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Is the Fed About to Make a Policy Mistake?

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What’s in Today’s Report:

  • Is the Fed About to Make a Policy Mistake
  • Powell Testimony Takeaways
  • S&P 500 Chart: Similarities to January 2020

U.S. equity futures are rebounding with European stocks and other risk assets such as oil this morning as Omicron fears continue to ebb and flow while some of the hawkish money flows from yesterday are unwound.

Powell’s comments yesterday were hawkish regarding tapering however the market’s outlook for rate hikes remains largely unchanged which is helping stocks stabilize.

Economically, Final Manufacturing PMIs were largely in line with expectations overnight and did not materially move markets.

Looking into today’s session, there are a few key economic reports to watch starting with the first look at November jobs data via the ADP Employment Report (E: 525K), followed by the ISM Manufacturing Index (E: 61.1) and Construction Spending (E: 0.6%).

Finally, Powell will continue his CARES Act testimony at 10:00 a.m. ET today and the market will be listening closely for any further hints about taper plans, rate hike timelines, and the potential impact of the Omicron variant.

Annual Discounts on Sevens Report, Alpha and Quarterly Letter

We’ve recently been contacted by advisor subscribers who wanted to use the remainder of their 2021 pre-tax research budgets to extend their current subscriptions, upgrade to an annual (and get a month free), or add a new product (Alpha or Quarterly Letter).

If you have unused pre-tax research dollars, we offer month-free discounts on all our annual subscription plans. If you want to extend current subscriptions or save money by upgrading to an annual subscription (across any Sevens Report product), please email: info@sevensreport.com.

Omicron and Fed Tapering

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What’s in Today’s Report:

  • Omicron and Fed Tapering
  • Omicron Update (Some Incremental Information)

Stock futures are down more than 1%, tracking global equities lower while the 10-year yield is down more than 10 basis points on renewed omicron variant concerns.

In an interview with the FT, MRNA’s CEO said the scientists he had spoken with expect a material decline in the efficacy of current vaccines against the new omicron variant of the coronavirus due to the high number of mutations and that is weighing heavily on risk assets this morning.

Today, there are a few economic reports due out: Case-Shiller Home Price Index (E: 1.1%), FHFA House Price Index (E: 1.0%), and Consumer Confidence (E: 110.7), but all of the data was gathered well before the omicron news emerged and therefore will not have a major impact on markets given the keen focus on COVID in recent days.

Fed Chair Powell will join Treasury Secretary Yellen in testifying before the Senate this morning at 10:00 a.m. ET and any indication that the Fed may change course regarding policy plans as a result of omicron could move markets. There is one other Fed speaker today: Williams (10:30 a.m. ET).

Bottom line, this is once again a COVID-driven market and any negative headlines about vaccine effectiveness or the severity of omicron infections could cause more risk off money flows as the odds of new lockdowns in parts of the world would rise as a result.

What Powell’s Renomination Means for Markets

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What’s in Today’s Report:

  • What Powell’s Renomination Means for Markets
  • Gold Update: Cooling Inflation Outlook Favors the Bears

U.S. stock futures are trading lower with most overseas equity markets as elevated bond yields continue to weigh on big-cap tech names.

Economically, Composite PMI data in Europe was better than expected with the Eurozone figure hitting 55.8 vs. (E) 53.1 for November however the upbeat data is further supporting bond yields which are weighing on equities.

Looking into today’s session, there is one domestic economic report to watch: PMI Composite Flash (E: 57.8) and if it is as strong as the releases in Europe, that could support a further rise in yields which will keep pressure on equity markets.

There are no Fed officials scheduled to speak today but the Treasury will hold a 7-Yr Note auction at 1:00 p.m. ET that could serve as another catalyst for higher yields. And again, that is a potential negative for stocks as big-cap tech names will almost certainly extend yesterday’s late-day declines if yields continue this week’s rise.

Why Last Week Was More Positive for Stocks Than It Seems

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What’s in Today’s Report:

  • Why Last Week Was More Positive for Markets Than It Seems
  • Weekly Market Preview:  Will COVID Concerns Recede?
  • Weekly Economic Cheat Sheet:  Key Inflation Report on Wednesday

Futures are moderately higher on Powell optimism and as there were no incremental COVID restrictions in Europe.

President Biden was reportedly highly complimentary of Powell in meetings this weekend, leading markets to fully expect he will be reappointed as Fed Chair this week.

There were no new COVID restrictions announced in Europe over the weekend, providing some hope lockdowns won’t be extensive.

There were no notable economic reports overnight.

Today there are no Fed speakers and just one economic report, Existing Home Sales (E: 6.20 M), and that won’t move markets.  So, any news on Powell’s reappointment as Fed Chair and incremental COVID headlines will move markets today (if Powell is reappointed and COVID headlines don’t get worse, stocks can extend the rally).

Dow Theory Update

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What’s in Today’s Report:

  • What the Early-November Squeeze in the Dow Transports Means for the Broader Equity Markets

Stock futures are little changed this morning as a hot U.K. inflation report is digested ahead of more retail earnings.

