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Why Inflation is the Key Variable Going Forward

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What’s in Today’s Report:

  • Why Inflation Is the Key Variable Going Forward
  • Weekly Market Preview:  More Clarity on Fed Rate Hikes This Week?
  • Weekly Economic Cheat Sheet:  CPI Thursday, Inflation Expectations Friday.

Futures are slightly lower following a quiet weekend as investors digested the strong jobs report and last weeks’ hawkish surprises from the ECB and BOE.

ECB officials downplayed the idea of a summer rate hike over the weekend but didn’t rule out a hike in 2022 (largely confirming the hawkish commentary from Lagarde).

Economic data remained mixed as China’s Caixin services PMI beat estimates (51.4 vs. (E) 50.5) but German Industrial Production missed expectations (-0.3% vs. (E) 0.4%) although the data isn’t moving markets.

Today should be a generally quiet day, as from a market influence standpoint all the really important companies have released earnings, so earnings season is “over” for all intents and purposes.  Additionally, there’s only one notable economic report, Consumer Credit ($21.0 bln), but given the strength of personal balance sheets that shouldn’t move markets today.  On the geo-political front, French President Macron travels to Moscow to meet with Putin about Ukraine, and any positive headlines could produce a mild tailwind on stocks.

Market Multiple Table: February Update

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What’s in Today’s Report:

  • Market Multiple Table: February Update

Stock futures swung between gains and losses overnight as the sizeable two-day rally to end January is being digested while most global equity markets rallied to start the month of February.

Economically, the EU unemployment rate fell to 7.0% vs. (E) 7.2% but final Manufacturing PMIs were disappointing. None of the data is materially impacting markets this morning, however.

Looking into the U.S. session, there are a few economic reports to watch today: ISM Manufacturing Index (E: 57.5), Construction Spending (E: 0.7%), and JOLTS (10.5 million) while no Fed officials are scheduled to speak.

We are getting into the heart of earnings season and there are some notable companies releasing Q4 results today including: UPS ($3.11), and XOM ($1.96) before the open and then PYPL ($1.13), AMD ($0.76), GOOGL ($26.69), GM ($1.15) and SBUX ($0.80) after the close.

Bottom line, near-term momentum continues to favor the bulls right now and this relief rally can continue if economic data is inline or slightly better than estimates (not too hot), earnings remain positive, and Fed policy expectations continue to get less hawkish.

Why the Bounce Can Continue (But Volatility Isn’t Over)

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What’s in Today’s Report:

  • Why Stocks Can Bounce Further (But Volatility Isn’t Over)
  • Technical Update:  Important Support and Resistance Levels to Watch
  • Weekly Economic Cheat Sheet:  Jobs Report Friday

Futures are slightly lower following a quiet weekend as markets digested last week’s volatility and Friday’s rally.

Atlanta Fed President Bostic was encouraged by Friday’s inflation data and expected three hikes this year, which is less hawkish than the current market expectation.

China’s manufacturing PMI slightly best estimates at 51.1 vs. (E) 51.0, further implying that economy is stabilizing.

There are no economic reports today, but there are two Fed speakers, Daly (11:30 a.m. ET) and George (12:40 p.m. ET) and if they echo Bostic’s “not as hawkish as expected” commentary from this weekend, then stocks can extend the rally.

On the earnings front, most of the big reports come later this week (FB, GOOGL, AMZN) but after the close today, we get NXPI ($2.98) and markets will be focused on chip availability, and if there’s positive commentary there that could be another tailwind on this market.

Tom Essaye Quoted by Switzer Daily on January 28, 2022

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Why are stocks slumping and why am I not worried?

The Fed is serious about raising rates, that’s going to continue to … keep markets volatile…Tom Essaye, founder of Sevens Report, said in a note. Click here to read the full article.

Why Aren’t TIPS Rising?

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What’s in Today’s Report:

  • Why Aren’t TIPS Rising?
  • What Could Send 10’s-2’s Closer to Inversion?

