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What Currencies and Bonds Are Saying About the Fed

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What’s in Today’s Report:

  • Better-Than-Feared WMT and HD Earnings Drive Trading
  • Why Currency and Bond Markets Are Not Signaling a “Less Hawkish” Fed
  • Chart: S&P 500 Quietly Closes at Fresh Highs
  • Economic Takeaways: Housing Starts and Industrial Production

U.S. futures are tracking European shares lower following disappointing economic data out of the EU ahead of today’s release of the July FOMC meeting minutes.

U.K. CPI jumped to a new multi-decade high of 10.1% vs. (E) 9.8% in July while the Q2 Eurozone GDP Flash dipped to 3.9% vs. (E) 4.0%, rekindling concerns about stagflation.

Looking into today’s session, focus will be on economic data early with Retail Sales (E: 0.1%) due out before the bell as well as more retailer earnings including: TGT ($0.71), LOW ($4.63), and TJX ($0.68).

Then there is one Fed speaker, Bowman, at the open (9:30 a.m. ET) before focus will shift to the July FOMC meeting minutes which will be released at 2:00 p.m. ET.

Bottom line, the market will want to see more good earnings and guidance out of the remaining major retailers due to report quarterly results today as well as a not-as-hawkish-as-feared set of Fed minutes released this afternoon, if this latest leg higher in stocks is going to continue. Otherwise, we could be set up for a pullback into the back half of the week as stocks have become near-term overbought without any new meaningfully positive catalysts.

Tom Essaye Quoted in Yahoo on August 8th, 2022

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S&P 500 Finishes Lower After Wiping Out 1% Rally: Markets Wrap

The economy still has to digest all this tightening, and that will materially slow things…wrote Tom Essaye, a former Merrill Lynch trader who founded The Sevens Report newsletter. Click here to read the full article.

Tom Essaye Quoted by Forbes on July 27th, 2022

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Fed Raises Interest Rates By 75 Basis Points Again As Investors Brace For Recession

By making borrowing more expensive and thereby tempering demand, rate increases are critical in combating inflation, but “growing fears” that the hikes will spur a recession by undercutting economic growth are the “driving forces” behind recent market weakness, says analyst Tom Essaye of the Sevens Report. Click here to read the full article.

State of Inflation: Hints of a Peak?

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What’s in Today’s Report:

  • State of Inflation:  Hints of a Peak?

Futures are sharply lower following another profit warning from a national retailer and mixed economic data.

Restoration Hardware (RH) cut guidance just a few weeks after reporting earnings, citing a sudden deterioration in demand and increasing worries about corporate earnings.

Economic data was mixed as the Chinese manufacturing PMI rose back above 50, while German unemployment rose more than expected (5.3% vs. (E) 5.0%.

Today focus will be on the Core PCE Price Index (E: 0.4% m/m, 4.8% y/y) and if we get a materially hot number above the 4.8% yoy expectation, we can expect more selling pressure while a drop towards the mid 4% range would be a welcomed surprise (and likely cut the early morning losses).  Today we also get weekly Jobless Claims (E: 226K), although that number shouldn’t move markets.

Bullish If/Bearish If Scenarios

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What’s in Today’s Report:

  • Bottom Line:  Bullish If/Bearish If Scenarios
  • Weekly Market Preview:  More Earnings and Growth Data This Week
  • Weekly Economic Cheat Sheet:  Is Growth Rolling Over?

Futures are moderately higher mostly on momentum from Friday’s rebound following a generally quiet weekend.

COVID news from China remains mixed as Shanghai continues to relax lockdowns although Beijing is seeing a continued increase in cases (keeping the threat of more lockdowns alive).

The dollar is down one percent after ECB President Lagarde signaled two rate hikes were likely in the 3rd quarter (this was a bit more hawkish than expected).

Today there are no notable economic reports and just one Fed speaker, Bostic (12:00 p.m. ET).  If Bostic echoes Bullard’s slightly less hawkish than feared commentary from Friday afternoon, then stocks can extend Friday’s rebound.

Why Have Stocks Dropped?

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What’s in Today’s Report:

  • Why Have Stocks Dropped?
  • A Story From the Past to Explain My Caution on the Future Economy
  • Chart: 10-Year Yield Approaches Key Downtrend Line

Futures declined overnight as the 10-year topped 2.80% with a focus on today’s CPI report but yields have since pulled back and futures are trading effectively unchanged.

