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Understanding Fed Hawks vs. Fed Doves

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What’s in Today’s Report:

  • Understanding Fed Hawks vs. Fed Doves (Table)

Easing geopolitical tensions are driving risk on money flows this morning with U.S. stock futures higher by well over 1% while bonds and other safe havens decline.

Multiple news outlets reported overnight that Russian troops completed their drills and were returning to their bases, reducing fears of an imminent invasion of Ukraine.

There were a few economic reports overnight including the U.K. Labour Market report and the German ZEW Survey but both largely met estimates and neither meaningfully moved markets.

Looking into today’s session, there are no Fed speakers or Treasury auctions but there are two notable economic reports to watch: PPI (E: 0.5%, 9.2%) and Empire State Manufacturing Index (E: 10.0).

Bottom line, this is a headline driven market right now and investors will want to see continued de-escalation in the Russia-Ukraine conflict (German Chancellor Scholz meets with Russian President Putin) as well as a PPI print that is not too hot and Empire report that shows growth is not materially slowing for the overnight relief rally to extend higher.

Why Not Much Changed in Markets Last Week (Despite the Declines)

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What’s in Today’s Report:

  • Bottom Line:  Why Not Much Changed In The Markets Last Week (Despite the Declines)
  • Weekly Economic Cheat Sheet:  FOMC Minutes (Wed) is the Key Report this Week.
  • Weekly Market Preview:  Will Investors Get Ukraine and Fed Clarity?

Futures are moderately lower following a quiet weekend of actual news, as futures are being pulled lower by international markets as there was no progress on the Russia/Ukraine standoff.

The Russia/Ukraine situation was unchanged over the weekend and a Russian invasion could occur at any moment and that is acting as a short term headwind on markets.

There was no notable economic or inflation data overnight.

Today Ukraine headlines will drive trading and any headlines that imply the start of a conflict will be a headwind, while any that imply a delay in hostilities will be a tailwind.  We also get one Fed speaker, Bullard (8:30 a.m. ET on CNBC) and he obviously moved markets last week with this 50 bps March hike and 100 bps of tightening by June calls, so we’ll be watching closely to see if he further clarifies or doubles down on those comments (any dovish clarification would provide a small tailwind for stocks).

Are the Hot CPI and Bullard’s Hawkish Commentary Bearish Gamechanger?

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What’s in Today’s Report:

  • Are the Hot CPI and Bullard’s Hawkish Comments Bearish Gamechangers?

Futures are moderately weaker mostly on momentum from Thursday’s selloff and despite some reassuring commentary from Fed officials overnight.

Fed Presidents Daly and Barkin both pushed back on the idea of a 50 basis point rate hike in March, countering the hawkish commentary from Fed President Bullard.

Economic data was mixed as German CPI met estimates (4.9% y/y) while UK GDP and Industrial Production both slightly missed estimates.

Today there are no notable economic reports and no Fed speakers scheduled, so focus will be on Consumer Sentiment (E: 67.5) and specifically the inflation expectations indices.  If one year and five year inflation expectations can decline, that will help ease some inflation concerns and could spark a rebound later this morning.

Tom Essaye Quoted in MSN on February 10, 2022

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Will hot inflation data kill the stock-market bounce? What investors want to see

Inflation has to stop going up. I know that sounds overly simplistic, but the bottom line is that for the past several months, markets and the Fed have seen ‘hints’ of a peak in inflation pressures, yet that wasn’t…said Tom Essaye, founder of Sevens Report Research. Click here to read the full article.

Is An Underwhelming CPI Report A Bullish Gamechanger?

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What’s in Today’s Report:

  • Is An Underwhelming CPI Report A Bullish Gamechanger?
  • EIA Analysis and Oil Market Update

Futures are slightly lower following Wednesday’s rally and ahead of this morning’s CPI report.

Governments and central banks pushed back a bit overnight on the global hawkish narrative as the European Commission predicted inflation would return to 1.7% yoy in 2023 while the Swedish National Bank was dovish in its commentary (no rate hikes or QT anytime soon).

Economic data was sparse overnight although Chinese money supply did beat estimates, reflecting the continued accommodation in that economy.

Today the key event is the CPI Report (E: 0.5% m/m and 7.3% y/y) and an in-line or smaller than expected increase will likely spur a further rally in stocks as markets try and price in a “not as hawkish as feared” Fed (although we’d be skeptical of that rally – more on that in the Report).  We also get Jobless Claims (E: 230K) and one Fed speaker this evening: Barkin at 7:00 p.m. ET.

February Inflation Expectations Update

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What’s in Today’s Report:

  • Inflation Expectations Update: February 2022

Stock futures are solidly higher this morning after another mostly quiet night of news as tech shares rise amid falling bond yields ahead of tomorrow’s CPI report.

There were no market-moving economic reports overnight and no data is due to be released in the U.S. today.

With no economic data on the calendar, the focus will be on Fed speakers: Bowman (10:30 a.m. ET) and Mester (12:00 p.m. ET) as well as a 10-Yr Treasury Note auction at 1:00 p.m. ET.

There are also a few notable companies due to release earnings today including: TEVA ($0.70), UBER (-$0.33), and DIS ($0.57).

Bottom line, the market remains keenly focused on inflation right now and with bond yields pulling back from recent highs, stocks are enjoying a renewed relief rally that could extend higher today as long as yields don’t reverse back towards recent highs.

Tom Essaye Quoted in Investing.com on February 3, 2022

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Asian Stocks Mixed, Recovery from $250B Meta Wipeout Continues

The looming jobs report is a reminder that expectations for Fed policy are the key influence on this market right now…Tom Essaye, a former Merrill Lynch trader who founded The Sevens Report newsletter, told Bloomberg. Click here to read the full article.

Tom Essaye Quoted in Blockworks on January 31, 2022

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Bitcoin, Stocks Rebound to End Month, But Sell Off May Continue, Analysts Warn

For stocks to stabilize and rebound, they need one, the Fed to stop providing hawkish surprises. Two, inflation data to peak and recede. And three, economic data to remain firm to…said Tom Essaye, founder of Sevens Report Research. Click here to read the full article.

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.