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What the Hawkish Fed Decision Means for Markets

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Hawkish Fed Decision: Strengthen your market knowledge with a free trial of The Sevens Report.

What’s in Today’s Report:

  • What the Hawkish Fed Decision Means for Markets
  • Key Levels to Watch:  Post-Fed Takeaways
  • EIA Analysis and Oil Market Update

Futures are moderately lower on momentum from Wednesday’s late sell-off. As the Fed’s hawkish statement and projections weighed on global markets overnight.

The Norges Bank (Central Bank of Norway) hiked rates by 25 bps and signaled another hike in December. This wasn’t expected and added to hawkish central bank anxiety.

Economically there were no notable reports overnight.

Today will be another busy day and the first important event is the Bank of England Rate Decision (E: 25 bps hike).  If the BOE hikes 25 bps and strongly signals another hike is coming, that will be incrementally hawkish and likely add to global selling pressure.

Looking at economic data, there are two important reports today: Jobless Claims (E: 225K) and Philly Fed (E: 0.5).  Especially after yesterday’s declines, markets will want to see stable data, because if data is “Too Hot” it’ll push Treasury yields higher and weigh on stocks and if data is suddenly very bad it’ll increase stagflation concerns.  We also get Existing Home Sales (E: 4.10M) but that number shouldn’t move markets.

 

Hawkish Fed

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FOMC Preview: How Long Will Rates Stay High?

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FOMC Preview: Strengthen your market knowledge with a free trial of The Sevens Report.

What’s in Today’s Report:

  • FOMC Preview – How Long Will Rates Stay High?
  • VIX Chart – Is Volatility About to Surge

S&P futures are modestly higher this morning after a favorable dip in EU inflation statistics and upward revisions to global growth forecasts while oil continues to climb towards $100/barrel.

The Eurozone’s Narrow Core HICP (their CPI equivalent) met estimates at 5.3% in August, down from 5.5% in July. The OECD raised their global growth forecast from 2.7% to 3.0%, primarily thanks to strength in the U.S. and Japan while growth estimates for Europe and China were reduced. However, the net increase in the global growth outlook was received as a mild positive this morning.

Looking into the U.S. session, there is just one economic report: Housing Starts and Permits (E: 1.435M, 1.440M). As long as there are no big surprises in the release, markets should fall into a holding pattern as the September FOMC meeting begins in Washington.

However, there is a 20-Yr Treasury Bond auction at 1:00 p.m. ET, and if the outcome moves rates materially, stocks could react amid last-minute positioning ahead of tomorrow’s Fed decision.

Fed Preview

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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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Why Did Stocks Drop on Friday?

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Why Did Stocks Drop on Friday? Strengthen your market knowledge with a free trial of The Sevens Report.

What’s in Today’s Report:

  • Why Did Stocks Drop on Friday?
  • Weekly Market Preview:  Will the Fed Confirm Market Expectations?
  • Weekly Economic Cheat Sheet:  Important Growth Data Throughout the Week (Could Confirm or Undermine Soft/No Landing Hopes)

Futures are slightly higher as markets bounce following Friday’s declines and after a quiet weekend of news.

The various strikes occurring across the country (writers, UAW) contributed to Friday’s market decline. There was little positive progress over the weekend on resolving either work stoppage.

Geopolitically, President Biden’s National Security Advisor met with China’s foreign minister. The meeting is raising hopes the U.S./China relationship could improve.

Today the only notable economic report is the Housing Market Index (E: 50.0) and that shouldn’t move markets as long as it doesn’t provide a major positive or negative surprise. Barring that, we’d expect pre-Fed positioning to generally drive trading today.

Why Did Stocks Drop

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CPI’s Influence on Market Dynamics: A Closer Look

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CPI’s Influence on Market Dynamics: Tom Essaye Quoted by BNN Bloomberg

Nasdaq 100 Drops 1 per cent as Apple slides after event

CPI is really key because if it halts its downward trend, markets will have to price in a more hawkish Fed. And that would be a headwind on stocks, said Tom Essaye, a former Merrill Lynch trader who founded The Sevens Report newsletter.

Lastly, “Put in a more familiar way, CPI impacts two of the three pillars of the rally: disinflation and expectation the Fed is done with rate hikes,” Essaye noted.

Also, click here to view the full BNN Bloomberg article published on September 12th, 2023. However, to see Tom’s full discussion on CPI’s influence on markets sign up here.

CPI's Influence - BNN

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CPI remains the most important monthly economic metric

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CPI remains the most important monthly economic metric: Tom Essaye Quoted in MorningStar

Dow turns higher as Apple falls ahead of its iPhone event, with inflation data looming

“CPI remains the most important monthly economic metric for the simple reason that if CPI does not continue to decline, markets will have to price in a more hawkish Fed, and that would be a headwind on stocks,” said Tom Essaye, founder and president of Sevens Report Research, in a note Tuesday.

“Sensitivity to this report will be especially high tomorrow because there have been anecdotal signs that inflation may be leveling off or bouncing back,” he said.

A “good” CPI report would show core inflation, which excludes energy and food prices, rose 0.2% or less in August, according to Essaye. Economists polled by the Wall Street Journal have forecast that core CPI increased 0.2% last month and 4.3% year over year.

