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Fed Wildcard to Watch

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What’s in Today’s Report:

  • Dynamics Between Stocks, Bonds, and the Economy Have Changed Since Covid
  • Fed Wildcard to Watch Today
  • KBE Chart – Visualizing the Recent Carnage
  • Existing Home Sales Rebound Amid a Pullback in Mortgage Rates: Chart

Stock futures briefly spiked lower overnight in the wake of a hot CPI print in the U.K. but bond markets are steady and futures have largely stabilized as focus turns to the Fed.

Economically, U.K. CPI jumped from 10.1% in January to 10.4% in February, well ahead of estimates of 9.9%, however, both input and output PPI readings unexpectedly declined, easing some of the inflation worries this morning.

There are no notable economic reports today which will leave markets focused on the price action in the banking sector in the morning (meaningful weakness could drag the broader market lower) before attention shifts to the FOMC Meeting Announcement (2:00 p.m. ET) and Fed Chair Press Conference (2:30 p.m. ET) this afternoon.

A 25 basis point hike and no change to the dot plot is the consensus expectation but there are a lot of moving pieces to today’s meeting so watching the reaction from the Treasury market this afternoon will be critical in interpreting what today’s decision means for markets.

Fed Meeting Preview: Hike or No Hike?

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What’s in Today’s Report:

  • FOMC Preview
  • Three Reasons Oil Could Stabilize (At Least in the Near-Term)

U.S. stock futures are tracking European shares higher with banks notably outperforming while bonds retreat.

Bloomberg reported last night that Treasury Department officials are reviewing options to temporarily insure all bank deposits in order to avoid a potential financial crisis which is helping support risk on money flows this morning.

Economically, the German ZEW Survey was mixed but the Current Conditions Index was importantly not as bad as feared, helping risk assets extend the week’s gains.

Looking into today’s session, there is just one economic report to watch: Existing Home Sales (E: 4.170 million) and given the focus on the recent banking turmoil as well as the March FOMC meeting beginning, it is unlikely to move markets.

As such, a sense of “Fed paralysis” is likely to begin to grip markets today but any outsized moves in the broader banking sector, headline driven or otherwise, has the potential to impact the broader equity markets. To that point, if FRC can finally stabilize, that would be well received by investors today.

Catalysts to Watch This Week

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What’s in Today’s Report:

  • Roadmap for the Catalysts This Week
  • Economic Takeaways – Inflation Is Still High and the Consumer Is Still Healthy (For Now)
  • FOMC in Focus This Week – Will The Fed Signal a Pause?

Stock futures are little changed but cross-asset money flows remain cautious with Treasuries and gold both trading higher as the latest developments in the global banking sector are digested.

Swiss regulators brokered a deal for UBS to take over Credit Suisse for $3.2B over the weekend, a steep discount from CS’s $8B market value on Friday but global bank shares are relatively stable to start the week today helping the broader market hold steady in early trade.

The Fed and several other major central banks coordinated efforts to boost liquidity in dollar swaps over the weekend in their latest attempt to ease strains in the global financial system, which so far, is being received fairly well.

There are no notable economic reports today and no Fed officials are schedule to speak which will leave focus on the price action in banks today. If financials can hold above last week’s lows, that will be a positive, but if the selling pressure continues, the broader market is likely to be dragged lower with the banks as the March Fed meeting comes into focus.

Market Multiple Table Chart

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What’s in Today’s Report:

  • Market Multiple Table Chart
  • Update on Credit Suisse
  • An Important Difference Between Now and 2008

Futures are little changed despite the Swiss National Bank providing Credit Suisse (CS) liquidity, as that news isn’t eliminating general market anxiety.

Credit Suisse is rallying more than 20% pre-open after it was granted a $54 billion credit line from the Swiss National Bank.

Despite the positive CS news, investors remain very nervous and jittery about U.S. regional banks (especially FRC).

Today is an important day as there are numerous potentially market moving events this morning, with the most important being the ECB Decision (E: 50 bps hike). Markets will want to see the ECB “blink” in the face of market turmoil and hike less than 50 bps.  If the ECB sticks to a 50 bps hike, don’t be shocked to see more volatility today.

Economically, the hope that the Fed “blinks” and does not hike 25 bps next week has helped support stock and bond markets this week, so investors will want to see today’s economic data come in soft enough to make no hike more likely next week.  Key reports today are, in order of importance: Philly Fed (E: -15.8), Jobless Claims (E: 205K), Housing Starts (E: 1.315M).

Market Multiple Table: March Update

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What’s in Today’s Report:

  • Market Multiple Table – March Update (Printable PDF Available)
  • February CPI Takeaways
  • Breakdown in the Energy Markets: Oil Update

Markets are trading with a risk-off tone this morning amid renewed worries about the global banking system.

