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A “Make or Break” Week for the Rally

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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.

Market Multiple Levels: S&P 500 Chart

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What’s in Today’s Report:

  • Market Multiple Levels: S&P 500 Chart (Unbranded PDF Available)
  • Why Did Small Caps Surge?

Stock futures are little changed in premarket trade indicating this week’s digestive churn sideways could continue today following mixed economic data overnight.

Chinese exports dropped -7.5% vs. (E) +1.0% year-over-year in May adding to worries about the health of the recovery in the world’s second largest economy.

Conversely, in Europe, German Industrial Production jumped 1.8% vs. (E) 1.4% y/y helping ease some worries about the health of the EU economy.

Looking into today’s session, the list of potential catalysts remains light as there are just two economic reports to watch: International Trade in Goods and Services (E: -$76.0B) and Consumer Credit (E: $21.0B) while there are no Fed officials scheduled to speak.

That will leave focus on market internals and whether or not the early June money flows into cyclicals and small cap stocks can continue. If so, the improving breadth in the market with the S&P 500 sitting just under YTD highs will add to the case that the 2023 rally is sustainable.

Tom Essaye Quoted in Barron’s on June 5th, 2023

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Global Stocks Drift Higher Amid PMI Data

“Economically, global service PMIs were mixed as the euro zone service PMI missed expectations, while the U.K. and Chinese service PMIs were in-line,” noted Tom Essaye, the founder of Sevens Report Research. Click here to read the full article.

Sevens Report Analyst Quoted in MarketWatch on May 31st, 2023

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U.S. oil futures settle at lowest since March

The potential fallout from the U.S. debt-ceiling debacle and rising odds of a June interest-rate hike both “weighed on oil as the former influence would be a broader riskoff market event, while the latter would further reduce already waning optimism for a soft economic landing this year,” analysts at Sevens Report Research wrote in Wednesday’s newsletter. Click here to read the full article.

 

Tom Essaye Quoted in Barron’s on May 31st, 2023

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Stocks Open Lower as Traders Fret About China Manufacturing, Debt Bill

“Republican Representatives have said this morning that they have the votes to pass it. If that comes to fruition, that should remove a headwind from risk assets and open the door to a continued move higher in equity markets,” writes Tom Essaye, the founder of Sevens Report Research. Click here to read the full article.

What Is Immaculate Disinflation, and Why Did It Cause Last Week’s Rally?

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What’s in Today’s Report:

  • What Is Immaculate Disinflation, and Why Did It Cause Last Week’s Rally?
  • Weekly Market Preview:  Does Economic Data Stay Resilient?
  • Weekly Economic Cheat Sheet:  Service Sector in Focus This Week

Futures are little changed as markets digest the Thursday/Friday rally amidst a mostly quiet weekend of news.

Oil prices are solidly higher (Brent crude up 1.7%) after Saudi Arabia announced a voluntary 1M bpd production cut for the next month, although that’s not seen as a sustainable bullish catalyst.

Economically, global service PMIs were mixed as the Euro Zone Service PMI missed expectations (55.1 vs. (E) 55.9) while the UK and Chinese service PMIs were in-line.

Today focus will be on the ISM Services Index (E: 52.0.) and specifically the price index in this report.  Last week, a sharp drop in the ISM Manufacturing PMI Prices Paid Index ignited the rally, and if we see a similar drop in the services price index, it’ll help extend the rally as markets will get more confident disinflation is accelerating.

Debt Ceiling Deal Update

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What’s in Today’s Report:

  • Debt Ceiling Deal Update
  • AI May Be Great, But Fundamentals Matter Too
  • Weekly Economic Cheat Sheet – Summer Rate Hike Back in Play

Stock futures are higher and Treasury yields are falling this morning amid renewed optimism for a debt ceiling deal.

President Biden and Speaker McCarthy agreed in principle to a two-year debt ceiling extension, which markets expect to be signed before the June 5th “X date.”

Eurozone Economic Sentiment dropped to 96.5 vs. (E) 99.4, underscoring worries about growth overseas but the debt ceiling deal optimism is overshadowing worries about the economy this morning.

Today, there are several economic reports to watch including the Case-Shiller Home Price Index (E: -0.1%), FHFA House Price Index (E: 0.3%), and Consumer Confidence (E: 100.0).

