.m. ET), Goolsbee (12:25 p.m. ET), and Mester (E: 4:00 p.m. ET). Again markets will be looking for any clarity on rate hiking plans following the June “skip.”

Finally, there is a 20-Yr Treasury Bond auction at 1:00 p.m. ET that could impact yields and if we see yields move meaningfully higher, that will weigh on the high valuation sectors that have led the market higher this year.

S&P 500 Tests MMT Resistance

/in , /by

What’s in Today’s Report:

  • S&P 500 Tests “Better If” MMT Target
  • Economic Data Takeaways (Goldilocks So Far)
  • ECB Has More Work to Do on Inflation

Stock futures are flat as yesterday’s rally is digested while global markets were mostly higher overnight thanks to continued optimism about AI focused investments and in-line inflation data in Europe.

ADBE shares were up as much as 4% in pre-market trading after strong earnings and AI-related guidance yesterday which is supporting mega-cap tech ahead of the open this morning.

The Narrow Core inflation reading within the Eurozone HICP (their CPI equivalent) fell from 5.6% to 5.3% y/y in May, meeting estimates and offering further confirmation that the global disinflation trend has resumed.

Today, there are no Fed officials scheduled to speak and just one economic report to watch: Consumer Sentiment (E: 60.5), but the consumer inflation expectations components within the release could move markets if they are meaningfully different from the previous release.

Finally, on a derivatives market note, today is a Quadruple Witching options expiration which means volumes will be elevated and volatility could potentially spike due to trader repositioning.

CPI Preview (Good, Bad & Ugly)

/in , /by

What’s in Today’s Report:

  • CPI Preview (Good, Bad & Ugly)

Futures are little changed despite solid tech earnings and more Chinese stimulus, as markets await the CPI report at 8:30 a.m. ET.

ORCL posted solid earnings and rallied 5% overnight and that’s adding to overall tech and market momentum.

Chinese authorities cut the reverse repo rate to 1.9% from 2.0%, and that move increased market expectations for future additional stimulus.

Today focus will be on the CPI report and expectations are as follows: 0.2% m/m, 4.1% y/y, Core CPI (E: 0.4% m/m, 5.3% y/y).  Additionally, “Super Core” CPI (which is core CPI less housing) will also be in focus and markets will want to see a drop to (or ideally below) 5.2% y/y.

Bottom line, markets need CPI to confirm accelerating disinflation to continue to rally, while a sticky inflation number will result in real market disappointment (although the looming FOMC decision should keep any market moves more muted than they otherwise would have been).

Tom Essaye Joins Yahoo Finance to Discuss Apple’s Latest Product on June 5th, 2023

/in , /by

Apple stock: Why a headset could send shares even higher

Apple is rumored to reveal a mixed reality headset at their latest WWDC event. Could it be a catalyst to send Apple shares to new highs? eToro Global Markets Strategist Ben Laidler and Tom Essaye, Sevens Report Research Founder and President, discuss how mixed reality headsets could become a tech sector market driver. Click here to watch the full interview.

Tom Essaye Discusses The Market Outlook on Yahoo Finance on June 5th, 2023

/in , /by

Morgan Stanley expects 16% earnings drop for S&P 500 companies

The S&P 500 is nearing a bull market. But Morgan Stanley analysts are predicting a 16% earnings drop for S&P 500 companies. Ben Laidler, Global Markets Strategist at eToro, and Tom Essaye, Sevens Report Research Founder and President, give their takes on what lies ahead for the market. Click here to watch the full interview.

A “Make or Break” Week for the Rally

/in , /by

What’s in Today’s Report:

  • A “Make or Break” Week for the Rally
  • Where the Opportunity is in Stocks Right Now
  • Weekly Market Preview:  Will Data Confirm “Goldilocks” Optimism?
  • Weekly Economic Cheat Sheet:  CPI Tuesday, Fed Wednesday, Key Growth Data Thursday

Futures are slightly higher on momentum from last week’s rally, as it was a very quiet weekend of actual news and investors are looking ahead to multiple important market catalysts this week.

Economically, the only notable number was Japanese PPI which rose 5.1% y/y vs. (E) 5.7% y/y in what is the latest sign of global disinflation.

Oil declined more than 2% overnight on over supply concerns as Russia is largely ignoring its production quota.

Today there are no notable economic reports nor any Fed speakers, so barring any major surprises markets should be relatively calm ahead of tomorrow’s CPI report, Wednesday’s FOMC decision and Thursday’s important economic data.

A Tale of Two Trades

/in , /by

What’s in Today’s Report:

  • A Tale of Two Trades

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

Economically, the only notable report overnight was Chinese PPI, which feel –4.6% vs. (E) -4.2% and provided the latest sign that global disinflation is potentially accelerating.

Politically, former President Trump was federally indicted for illegally retaining classified documents, although that shouldn’t impact markets.

Today there are no economic reports and no Fed speakers, so near term technicals should drive trading with all eyes focused in whether the S&P 500 can break above 4,300 for the first time in over a year.

What the BOC Rate Hike Means for U.S. Interest Rates

/in , /by

What’s in Today’s Report:

  • What the BOC Rate Hike Means for U.S. Interest Rates

Futures are little changed despite more economic stimulus from China.

The Chinese government cut bank deposit rates and encouraged lending to boost auto sales in the latest effort to stimulate the economy, although the moves were already expected so this isn’t a new, positive surprise.

Economic data was sparse overnight with Japanese and EU GDPs the only notable releases, and neither number moved markets.

Today the only notable economic report is Jobless Claims (E: 235K) and markets will want to see stability in the data (so no sudden jump higher), but more broadly markets remain in a temporary “holding pattern” with the CPI report and Fed decision now both looming less than a week away.