Credit Suisse’s 2022 annual report revealed “material weaknesses” but the bank’s chairman ruled out government assistance while the largest shareholder, the Saudi National Bank, said further financing was not an option. The negative news flow has sent Credit Suisse shares down more than 20% to a new record low this morning and that is dragging global bank stocks lower and weighing heavily on sentiment.

Economic data overnight was mostly better than expected with Housing Sales in China notably rising more than expected while the PBOC injected more liquidity into he system than anticipated, both of which helped bolster Asian markets overnight.

Looking into today’s session, focus will be on economic data early with PPI (E: 0.3%, 5.4%), Retail Sales (E: -0.3%), the Empire State Manufacturing Index (E: -7.7), and the Housing Market Index (E: 41) all due out this morning.

Regarding the data, markets want to see a further decline in inflation metrics and more slowing in growth readings to help shore up less hawkish Fed expectations, however, focus will also remain on the banking sector and if banks can’t stabilize and start to rebound broadly, the major indexes are going to have a hard time finding their own footing today.

Sevens Report Co-Editor, Tyler Richey, Quoted in MarketWatch on March 8th, 2023

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Oil marks back-to-back losses after Fed’s Powell sparks selloff

Powell’s comments before the Senate Tuesday “sent the clear message that economic data in the near term will be critical for the decision-making process on the pace of future rate hikes and eventually the terminal rate,” said Tyler Richey, co-editor of Sevens Report Research. Click here to read the full article.

Disinflation On, Disinflation Off

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What’s in Today’s Report:

  • Disinflation On, Disinflation Off (Scenario Table with Asset Performance Guide)
  • Chart – 2 Yr. Note Futures Approach Multiyear Lows
  • Chart – “Another Bull Trap” Update

U.S. stock futures are tracking global shares higher this morning as investors cheer better than expected economic data out of China.

Economically, China’s Manufacturing PMI jumped to 51.6 vs. (E) 49.9 in February, up from 49.2 in January, indicating the recovery process is gaining momentum. The Eurozone Manufacturing PMI, meanwhile, met estimates at 48.5.

Today, investor focus will be on economic data early beginning in Europe with the German CPI release at 8:00 a.m. ET (E: 8.7%). So far this week, European yields have led global yields higher on hot inflation data and if the German print is above estimates, expect that trend to continue and stocks to remain under pressure.

In the U.S. we will get the February ISM Manufacturing Index (E: 48.0) as well as the lesser followed Construction Spending report (E: 0.2%). Investors will want to see improving, but not overly strong growth metrics and fading price pressures to see some of the recent hawkish money flows ease.

Finally, there is one Fed speaker today: Kashkari (E: 9:00 a.m. ET), and as a voting member of the FOMC, his comments will be closely watched for any new hints at the Fed’s policy plans.

Core PCE Price Index Preview (Good, Bad & Ugly).

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What’s in Today’s Report:

  • What the Core PCE Price Index Will Mean for Markets (Good, Bad & Ugly)
  • EIA and Oil Market Analysis

Futures are moderately lower mostly on positioning ahead of the Core PCE Price Index release but also in reaction to disappointing EU economic data.

German GDP underwhelmed and fell –0.4% vs. (E) -0.2% while Gfk Consumer Climate also slightly missed estimates (-30.5 vs. (E) -30.4).

Today, focus will be on inflation and the key report is the Core PCE Price Index (E: 0.4% m/m, 4.3% y/y).  We have a full Core PCE Price Index preview in the Report, but generally speaking, if the numbers are below expectations, it’ll spark a rally, if they are around expectations that’s mostly priced in, and if Core PCE is higher than last month, prepare for a selloff.

Other data today includes Personal Incomes and Outlays (E: 1.0%, 1.2%), , New Home Sales (E: 617K) and Consumer Sentiment (E: 66.4), but barring a move in five year inflation expectations above 3% none of those reports should move markets.

Finally, we also have two Fed speakers today, Mester (10:15 a.m. ET) and Collins (1:30 p.m. ET).

Sevens Report Analysts Quoted in MorningStar on February 16th, 2023

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Oil ends lower on signs of ‘sluggish’ U.S. consumer demand and a big build in supplies

The U.S. Energy Information Administration data so far this year has been “consistently bearish and pointed to sluggish consumer demand, hesitant refining activity, sizeable builds in oil stockpiles and incrementally rising domestic oil production,” analysts at Sevens Report Research wrote in Thursday’s newsletter. Click here to read the full article.

Sevens Report Co-Editor Tyler Richey Quoted in MarketWatch on February 14th, 2023

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Oil traders hit ‘sell button’ with U.S. set to release more crude from its Strategic Petroleum Reserve

The release plans were part of a congressional-mandate related to annual budgets that has been in place for almost a decade, Tyler Richey, co-editor of Sevens Report Research, told MarketWatch. But “when traders see an SPR release headline cross the wires, they think ‘more supply on the market’ and hit the sell button first and ask questions later.” Click here to read the full article.