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Explaining Current Market Risks to Clients (And Prospects)

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What’s in Today’s Report:

  • How to Explain Risks in This Market to Clients/Prospects
  • Mannheim Used Vehicle Value Index Takeaways (Chart)

Futures are slightly higher while most international markets rallied overnight thanks to news of more Chinese government support for the property sector and steady EU inflation data.

German CPI met estimates of 0.3% m/m and 6.4% y/y in June, both unchanged from May, while the ZEW Survey was inline with expectations on the headline but Economic Sentiment deteriorated to -14.7 vs. (E) -10.2.

Domestically, the NFIB Small Business Optimism Index came in at 91.0 vs. (E) 89.8 in June which is helping bolster investor sentiment in the premarket.

There are no additional economic reports today and just one Fed speaker on the calendar: Bullard (9:00 a.m. ET) which will leave investors looking ahead to tomorrow’s critical CPI report.

Jobs Day

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What’s in Today’s Report:

  • How the Two-Year Yield Caused Yesterday’s Drop in Stocks
  • EIA Analysis and Oil Market Update

Futures are slightly lower following a mostly quiet night of news as investors wait for this morning’s jobs report.

Economic data underwhelmed as Japanese Household Spending (-1.1% vs. (E) 0.5%) and German Industrial Production (-0.2% vs. (E) -0.1%) both missed expectations.

Taiwan exports also fell more than expected, down 23.4%, and that’s adding to general anxiety about future global growth.

Today the only major event is the June jobs report and expectations are as follows:  213K job adds, 3.7% UE Rate, 0.3% wage increase m/m and 4.2% y/y.  As we saw from yesterday’s ADP report, a “Too Hot” number will spike yields and further pressure stocks, as the rise in yields is now getting high enough to be a headwind on the market.  Conversely, a “Too Cold” number will increase stagflation worries.

A job adds number in the 100k range coupled with an increase in the unemployment rate and a drop in wages remains the best outcome for stocks, and if we get that number don’t be surprised if the S&P 500 recoups all of yesterday’s losses.

Jobs Report Preview (Will It Reinforce the No Landing Expectation?)

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What’s in Today’s Report:

  • Jobs Report Preview (Will It Reinforce the No Landing Expectation?)
  • FOMC Minutes:  Why They Reinforced the Fed’s Hawkish Tone

Futures are moderately lower on falling expectations for Chinese economic stimulus.

A Nikkei article stated Chinese economic stimulus could be much smaller than expected, and that hit the Hang Seng hard (down 3%) and is weighing on global indices.

Economically, German Manufacturers’ Orders were much stronger than expected, rising 6.4% vs. (E) 2.0%.

Today focus will be on economic data and the key reports, in order of importance, are:  JOLTS (E: 9.9M), Jobless Claims (E: 245K), ISM Services Index (E: 50.8) and ADP Employment Report (E: 235K).  Hopes for a “No Landing” are the reason stocks rallied in late June, so markets will want to see better than expected data across these reports to help support those recent gains.  Also, there is one Fed speaker today, Logan (8:45 a.m. ET), but she shouldn’t move markets.

Sevens Report Analysts Quoted in MSN on June 30th, 2023

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Oil futures climb, with global prices registering the first monthly gain of the year but a 4th straight quarterly decline

Like most assets, right now oil is beholden to the economy, analysts at Sevens Report Research wrote in Friday’s newsletter. Click here to read the full article.

Sevens Report Co-Editor, Tyler Richey, Quoted in Morningstar on June 29th, 2023

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Oil futures finish higher, contributing to the month’s gain

Oil stabilized at support near the 2023 lows following Wednesday’s weekly Energy Information Administration report, which showed a “massive draw” in commercial crude-oil stockpiles, said Tyler Richey, co-editor at Sevens Report Research. Click here to read the full article.

Tom Essaye Quoted in Barron’s on June 30th, 2023

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Bank Stocks Are Higher After Passing Fed’s Stress Test

The 23 largest banks in the U.S. passed the Fed’s annual stress tests, and while none were expected to fail, the fact that there were no negative surprises is a general positive for the banking sector and financials, Tom Essaye, founder of research firm Sevens Reports, wrote Thursday. Click here to read the full article.