Additionally, there is one Fed speaker: Barkin (1:00 p.m. ET), however investors will remain primarily focused on the debt ceiling deal and as long as news flow surrounding the final negotiations remains positive, risk on money flows should continue today.

Why Have Stocks Hit Multi-Month Highs?

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What’s in Today’s Report:

  • Why Have Stocks Hit Multi-Month Highs?
  • Weekly Market Preview:  Real Debt Ceiling Progress is Needed This Week
  • Weekly Economic Cheat Sheet:  Flash PMIs and Core PCE the Key Reports This Week

Futures are little changed despite a lack of progress on the debt ceiling and an increase in trade tensions between the U.S. and China over the weekend.

There was no progress on the debt ceiling over the weekend although Biden and McCarthy will meet again today to resume negotiations.

China banned the use of Micron (MU) chips in what is yet another escalation in U.S./China trade tensions.

Today focus will be on the debt ceiling and markets will want to hear positive and optimistic commentary from Biden and McCarthy, as the potential “X” date of June 1st is now less than 10 days away.

There are also multiple Fed speakers today, including Bullard (8:30 a.m. ET), Logan (9:00 a.m. ET), Barking & Bostic (10:50 a.m. ET) and Daly (11:05 a.m. ET), but given Powell on Friday reiterated the Fed has likely paused, their comments shouldn’t move markets.

Why the “Pain Trade” Remains Higher

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What’s in Today’s Report:

  • Why the “Pain Trade” Remains Higher
  • Bullish Reversal in the Dollar Forming – Chart

Stock futures are slightly lower this morning as traders digest disappointing economic data from overseas and look ahead to today’s debt ceiling negotiations.

Economically, Chinese Fixed Asset Investment slowed in April while Industrial Production came in at just 5.6% vs. (E) 10.7% and Retail Sales rose to 18.4% vs. (E) 22.0%. The underwhelming data is continuing to pour some cold water on hopes that a robust recovery in China will help support broader growth in the global economy this year.

Looking into today’s session there are several economic releases to watch in the U.S. including (in order of importance): Retail Sales (E: 0.7%), Industrial Production (E: 0.0%), and the Housing Market Index (E: 45). Specifically, if Retail Sales is disappointing, that could rekindle hard-landing fears and pressure stocks.

Several Fed officials are also expected to speak today: Mester (8:15 a.m. ET), Bostic (8:55 a.m. ET), Williams (12:15 p.m. ET), and Logan (3:15 p.m. ET). A more cautious tone regarding policy plans would be welcomed while any decidedly hawkish commentary is likely to pressure markets.

Finally, the main focus today will be the debt ceiling talks between the Biden Administration and House Republicans as we are fast approaching the “X date” and prospects of a deal being reached remain very uncertain. Any reported progress on the topic will be well-received today and likely result in a modest relief rally but if concerns about the debt ceiling increase, expect equities to come under pressure.

 

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Why Negative News (Still) Isn’t Making Stocks Drop

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What’s in Today’s Report:

  • Why Negative News (Still) Isn’t Making Stocks Drop
  • Weekly Market Preview:  More Insights into Hard vs. Soft Landing This Week
  • Weekly Economic Cheat Sheet:  Retail Sales (Tues) the Key Report This Week

Futures are modestly higher following reports of progress on the debt ceiling negotiations over the weekend.

Another debt ceiling meeting is scheduled for Tuesday at the White House and major officials (including Biden and Yellen) stated progress was made in negotiations over the weekend, although a deal still isn’t likely this week.

Economically, Euro Zone IP slightly missed estimates.

Today there’s only one notable economic report, the May Empire Manufacturing Index (E: -3.70), and markets will want to see stability in the data to further hint towards a soft landing.

Looking at the Fed, there are numerous speakers today including Bostic (8:45 a.m. ET), Kashkari (9:15 a.m. ET), Barkin (12:30 p.m. ET) and Cook (5:00 p.m. ET) and while their comments may have a hawkish tone, the market firmly believes the Fed has paused on rate hikes and it’ll take Powell disavowing that notion for investors to reconsider.

Finally, debt ceiling headlines will likely continue, and don’t be shocked if there’s some pushback on the “progress” narrative from the weekend as the political gamesmanship kicks into high gear, with just over two weeks till the “X” date.