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What’s the VIX Saying About This Market?

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What’s the VIX Saying About This Market? Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • What’s the VIX Saying About This Market?

Futures are solidly higher as Thursday’s bounce extended overnight following additional reminders that global disinflation is still on going.

The EU Flash HICP (their CPI) rose 4.3% vs. (E) 4.6% and Core HICP increased 4.5% vs. (E) 4.8%, sending an important reminder that disinflation is still on going.

There was no material progress in avoiding a government shutdown overnight (which at this point is likely).

Today focus will be on the Core PCE Price Index (E: 0.2% m/m, 3.9% y/y) and put simply, if that number meets or is below expectations, then this bounce back rally should continue.  If the Core PCE Price Index is higher than expectations, don’t be shocked if stocks give back these early gains.  Finally, there is one Fed speaker today, Williams at 12:45 p.m. ET, but he shouldn’t move markets.

What's the VIX Saying

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Why This Market Is Still All About the Data

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What’s in Today’s Report:

  • Why This Market Is Still All About the Data
  • EIA and Oil Market Analysis (How Far Can the Rally Go?)

Futures are slightly higher as encouraging inflation data from Europe was partially offset by ongoing government shutdown and labor strike worries.

Spanish Core CPI rose 5.8% vs. (E) 6.1% and importantly reminded markets that disinflation was still occurring.

Politically, a government shutdown looks increasingly likely while the UAW again threatened to expand the strike.

Today will be a busy day as there are important economic reports and notable Fed speak to watch.  Economically, the key report is Jobless Claims (E: 211K) and markets need this number to move higher to ease tight labor market concerns.  We also get the final look at Q2 GDP (E: 2.3%) but that shouldn’t move markets.

On the Fed, Powell speaks at 4:00 p.m. ET and while he’s not expected to address policy, there will be Q&A.  Other speakers today include Goolsbee (9:00 a.m. ET), Cook (1:00 p.m.), and Barkin (7:00 p.m.).

Why This Market Is Still All About the Data

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High Yield Debt Spreads – Sevens Report Co-Editor Quoted

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High yield debt spreads: Sevens Report Analysts Quoted in MarketWatch

This credit gauge shows investors still have risk appetite, despite recession fears

“High yield debt spreads are still not showing any degree of concern for either default or economic risk right now, and that supports the case for continued strength in risk assets in the near-to-medium term, despite lingering recession concerns based on the inverted yield curve,” Tyler Richey, co-editor at Sevens Report Research, wrote in a recent note.

Also, click here to view the full MarketWatch article published on September 22nd, 2023. However, to see the Sevens Report’s full comments on the current market environment sign up here.

High-yield debt spreads

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Hard Landing vs. Soft Landing Scoreboard

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What’s in Today’s Report:

  • Hard Landing vs. Soft Landing Scoreboard
  • Chart: 10-Yr Yield Quickly Approaching Last Week’s “Hawkish Technical Target”

Stock futures are lower and there is a modest fear bid in Treasuries this morning. This is amid renewed worries about China’s property sector and growing angst about a potential government shutdown in the U.S.

After one of China’s largest property developers, Evergrande, missed a debt payment, multiple former executives were arrested overnight adding to worries about the embattled sector and the Chinese economy more broadly.

Also, multiple ratings agencies have offered negative warnings regarding the impact of a government shutdown on U.S. debt as the deadline for Congress to reach a deal on spending is just days away. Any progress towards a deal will be a modest positive for risk assets today.

Looking further into today’s session, there are several economic reports to watch this morning including: Case-Shiller Home Price Index (E: 0.6%), New Home Sales (E: 699K), and Consumer Confidence (E: 105.9). To stabilize, markets will want to see more Goldilocks data showing stable but slowing growth and demand metrics and no signs of rising price pressures.

In the afternoon, there is a 2-Yr Treasury Note auction at 1:00 p.m. ET, the first since the hawkish Fed meeting so the results very well could move yields and impact stocks today. Finally, there is one Fed speaker: Bowman (1:30 p.m. ET), and if “higher for longer” is reiterated, that could weigh on risk assets.

Hard Landing vs. Soft Landing Scoreboard

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Potential Bearish Gamechangers?

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What’s in Today’s Report:

  • Are Strikes and Government Shutdowns Potential Bearish Gamechangers?

Futures are bouncing slightly after the BOJ rate decision met expectations while economic data was “ok” overnight.

The BOJ made no change to policy and President Ueda was not hawkish in his comments, easing a bit of the hawkish anxiety that’s weighed on markets this week.

Economically, the EU flash composite PMI beat estimates (47.1 vs. (E) 46.5) although it’s still in contraction territory.