Why Economic Data Will Decide if the Rally Continues in 2H ’23

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What’s in Today’s Report:

  • Why Economic Data Will Decide if the Rally Continues in 2H ‘23
  • Weekly Market Preview:  Does Economic Data This Week Reinforce “No Landing” Expectations?
  • Weekly Economic Cheat Sheet:  Jobs Report Friday, ISM PMIs Monday and Thursday.

Futures are flat to start the second half of 2023 following a quiet weekend of news.

Economic data was mixed overnight as the EU Manufacturing PMI slightly missed estimates (43.4 vs. (E) 43.6) while the UK reading slightly beat expectations (46.5 vs. (E) 46.2), but neither number is moving markets.

Saudi Arabia and Russia made separate announcements about further reducing oil supply in the coming months, although they aren’t causing a material rally.

Today focus will be on the ISM Manufacturing PMI (E: 47.2) and at this point, and with yields this high, markets need to see solid data and that means the ISM Manufacturing PMI moving closer towards 50 and beating expectations.

As a reminder, the stock market will close at 1:00 p.m. today ahead of the July 4th holiday.

 

Sevens Report Quarterly Letter Delivered Today

Our Q2 ’23 Quarterly Letter will be released today.

We use our strength (writing about the markets) to help you:

  • Save time (an average of 4-6 hours per quarterly letter)
  • Enjoy the holiday shortened week and know your client quarterly letter is already done, or mostly done!

You can view our Q1 ’23 Quarterly Letter here

To learn more about the product (including price) please click this link.

If you’re interested in subscribing, please email info@sevensreport.com.

Tom Essaye Quoted in MarketWatch on June 28th, 2023

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The Fed’s been hawkish even as CPI recedes. A Bernanke research paper helps explains why.

If the current Fed is listening to Bernanke (and I imagine they are), then the Fed may be more focused on unemployment than anyone appreciates, that’s why there is 50 more basis points of hiking in store, probably regardless if CPI declines further, says Essaye. Click here to read the full article.

Tom Essaye Quoted in Swissinfo.ch on June 26th, 2023

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Tech Stocks Slide as Traders Rein in Rate Cut Bets: Markets Wrap

Tom Essaye, a former Merrill Lynch trader who founded “The Sevens Report” newsletter, wrote that the political strife in Russia is likely to have little market impact. Looking forward, obviously this injects more geopolitical uncertainty into the world, but as long as commodity prices don’t spike higher, the markets will largely ignore Russian political volatility, he wrote. Click here to read the full article.

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Why the Fed Wants Higher Rates

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What’s in Today’s Report:

  • Why Would the Fed Keep Hiking Rates if Inflation Is Coming Down?
  • Jobless Claims Chart – Critical to See Further Move Higher

Equity futures are modestly higher this morning as traders weigh renewed optimism about Chinese growth against more hawkish policy speak from multiple ECB officials, including President Lagarde, reiterating the need for a “higher for longer” policy rate path.

Premier Li of China confirmed the government is committed to achieving their 5% GDP target overnight which helped Asian markets outperform and fueled modest risk-on money flows around the globe.

Today’s list of economic data releases is a long one with Durable Goods Orders (E: -1.0%), Case-Shiller Home Price Index (E: 0.5%), FHFA House Price Index (E: 0.4%), Consumer Confidence (E: 103.7), and New Home Sales (E: 663K).

Beyond those economic reports, there are no Fed officials scheduled to speak today but there is a 5-Yr Treasury Note Auction at 1:00 p.m. ET that could move yields and influence equity market trading.

Bottom line, in order for markets to stabilize here and stocks to resume their 2023 rally, we will need to see signs of slowing, but not collapsing growth in today’s economic data and no surprises in the Treasury auction. Looking ahead, trading may slow down some today as investors position into tomorrow’s Central Bank Forum hosted by the ECB in which Fed Chair Powell will participate.