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Fed Speak and Updated Rate Expectations

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What’s in Today’s Report:

  • Fed Speak and Updated Rate Expectations
  • CPI Takeaways

Futures are slightly lower following mixed economic data, as markets continue to digest increased hopes for an economic “soft landing.”

Chinese exports declined but fell less than expected (-9.9% vs. (E) -11.1%), offering more “not as bad as feared” news.

Today’s focus will switch to earnings (and that’s true for next week too) and key reports today include:  JPM ($ 3.11), BAC ($ 0.76), C ($ 1.18), UNH ($5.17), WFC ($0.63) and BLK ($ 8.00).  If earnings are better than feared, that should help stocks extend yesterday’s gains.

Economically the focus will stay on inflation with Import & Export Prices (E: -0.9%, -0.7%) and Consumer Sentiment (E: 60.0) while we get another Fed speaker: Harker (10:20 a.m. ET).  As has been the case, anything that implies declining inflation and/or a 25 bps rate hike in February will help stocks rally.

Tom Essaye Interviewed on Yahoo Finance on January 5th, 2023

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Fed, bond market playing a ‘game of chicken,’ strategist says

Sevens Report Research Tom Essaye Founder and President joins Yahoo Finance Live to discuss the Fed’s policy pathway moving ahead, inflation, the state of the economy, jobs data, a recession, what investors should be watching for, and the outlook for markets. Click here to watch the full interview.

Jobs Day

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What’s in Today’s Report:

  • Why Yesterday’s Employment Data was Bad for Stocks and Bonds
  • Answering a Question About the Bond Market

Futures are little changed ahead of the jobs report and following mixed European economic data.

EU HICP (their CPI) was disappointing on balance as the headline rose less than expected (9.2% vs. (E) 9.5%) but the more important Core HICP gained 5.2% vs. (E) 5.0%. This report partially refutes the encouraging inflation data from earlier this week.

Today focus will be on the Jobs Report and expectations are as follows:  Job Adds 200K, UE Rate 3.7%, Wages 0.4% m/m, 5.0% y/y.  If we get another solid number above 200k, expect more weakness in stocks and bonds as that will be viewed as “hawkish” data, while a job adds number close to 100k could spark a sharp rally, given yesterday’s declines.

The jobs report isn’t the only important economic report today, however, as the ISM Services Index (E: 55.0) is released later this morning.  Markets will want to see a moderation in both the headline and prices readings.

Finally, there are three Fed speakers today:  Cook (11:15 a.m. ET), Bostic (11:15 a.m. and 3:30 p.m. ET), and Barkin (12:15 p.m. ET).

A Positive Scenario for 2023

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What’s in Today’s Report:

  • Bottom Line – There’s a Positive Scenario for 2023, Too
  • Weekly Economic Cheat Sheet: Focus on Jobless Claims

U.S. equity futures are tracking global markets higher while the dollar is lower in risk-on trading this morning following more positive reopening news out of China.

China will end its eight day quarantine for inbound travelers on January 8th and scrapped international flight limits in the latest move away from Covid-Zero which is bolstering the outlook for global growth in the months ahead and markets are responding favorably to the news.

Today, there are three economic reports due to be released: International Trade in Goods (E: -$97.0B), Case Shiller Home Price Index (E: -1.2%), and FHFA House Price Index (E: -0.5%) but none of them should meaningfully impact the outlook for Fed policy and therefore are likely to have a limited impact on stocks.

There are no Fed speakers today but the Treasury will hold a 2-Yr Note auction at 1:00 p.m. ET. If demand is weak and yields rise following the auction, that could weigh on equities as it would be a mildly hawkish signal from the fixed-income market as we approach the end of the year.

 

Sevens Report Q4’22 Quarterly Letter Coming January 3.

The Q4 2022 Quarterly Letter will be delivered to advisor subscribers on Tuesday, January 3.

Especially given all the volatility in 2022 and continued challenges for markets, we think the start of the year is a critically important time to communicate with clients and prospects.

We will deliver the letter on the first business day of the quarter because we want you to be able to send your quarterly letter before your competition (and with little-to-no work from you).

You can view our Q3‘22 Quarterly Letter here.

If you’d like to learn more or are interested in subscribing, please email info@sevensreport.com.

Is the Yield Curve Already Forecasting a Fed Rate Cut?

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What’s in Today’s Report:

  • Is the Yield Curve Already Forecasting a Fed Rate Cut?

Futures are slightly higher following a quiet night of news as investors digest Thursday’s declines and look ahead to the long weekend.

Economically the only notable report was Japanese CPI and it came in slightly lower than expectations at 3.7% y/y vs. (E) 3.8% y/y. but it didn’t move markets.

