Sevens Report analyst Tom Essaye warned in a Tuesday note that the most recent market gains could be little more than a “head fake rally,” explaining that the Federal Reserve’s actions to protect depositors at Silicon Valley Bank and Signature Bank could actually cause inflation to linger even longer. Click here to read the full article.
Tom Essaye, a former Merrill Lynch trader who founded “The Sevens Report” newsletter, expects that the data will keep the Fed on track to raise rates 25 basis points next week.
“Given the bank troubles, this report isn’t bad enough to put 50 bps back on the table, but if the Fed wants to maintain credibility on inflation, then this report says they have to hike again next week and not signal they are done,” Essaye wrote. Click here to read the full article.
“If the bank crisis is limited to just a few banks, then the actions taken on Sunday by the Fed and Treasury will prove inflationary,” says Sevens Report analyst Tom Essaye. “By backstopping the depositors, the government has avoided the lion’s share of economic loss from this crisis,” he says, and the $25 billion Bank Term Funding Program, which offers banks loans of up to one year, will increase the Fed’s balance sheet a time when it’s actively trying to shrink it, further reversing the central bank’s recent policy actions, Essaye explains. Click here to read the full article.
What’s in Today’s Report:
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).
What’s in Today’s Report:
Stock futures are cautiously higher and yields are bouncing globally following better than expected economic data overnight and more stable price action in U.S. bank shares while traders continue to unwind hawkish Fed policy bets ahead of today’s CPI report.
Economically, the U.K’s ILO Unemployment Rate came in at 3.7% vs. (E) 3.8% which is pressuring Gilts (down 11 bp) and lifting yields across Europe and the U.S. while the NFIB Small Business Optimism Index rose to 90.9 vs. (E) 89.9.
Looking into today’s session, focus will be on the February Consumer Price Index release before the bell with the headline expected to rise 0.4% m/m (6.0% y/y) while the all-important Core CPI figure is also expected to rise 0.4% m/m (5.5% y/y).
There are no Fed speakers today so if the inflation data comes in hot, expect a rebound in yields that would likely pressure equities as traders reassess the less-hawkish policy expectations that have been priced into rates markets since the SVB debacle began.
Additionally, bank shares (KBE) will remain in focus and if contagion fears persist and financial stocks remain under pressure, it will be hard for the broader equity market to meaningfully stabilize, much less recover some of the recent losses.
Tom Essaye, founder and president of Sevens Report Research, joins BNN Bloomberg to discuss the latest movements in the markets after today’s jobs data. Essaye is expecting another big hike from the Fed at the upcoming meeting and discusses his take on SVP bank’s halt in trading, Silvergate’s shutdown and bitcoin. He says 2023 will be volatile and investors should remain conservative. Click here to watch the full interview.
What’s in Today’s Report:
Stock futures are stable as yesterday’s Powell-driven losses continue to be digested while the yield curve is hitting new cycle lows with the 2-Yr Note holding above 5% for the first time since 2007 while the 10-Yr hovers just below 4%.
Economic focus was on German data o/n as Industrial Production topped estimates while the previous Retail Sales print was revised notably higher, bolstering Bund yields.
Looking into today’s session, focus will be on labor market data early, especially considering Powell’s “data dependent” policy comments from yesterday’s testimony.
The ADP Employment Report (E: 175K) will hit the wires before the bell and then JOLTS (E: 10.6 million) will be released after the open. Investors want to see some deterioration in the jobs market but not an all-out collapse while any indication of declining wages would be well received. International Trade in Goods and Services (E: -$69.0B) will also be released this morning but is less likely to move markets.
From there, Powell’s two-day testimony continues before the House Banking Committee today at 10:00 a.m. ET and investors will continue to listen intently for further clues about policy plans and terminal rate expectations.
Finally, there is a 10-Year Treasury Note auction at 1:00 p.m. ET that could move yields and ultimately impact the bond market, specifically if the auction tails and rates move meaningfully higher.
What’s in Today’s Report:
U.S. equity futures are trading with tentative gains amid a stable bond market following good data out of Europe as focus shifts to Powell’s Congressional testimony today.
The ECB’s latest consumer survey showed a notable drop from 3.0% to 2.5% in three year inflation expectations which is helping bonds stabilize while German Manufacturers Orders came in at 1.0% vs. (E) -0.6%, underscoring a resilient Eurozone economy.
This morning, focus will be exclusively on Powell testimony before the Senate which begins at 10:00 a.m. ET as investors will be looking for any new insight on the pace of future rate hikes (25 or 50 basis point hike this month?) and/or the expected terminal rate (currently priced in near 5.375%). If Powell strikes a hawkish tone, expect volatility in stocks amid a potentially sharp rise in yields.
Looking into the afternoon, there is a 3-Yr Treasury Note auction at 1:00 p.m. ET which should offer some clues to how the bond market digests Powell’s first day of Congressional testimony (a badly tailing auction could further weigh on stocks), while there is one economic report due out late in the day: Consumer Credit (E: $26.4B), but unless the number comes in well above estimates, it should not move markets.
What’s in Today’s Report:
Futures are modestly higher as a soft EU inflation reading is helping to extend Thursday’s rally.
Euro Zone PPI came in much lower than expectations (15% vs. (E) 17.7% y/y) and that’s helping to slightly offset the hot inflation data from earlier in the week.
Economically, Euro Zone and UK Composite PMIs were generally in-line with expectations.
Today the key report will be the ISM Services PMI (E: 54.5). For stocks and bonds, the best case for this report is that the headline is stable (not much above expectations) while the price indices decline. If that happens, stocks can extend the rally.
We also get several Fed speakers today including Logan (11:00 a.m. ET), Bostic (11:45 a.m. ET), Bowman (3:00 p.m. ET) and Barkin (4:15 p.m. ET). If they echo Bostic’s comments from yesterday about the Fed being done with hikes by mid to late summer, that will be a tailwind on stocks.
What’s in Today’s Report:
Futures are extending Wednesday’s declines and are moderately lower as more global inflation data came in hotter than expected.
Euro Zone HICP rose 8.5% vs. (E) 8.2% y/y and joined French, Spanish and German CPIs as signaling a bounce back in inflation. That’s pushing global yields higher and weighing on futures (just like it weighed on stocks on Wednesday).
Today focus will remain on economic data and the key report is Unit Labor Costs (E: 1.4%). Wages are a major source of inflation the Fed is trying to bring down, so if Unit Labor Costs are lower than expected, that will likely cause a bounce in stocks and bonds. Other notable events today include Jobless Claims (E: 200K) and two Fed speakers, Waller (4:00 p.m. ET) and Kashkari (6:00 p.m. ET), although they shouldn’t move markets.