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What the ECB’s Surprise Taper Means for Markets

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What’s in Today’s Report:

  • What the ECB’s Surprise Taper Means for Markets
  • EIA Analysis and Oil Update

Futures are modestly higher following potentially positive news out of China.

First, on the geopolitical front, Biden and Xi held a call on Thursday night where they discussed avoiding conflict.  Second, Chinese regulators clarified they just slowed video game approvals, not halted them and that’s helping Chinese tech and internet stocks to rally.

On COVID, Biden’s mask mandates are getting a lot of headlines but they won’t have any direct market implications.

Today’s focus will be on PPI (E: 0.6%, 8.3%), which will give us the latest insights into inflation and if the number is materially higher than estimates, it will likely cause some mild volatility.  We also have one Fed speaker, Mester at 9:00 a.m. ET, and markets will look for confirmation that the Fed will start tapering QE this year, but it will be gradual.

Why Does the Market Think COVID Has Peaked?

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What’s in Today’s Report:

  • Why Does the Market Think COVID Has Peaked?
  • EIA Analysis and Oil Market Update

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

Chinese shares saw profit taking (Hang Seng down –2%) and that’s weighing on global stocks slightly, but there was no materially negative news out of China overnight.

Economic data was sparse as the German Gfk Consumer Climate slightly missed expectations (-1.2 vs. –1.0) while the Euro Zone money supply met estimates (up 8.1%).

Today we do get two economic reports including Jobless Claims (E: 340K) and revised Q2 GDP (E: 6.6%) but neither number should move markets unless they are major surprises.  Instead, pre-Powell speech positioning will likely dominate markets today (Powell’s speech is tomorrow) and given stocks hit new highs this week, don’t be surprised if there’s some mild profit taking ahead of Powell’s speech tomorrow.  Finally, in the bond markets, there’s a seven year Treasury auction mid-day today, and if the results are soft look for a continued rally in the 10 year yield (and an improving technical outlook for that yield).

 

Thank You!

I wanted to say a heartfelt, “Thank you” to all of you who sent me condolences and well wishes over the past week.

While I wish I could respond to each individual email or call, there have literally been hundreds of them, and if I took on that endeavor I’d have no time to write the Report! I believe that continuing to stay focused on the

markets and helping us to navigate this unprecedented time successfully is the best way I can show you my thanks, and you can count on me to do just that.

Again, thank you all.  You have made this time easier.

Why Did Stocks Drop?

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What’s in Today’s Report:

  • Why Did Stocks Drop?
  • Fed Minutes Takeaways
  • EIA Data Takeaways and Oil Update

There are risk-off money flows across asset classes this morning as investors fear that central banks are poised to tighten policy into a global economic slowdown this fall.

This week’s options expiration is likely amplifying the volatility this morning.

There were no market-moving economic reports or material news developments overnight.

Today, there are two economic reports to watch: Jobless Claims (E: 360K) and the Philadelphia Fed Manufacturing Index (E: 25.0).

No Fed officials are scheduled to speak today but there is a 30-Year TIPS auction at 1:00 p.m. ET that could move bond yields.

Volatility is likely to remain elevated today as we get closer to tomorrow’s options expiration while trader conviction is low given Jackson Hole looming next week as well as the fact that investor sentiment has deteriorated this week.

Editor’s Note:  No Report Tomorrow

There will be no Report tomorrow, as I will be attending a funeral.  Last week, my father, Tim Essaye, Sr., unexpectedly passed away. His funeral and memorial will be held today. 

My dad helped get me on Wall Street when I got out of college and without his support and encouragement, I wouldn’t have had the courage, with my wife Alison pregnant with our first child, to leave a good job and start a new, daily market report.

He was the first subscriber to the Sevens Report.

So, for the first time in the nearly 10 years since I started the Sevens Report, there will be no issue on a trading day, as I will be focused today on celebrating his life with our family and friends.

I apologize for this inconvenience and thank you for your understanding.   

Inflation Expectations Dashboard

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What’s in Today’s Report:

  • Inflation Expectations Dashboard
  • EIA Data Takeaways and Oil Update

U.S equity futures are rebounding with European shares this morning while bond yields are rising from multi-month lows as investors digest a volatile week amid economic uncertainty and renewed COVID-19 concerns.

Economically, Chinese inflation data was “cooler” than expected with June CPI falling from 1.3% to 1.1% vs. (E) 1.4%, helping solidify the idea that inflation has peaked.