Today focus will be on economic data and the key reports are, in order of importance: Core PCE Price Index (E: 0.2% m/m, 4.6% y/y), University of Michigan Consumer Sentiment (E: 59.1), Durable Goods (E: -0.8%) and New Home Sales (E: 600k).   Markets will want to see further confirmation of dis-inflation in the Core PCE Price Index and the Five Year Inflation Expectations in the University of Michigan report, and if that happens it could spur a mild rally following yesterday’s declines.

Tom Essaye Quoted in Barron’s on December 19th, 2022

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Stocks Fall to Start the Week as Recession Worries Linger

“A lot of people are throwing in the towel on the year, for lack of a better word, and you’re seeing people sort of remove some of those hopeful year-end bullish bets,” Tom Essaye, founder of Sevens Research, told Barron’s on Monday. Click here to read the full article.

What the Fed Decision Means for Markets

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What’s in Today’s Report:

  • What the Fed Decision Means for Markets
  • Why Stocks Didn’t Fall More Yesterday Despite the Hawkish Fed (Important)
  • EIA Analysis and Oil Market Update

Futures are sharply lower as markets digest yesterday’s Fed decision and a deluge of global central bank rate hikes.

By the time stocks open today, seven separate global central banks (including the Fed, ECB, BOE and Swiss National Bank) will have hiked rates over the last 24 hours and while it was all expected, it’s still weighing on sentiment.

Today will be a very busy day of central bank decisions and economic data.  First, we get the BOE Rate Decision (E: 50 bps hike) and ECB Rate Decision (E: 50 bps hike) and the keys there will be the commentary (do either central bank hint that they’re close to the end of tightening).

On the economic front, the key reports today are (in order of importance): Philly Fed Manufacturing Index (E: -9.9), Empire State Manufacturing Index (E: -0.4), Jobless Claims (E: 230K), Retail Sales (E: -0.2%) and Industrial Production (E: 0.1%).  If the data can show moderation and easing price pressures (especially in Empire and Philly) that’ll be a positive for stocks.

CPI Day and FOMC Preview

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What’s in Today’s Report:

  • FOMC Preview
  • CPI Preview (Abbreviated Version)
  • Chart – NY Fed Survey Inflation Expectations Fall Sharply

Stock futures are extending yesterday’s gains as traders await today’s CPI report amid mixed news from overnight.

In China, a $143B stimulus package aimed at the semiconductor industry helped offset the delay of an economic/Covid policy meeting due to a surge in Covid cases.

Economic data was mixed overnight but there were no surprises material enough to derail the tentative pre-CPI rally this morning.

Today, traders will be keenly focused on the November CPI report at 8:30 a.m. ET with the headline expected to come in at 0.3% M/M and 7.3% Y/Y while the Core figure is expected to be 0.4% M/M and 6.1% Y/Y. Bottom line, a print below 7.3% on the headline and below 6.1% in the core figure will be well received by investors but an upside miss in either could trigger a sharp reversal of this most recent move higher in the broader stock market.

Once markets digest the CPI report, money flows are likely to take on a positioning tone with tomorrow’s Fed decision looming and a limited list of catalysts for the remainder of the day. There is a 30-Yr Treasury Bond auction at 1:00 p.m. ET that could move rates and have a mild impact on stocks.

If Inflation Drops and Growth Slows, What Benefits?

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What’s in Today’s Report:

  • If Inflation Drops and Growth Slows, What Benefits? (Answer Inside)
  • Why the Manheim Used Vehicle Value Index Was Important yesterday
  • EIA and Oil Market Analysis

Futures are marginally higher on additional China reopening headlines, although China embarking on a re-opening process is now well known and mostly priced into stocks.

The South China Morning Post reported that Hong Kong will ease isolation rules for COVID-positive residents and travelers, in what is the latest step towards reopening.

Economic data was sparse overnight and the only notable report was Japanese GDP which slightly beat estimates (-0.2% vs. (E) -0.3%).

Today’s focus will be on weekly Jobless Claims (E: 228K) as markets need to see further deterioration in the labor market to move the Fed closer to an ultimate “pivot.”  Any move towards 250k in should be welcomed by markets.

Less Bad Isn’t Good (Especially at the Valuations)

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What’s in Today’s Report:

  • Bottom Line:  Less Bad Isn’t Good (Especially at these Valuations)
  • Weekly Market Preview:  Can the S&P 500 Hold Recent Gains?
  • Weekly Economic Cheat Sheet:  More Signs of Dis-Inflation This Week?

Futures are moderately lower despite in-line economic data and more re-opening optimism from China, as markets further digest Friday’s jobs report.

Reuters reported that COVID may be downgraded to “Category B” in China which may result in new, less restrictive guidance from the government as early as this week.

Economic data largely met expectations as the Euro Zone Composite PMI, UK Composite PMI, and Euro Zone Retail Sales reports were all basically in line.

Today the calendar is mostly quiet but the focus will be on the ISM Services PMI (E: 53.5) and if the headline can remain firm (above 50) and prices can drop further, that’ll help support stocks.