Today focus will be on the flash PMIs and expectations are as follows:  Flash Manufacturing PMI (E: 47.8), Flash Service PMI (E: 50.2).  Markets need a Goldilocks number of a solid (but not great) headline readings, and stable price indices.  If we get the opposite (weak headline and higher price indices) that’ll be another stagflation signal and expect the selling to continue.

We also have two Fed speakers today, Cook (8:50 a.m. ET) and Daly (1:00 p.m. ET), but neither should move markets.

Potential Bearish Gamechangers

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Key Levels to Watch on Fed Day

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What’s in Today’s Report:

  • Key Technical Levels to Watch on Fed Day – Print or Share These Charts
  • Is Canadian CPI a Warning on Inflation?

U.S. equity futures are rising alongside European shares this morning. Resulting from a dovish market reaction to a “cooler than feared” inflation print in the U.K. overnight.

Headline CPI in the U.K. dropped to 6.7% vs. (E) 7.1% in August while Core fell to 6.2% vs. (E) 6.8%. The data was a clear surprise and has resulted in rates markets lowering odds of a BoE rate hike tomorrow to 50% from near 100% previously, supporting risk-on money flows this morning.

There are no economic reports or Treasury auctions today. This will likely leave markets in a state of “Fed Paralysis” until the FOMC Announcement (2:00 p.m. ET) and Fed Chair Powell’s press conference (2:30 p.m. ET).

Also, to request a one-page PDF “tear sheet” of the charts on Page 2 of today’s Report, complete with price level explanations, email info@sevensreport.com.

Key Levels to Watch

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Oil Futures End Lower

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Oil futures end lower: Sevens Report Co-Editor, Tyler Richey, Quoted in MorningStar

Oil futures end lower as demand worries outweigh forecasts for supply deficit

The latest U.S. inflation reading ran on the “hot side,” especially on the core figure, which will “bolster the case for a ‘higher for longer’ Fed policy rate outlook, said Tyler Richey, co-editor of Sevens Report Research. That raises the threat that the central bank “chokes off growth and sends the economy into recession,” which is never a good scenario for oil demand.

Also, click here to view the full MorningStar article published on September 13th, 2023. However, to see the Sevens Report’s full comments on the current market environment sign up here.

Oil Futures

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Oil Market Analysis: Potential Pullback Amidst Upward Trend

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Global Oil Demand & Market Analysis: Sevens Report Analysts Quoted in MorningStar

Oil prices extend rise on supply worries

“On balance, the absence of sizable downward revisions to global oil demand over the next two years, despite recession risks, helped the oil market power on to new highs. Futures have become overextended to the upside and are in technically overbought territory on the daily time frame charts, leaving the market susceptible to a profit-taking pullback in what is otherwise a still clearly upwardly trending energy market,” analysts at Sevens Report Research said in a note.

A hot consumer-price index reading Wednesday morning or a bearish weekly supply report from the Energy Information Administration could serve as a catalyst for a pullback,” they wrote.

Also, click here to view the full Morningstar article published on September 13th, 2023. However, to see the Sevens Report’s full comments on the current market environment sign up here.

Global Oil - Morningstar

If you want research that comes with no long term commitment, yet provides independent, value added, plain English analysis of complex macro topics, then begin your Sevens Report subscription today by clicking here.

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Jobs Report Preview

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What’s in Today’s Report:

  • Jobs Report Preview
  • Oil Market Update & EIA Analysis

Futures are little changed following a busy night of mixed economic data.

Positively, the August Chinese PMIs were better than feared, rising to 50.3 vs. (E) 50.1 and helping to slightly reduce China recession worries.

Negatively, the EU flash HICP (their version of CPI) was hot on the headline (5.3% vs. (E) 5.1%) but in-line on core (5.3% y/y), underscoring that inflation is sticky in the EU.

Focus today will be on economic data, specifically Jobless Claims (E: 238K) and the Core PCE Price Index (E: 0.2% m/m, 4.2% y/y).  For stocks to extend the week’s gains (and continue to bounce back from the broader pullback) investors won’t want any surprises.  In the case of jobless claims, that means no big jump in claims that hints at economic weakness, nor a further drop that might make the Fed more hawkish.  On the core PCE Price Index, an in-line to slightly below reading would be positive as it’d further pressure Treasury yields and likely lift stocks.

Finally, there is one Fed speaker today, Collins at 9:00 a.m. ET, but she shouldn’t move markets.

Sevens Report Analysts Quoted in MarketWatch on August 21st, 2023

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Oil prices settle lower to extend last week’s losses

Meanwhile, a consistent run of strong U.S. economic data has raised fears the Federal Reserve may need to push interest rates higher than previously expected and hold them there for longer than previously anticipated, while weekly government data last week showed a pullback in consumer fuel demand and a post-pandemic high in U.S. crude production, analysts at Sevens Report Research said in a note.

Click here to read the full article.