Looking ahead to today’s session, the calendar is quiet as there are no notable economic reports and no Fed officials are scheduled to speak.

That will likely leave investors to focus on any developments regarding the Delta variant of COVID-19 and any subsequent lockdown measures as well as price action in the bond market. As long as coronavirus headlines are not materially negative and bond yields extend this morning’s bounce, stocks should be able to claw back more of yesterday’s losses.

Oil Update: EIA Data and OPEC+ Policy Outlook

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What’s in Today’s Report:

  • June PMI Composite Flash Data Takeaways
  • Oil Update: EIA Data OPEC+ Policy Outlook

S&P futures are trading solidly higher this morning amid infrastructure deal optimism ahead of key data today.

Risk on money flows are being driven by reports that a roughly $1T-$1.2T infrastructure deal, that will not require changes to individual or corporate tax rates, is “imminent.”

This morning is lining up to be a busy one from a catalysts standpoint as there are several important economic reports to watch including: Durable Goods Orders (E: 2.0%), Final Q1 GDP (6.4%), International Trade in Goods (E: -$87.9B), and Jobless Claims (E: 380K).

Several Fed officials are also scheduled to speak: Williams (11:00 a.m. ET), Kaplan (1:00 p.m. ET), and Bullard (1:00 p.m. ET) while there is a 7-Yr Treasury Note auction at 1:00 p.m. ET.

Bottom line, investors will want to see economic data remain strong today but importantly not run “too hot” as that could spark renewed hawkish concerns and weigh on broader equity markets as we saw last week. Additionally, Fed chatter can continue to lean hawkish but not so much that we see policy expectations turn more hawkish than the post-Fed reaction. Finally, today’s 7-Yr Treasury Note auction is the wildcard to watch as if it is a repeat of the February disaster, bond market volatility could spill over into equity markets.

Infrastructure Outlook: Good/Bad/Ugly

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What’s in Today’s Report:

  • Infrastructure Outlook:  Good/Bad/Ugly
  • Oil Update & EIA Analysis (Can the Rally Keep Going?)

Futures are little changed following a quiet night and ahead of the week’s two big events, the ECB decision and U.S. May CPI report.

Economic data was sparse although Japanese PPI rose more than expected at 4.9% vs. (E) 3.8% yoy.  But, investors expect high inflation readings this month so it’s not moving markets.

Today the two key events are the ECB Rate Decision (E: No Change) and U.S. CPI (E: 0.4% m/m, 4.6% y/y).  Generally speaking, if the ECB is specific on tapering and core CPI runs close to 4.0% yoy (expectations are for 3.4% yoy in Core CPI) then we should expect volatility as the data will imply less central bank accommodation and more inflation. Conversely, if the ECB is vague on tapering and inflation largely meets expectations, then stocks can extend the rally.

The other notable event this morning is Jobless Claims (E: 369K) but given the issues with the labor market are supply driven (people not wanting to work) the market isn’t as focused on jobless claims any longer.

Why The Fed Was More Bullish Than It Seems

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What’s in Today’s Report:

  • Why The Fed Meeting Was More Bullish Than It Seems
  • Why the UK Election Matters to You (Good/Bad/Ugly Preview)
  • EIA Update – Where Will Oil Go?

Futures are slightly higher following a generally quiet night as markets digest yesterday’s Fed meeting and wait on important trade news and the results of the UK election.

Today is a big day in the U.S./China trade as Trump is meeting with senior advisors to decide the fate of the 12/15 tariff increases.  It’s widely expected they will be delayed and if they are not, that will be a negative shock for markets.

Economic data was again mixed as Euro Zone IP missed (-0.5% vs. (E) -0.3%) while German CPI met expectations.

Today will be a busy day.  First, regarding the trade meeting, it’s unclear if a formal announcement will be made on the decision, but it could come at any time so markets will be watching the tape closely.  Additionally, there is also an ECB Meeting this morning and it’s new ECB President Lagarde’s first press conference.  Finally, we should know the results of the UK election by this evening, and the key number for the Torys is 335 seats.  Stocks will like any result above that number.

On the economic front, the only notable report is Jobless Claims (E: 213K).

Sevens Report Quoted in MarketWatch on July 31, 2019

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The seven-week stretch of falling crude supplies is the longest since the 10-week decline from the week ended Nov. 17, 2017 to Jan. 19, 2018, according to an analysis of EIA data provided Sevens Report Research. Click here to read the full MarketWatch article.

Man in an Oil rig