“A continued drop in core CPI will help to calm concerns that inflation is bouncing back, and that could trigger a solid drop in Treasury yields and a good relief rally in stocks,” said Essaye.

Also, click here to view the full Morningstar article published on September 12th, 2023. However, to see Tom’s full comments on the current market environment sign up here.

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.

To strengthen your market knowledge take a free trial of The Sevens Report.

Join hundreds of advisors from huge brokerage firms like Morgan Stanley, Merrill Lynch, Wells Fargo Advisors, Raymond James, and more! To start your quarterly subscription and see how The Sevens Report can help you grow your business, click here.

Headline and Core CPI – The Important Difference

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Difference Between Headline and Core CPI: Strengthen your market knowledge with a free trial of The Sevens Report.

What’s in Today’s Report:

  • The Important Difference Between Headline and Core CPI
  • NFIB Small Business Optimism Index Contradicts the “No-Landing” Scenario

U.S. stock futures are tracking global shares lower this morning following more disappointing economic data in the Eurozone and continued pressure on the tech sector.

AAPL shares are extending yesterday’s post-product launch declines this morning, therefore, weighing on the tech sector broadly in pre-market trading.

Economically, U.K. GDP dropped to -0.5% vs. (E) -0.2% in July after hot wage data yesterday, bolstering stagflation fears while EU Industrial Production fell -1.1% vs. (E) -0.7%. Despite the recently soft data, rates markets continue to price in a 75% chance of an ECB rate hike this week.

Today, focus will primarily be on inflation data and how Treasuries react to the release: CPI (0.6% m/m, 3.6% y/y), Core CPI (E: 0.2% m/m, 4.4% y/y).

There are no Fed speakers or Treasury auctions today so a “hot” CPI report will likely spark cross-asset volatility while a Goldilocks release will setup a possible extension of the early September relief rally.

Headline and Core CPI

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CPI Preview Scenarios: Good, Bad, Ugly

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CPI Preview Scenarios: Strengthen your market knowledge with a free trial of The Sevens Report.

What’s in Today’s Report:

  • CPI Preview Scenarios: Good, Bad, Ugly
  • Table: CME FedWatch Tool Shows No Additional Rate Hikes This Cycle

Stock futures are modestly lower today as ORCL offered disappointed revenue guidance after yesterday’s close. And, while economic data was largely disappointing overnight.

Economically, the German ZEW Survey’s Current Conditions Index fell to -79.4 vs. (E) -71.3. U.K. Also, wage growth rose to 8.5% vs. (E) 8.2% stoking stagflation concerns in Europe.

Domestically, the NFIB Small Business Optimism Index fell to 91.3 vs. (E) 91.7 in August. This was well below the long-term average of 98.0 pointing to deteriorating sentiment among small business owners.

Today, there are no additional economic reports today and no Fed officials are scheduled to speak which will leave equity traders focused on AAPL’s new product event. Tech shares have been driving the major stock indices so far this week (TSLA and QCOM yesterday, ORCL this morning) so any meaningful reaction in AAPL shares will likely move the broader indices as focus turns ahead to CPI tomorrow.

Finally, there is a 10-Yr T-Note auction at 1:00 p.m. ET that could move fixed-income markets and see equities reprice inflation expectations ahead of tomorrow’s widely anticipated inflation release, but no major moves are expected before tomorrow’s CPI print.

CPI Preview

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Stable Treasury Yields: Tom Essaye’s Insight

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Stable Treasury Yields: Tom Essaye Quoted in Barron’s

Stocks Are Rising, With Tech Leading the Way Higher

Technology stocks were leading the broader market higher in early Monday trading as traders braced for a busy week ahead.

“Today there are no notable economic reports nor any Fed speakers, so focus will remain on Treasury yields and if yields are relatively stable, then stocks can rebound from last week’s losses,” writes Sevens Report Research’s Tom Essaye. 

The big event of the week will be the release of the consumer-price index for August on Wednesday. The inflation reading will inform the Federal Reserve’s next moves on inflation. 

Also, click here to view the full Barron’s article published on September 11th, 2023. However, to see Tom’s full comments on the current market environment sign up here.

Treasury Yields

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Focus Remains on Treasury Yields Today

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Today’s Focus Remains on Treasury Yields – Tom Essaye Quoted in MarketWatch

Dow edges up as stocks look to rebound ahead of coming inflation, retail sales data

U.S. stock indexes were up as of Monday afternoon, with consumer discretionary shares and several technology companies leading the broader market higher, as traders braced for a busy week of economic data releases.

“No major U.S. economic data is set for release on Monday, so the focus will remain on Treasury yields”, said Tom Essaye, president of the Sevens Report Research. 

“If yields are relatively stable, then stocks can rebound from last week’s losses”, Essaye said in an email.

Also, click here to view the full MarketWatch article published on September 11th, 2023. However, to see Tom’s full comments on today’s market insights sign up here.

Treasury Yields

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.

To strengthen your market knowledge take a free trial of The Sevens Report.

Join hundreds of advisors from huge brokerage firms like Morgan Stanley, Merrill Lynch, Wells Fargo Advisors, Raymond James, and more… To start your quarterly subscription and see how The Sevens Report can help you grow your business, click here.