Futures are slightly lower as markets continue to digest Wednesday’s Fed decision (50 bps in March or five hikes in 2022) amidst mixed earnings results.

AAPL posted better than expected earnings and the stock was up 3% overnight, but overall results continue to be mixed and that’s contributing to market volatility.

Today’s focus will be on important inflation data and the reason is clear:  If the inflation data is materially stronger than estimates, that will only encourage the Fed to get more hawkish/unpredictable, and that will add to the headwinds on stocks.  The key inflation numbers to watch today are: Core PCE Price Index (E: 0.5%, 4.8%), Employment Cost Index: (E: 1.2%, 4.1%), and the Inflation Expectations in the 10:00 a.m. Consumer Sentiment Index.

We also get some notable earnings today, including CAT ($2.22), CVX ($3.10), SYC ($1.47), and CL ($0.79).  But, barring a major disappointment, they shouldn’t move markets.

What the Fed Decision Means for Markets

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What’s in Today’s Report:

  • What The Fed Decision Means for Markets (50 bps in March and/or five hikes in ’22)
  • EIA Analysis and Oil Market Update

Futures are little changed and recouped modest losses earlier this morning, as global markets digest yesterday’s Fed decision and mixed earnings.

Economic data was sparse as German Gfk Consumer Climate and UK Distributive Trades both slightly beat estimates.

Today will be a busy day of data and earnings and generally speaking markets need solid data and good earnings/guidance to help this market continue to stabilize.  Some reports we’re watching include: Jobless Claims (E: 265K), Durable Goods (E: -0.5%), Initial Q4 ‘21 GDP (5.7%) and Pending Home Sales (E :0.6%).

On the earnings front, the key report today is AAPL ($1.89) after the close, but other reports we’re watching include: MA ($2.19), MCD ($2.31), JBLU (-$0.40), LUV ($0.05), VLO ($1.69), SHW ($1.35), V ($1.69).

Tom Essaye Interview by Yahoo Finance Live on January 24, 2022

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Market rout leading to ‘a much more balanced risk-reward outlook’

I wouldn’t go into treasuries. I think that inflation is here to stay. We don’t know exactly how high it will be, but it’s here to stay, and that’s negative for bonds…said Tom Essaye. Click here to watch the full interview.

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.

Fed Meeting Preview

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What’s in Today’s Report:

  • What to Make of Yesterday’s Selloff and Reversal
  • FOMC Preview
  • Chart: S&P 500 Measured Move Reached

Futures are trading off of the overnight lows but still down roughly 1% as yesterday’s volatile session is digested ahead of the Fed while IBM posted strong Q4 earnings yesterday and economic data largely met estimates overnight.

The FOMC meeting begins today which will increasingly capture trader focus ahead of tomorrow’s announcement and press conference.

Economically, we get two reports on the housing market this morning: the Case-Shiller Home Price Index (E: 1.0%) and the FHFA House Price Index (E: 1.0%) but Consumer Confidence (E: 111.9) will be the more important number to watch given the growing uncertainty about the state of the economic recovery. Another bad print like we saw with yesterday’s Composite PMI Flash could send stocks lower.

There is a 5-Yr Treasury Note auction at 1:00 p.m. ET and investors will be looking for strong demand (which would reflect dovish shifting Fed expectations) as we saw with yesterday’s 2-Yr auction which helped stocks bottom and reversed so sharply in intraday trade.

Finally, on the earnings front, we will hear from: JNJ ($2.12), VZ ($1.28), GE ($0.83), MMM ($2.03), and AXP ($1.78) before the open, and then MSFT ($2.29), TXN ($1.95), and COF ($5.14) after the close.

Tom Essaye Quoted in Barron’s on January 21, 2022

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Netflix Tumbled, Bitcoin Slipped—and What Else Happened in the Stock Market Today

Several companies cited higher costs as impacting profitability, furthering margin concerns…wrote Tom Essaye, founder of Sevens Report Research. Click here to read the full article.