Economically, the Japanese PPI was hot (9.5% vs. E: 9.3%) and the U.S. NFIB Small Business Optimism Index missed estimates (93.2 vs. E: 95.0), neither of which are helping trader sentiment today.

Geopolitically, Russia was accused of using chemical weapons in Ukraine, which would be a significant escalation if true, but that information has not been substantiated yet.

Looking into today’s session, focus will be on economic data early with CPI (E: 1.1%) due out ahead of the bell. If the core number comes in below estimates, that could offer the market some relief and spark a reversal higher.

Then attention will turn to the Fed as Brainard speaks over the lunch hour (12:10 p.m. ET) and Barkin is scheduled to speak after the close (5:30 p.m. ET). Brainard’s comments will be closely watched as her hawkishness last week caused rates to surge higher and stocks to selloff.

Finally, there is a 10-Yr Treasury Note auction at 1:00 p.m. ET which will offer some fresh insight to demand for Treasuries amid the latest surge in yields. And if the auction is solid, that could also help yields pullback and stocks rebound.

Are Stock and Bond Markets Starting to Forecast an Economic Slowdown?

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What’s in Today’s Report:

  • Are the Stock and Bond Markets Starting to Forecast An Economic Slowdown?

Futures are slightly higher mostly on momentum from Thursday’s close, following a quiet night of news.

The global trend in central banks turning more hawkish continued overnight as the Reserve Bank of India left rates unchanged (as expected) but warned that inflation was too high.

Geopolitically, a Kremlin spokesman said that Russia hoped to end its “operation” in Ukraine in the coming days or weeks, although analysts are skeptical of the promise.

Today there are no notable economic reports nor any Fed speakers, so between the sparse calendar and the Masters, I’d expect a relatively slow day.  That said, if we get any geo-political headlines from Russia that imply a sooner than expected cease-fire, then stocks can extend Thursday’s rally.

A Narrowing Path to an Economic Soft Landing

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What’s in Today’s Report:

  • A Narrowing Path to an Economic Soft Landing
  • Weekly Market Preview:  All About Ukraine (Will there be a real cease-fire?)
  • Weekly Economic Preview:  Inflation is key this week (CPI on Thursday)

Futures are sharply lower as oil spiked more than 6% (above $120/bbl) overnight on multiple reports the West is actively considering an embargo on Russian oil and gas.

Geopolitically, there were attempts at localized cease-fires in southern Ukraine to allow citizens to flee the cities, but those efforts have been, so far, a failure.  More peace talks are scheduled for today although not much progress is expected.

Economic data was solid as German Manufacturers’ Orders and Retail Sales both beat estimates, but that’s not moving markets.

Today there are no notable economic reports and no Fed speakers, so oil and geopolitics will continue to move markets.  If oil continues to rally throughout the day, that will further pressure stocks and it’ll take meaningful progress on a cease-fire to help markets rebound (and that doesn’t seem likely, at least not today).

Tom Essaye Quoted in Courthouse News Service on January 24, 2022

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Markets claw back losses after worries spurred by Fed, Ukraine

The problem is that unlike 2013, the economy has an inflation problem, and the Fed is under enormous political pressure to rein in inflation…Tom Essaye of the Sevens Report noted. Click here to read the full article.

Are Central Banks Tightening into a Slowdown?

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What’s in Today’s Report:

  • Bottom Line: Are Central Banks Tightening into a Slowdown?
  • Weekly Economic Cheat Sheet: Is the Economy Losing Momentum?
  • Weekly Market Preview: Santa Claus Rally Still Possible but Volatility is on the Rise

U.S. equity futures are sharply lower with global shares amid negative COVID headlines and surprise political drama in D.C.

Democratic Senator Joe Manchin unexpectedly rejected President Biden’s Build Back Better plan over the weekend, greatly reducing the odds of its passage which saw GS revise their Q1 growth outlook from 3% to 2%.

Meanwhile, in Europe, lockdown risks are on the rise as the spread of the Omicron variant of COVID-19 accelerates.

Looking into today’s session, it appears we are going to open deep in the red amid the combination of a deteriorating political landscape and surging Omicron fears.

There are no economic reports or Fed speakers on the calendar today however there is a 6-Month Treasury Bill auction at 11:30 a.m. ET, which is not something we typically monitor, but if we see a weak outcome, then short duration yields could spike higher, compounding last week’s fears of rate hikes beginning sooner than later which would weigh on stocks, potentially in a big way. Outside of that auction, markets will be focused on the Build Back Better headlines and the new prospects of tighter COVID restrictions, particularly in Europe as that would further weigh on the outlook for economic growth.