U.K. CPI rose 4.2% vs. (E) 3.9% year-over-year which is pushing the pound higher against most of its peers as rate hike expectations rise.

Today, there is just one economic report: Housing Starts & Permits (E: 1.587M, 1.630M) but it is another very busy day of Fed speak: Williams (9:10 a.m. ET), Mester (11:20 a.m., 12:40 p.m. ET), Waller (12:40 p.m. ET), Daly (12:40 p.m. ET), Evans (4:05 p.m. ET), and Bostic (4:10 p.m. ET).

There is also a 20-Year Treasury Bond auction at 1:00 p.m. ET that could move yields and investors will be closely watching earnings releases from notable retailers ahead of the open: TGT ($2.87) and TJX ($0.81) as well as NVDA ($1.10) after the close.

Tom Essaye Interviewed by Yahoo Finance on November 15, 2021

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Market Recap: Monday, November 15: Stocks drop as tech leads losses, 10-year yield tops 1.6%

I think what it is, is essentially that the bond market is looking past this transitory spike in inflation…said Tom Essaye, founder of Sevens Report Research. Click here to watch the full interview.

Sector Winners from the Infrastructure Bill

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What’s in Today’s Report:

  • Sector Winners from the Infrastructure Bill

Futures are slightly higher following a generally quiet night of news as global yields are again little changed.

10 year Treasury yields are up two basis points to 1.59% and that small move is helping futures to slightly rally.

Economic data was sparse as the only notable report was Euro Zone Industrial Production which fell –0.2% vs. (E) -0.6% but that number isn’t moving markets.

Focus today will be on economic data, and specifically the inflation expectations component of the Consumer Sentiment report.  If inflation expectations rise above 5% for next year and above 3% for the next five years, that will get the Fed’s attention and likely push yields higher.  The other economic report this morning is JOLTS (E: 10.1M) and we have one Fed speaker, Williams at 12:10 p.m. ET.

Why Stocks Dropped Yesterday (It Wasn’t CPI)

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What’s in Today’s Report:

  • Why Stocks Dropped Yesterday (It Wasn’t CPI)
  • EIA Analysis and Oil Market Update

Futures are enjoying a mild bounce following Wednesday’s losses as global yields are stable while U.S. bond markets are closed.

10 year Bund and GILT yields are little changed and that, combined with the bond market closure in the U.S., is allowing stocks to rebound.

Economically, British IP missed estimates (-0.4% vs. (E) 0.1%) while monthly GDP slightly beat (0.6% vs. (E) 0.5%).

Today is Veterans Day and as such, the bond markets are closed and there will be no economic reports and no Fed speakers.  So, GILT and Bund yields will partially dictate trading and as long as they don’t rise, stocks can continue this early rebound from yesterday’s losses.

Market Multiple Levels: S&P 500 Chart

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What’s in Today’s Report:

  • Market Multiple Levels: S&P 500 Chart

Stock futures are mildly lower and Treasury yields are rising with the dollar this morning after hotter than expected Chinese inflation data is prompting some hawkish money flows ahead of today’s U.S. CPI report.

Economically, Chinese CPI rose slightly more than forecast in October (1.5% vs. E: 1.4%) but PPI surged 13.5% vs. (E) 12.0% which was the highest reading since 1995.

Looking into today’s session there are a few potential catalysts to move markets with the October CPI release (E: 0.5%) being the primary focus but Jobless Claims data (E: 267K) will also warrant attention. Both reports are due out at 8:30 a.m. ET.

After those pre-market releases, the schedule is pretty clear with no Fed officials speaking over the course of the day but there is a 30-Year Treasury Bond auction at 1:00 p.m. ET that could move yields and potentially stocks.

Finally, earnings season is already beginning to wind down however DIS ($0.50) will report quarterly results after the closing bell.

Bottom line, focus is on inflation data and if today’s CPI report runs hot, we could see taper expectations, as well as the market’s rate hike outlook, take a hawkish turn which would spur broad market volatility.

 

Market Multiple Table: November Update

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What’s in Today’s Report:

  • Market Multiple Table: November Update

Stock futures pulled back overnight following the release of the Fed’s Financial Stability Report, which noted stretched asset prices, but markets have since stabilized as new domestic inflation data comes into focus.

Economically, the German ZEW Survey was mixed (Current Conditions missed, Economic Sentiment beat) while the NFIB report was mildly underwhelming however neither report materially moved markets in pre-market trade.

Looking into today’s session, earnings season continues with a lot of smaller cap companies reporting however focus this morning will be on economic data with the October PPI report due before the bell (E: 0.6% M/M, 8.6% Y/Y).

Then the Fed speaker circuit also remains active today with Bullard (7:50 a.m. ET), Powell (9:00 a.m. ET), Kashkari (1:30 p.m. ET) all speaking over the course of the session and the market will be looking for further confirmation that rate hikes will not commence before late 2022 otherwise we could see a hawkish reaction from markets.

Finally, there is a 10-Yr Treasury Note Auction at 1:00 p.m. ET that could move bonds and subsequently trigger a reaction from stocks.