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Are Junk Bonds Signaling Recession?

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What’s in Today’s Report:

  • Are Junk Bonds Signaling Recession?
  • What Does Terminal Fed Funds Mean in Plain English?

Futures are modestly higher on solid tech earnings and after another global central bank ended rate hikes.

Nvidia (NVDA) earnings beat estimates and the stock us up 8% pre-market, and that’s helping general tech sentiment.

South Korea’s central bank ended its rate hike campaign and while that’s not a major central bank, it’s another reminder the global hiking cycle is ending.

Focus today will remain on economic data and Fed speak and that includes Jobless Claims (E: 200K) and Revised Q4 GDP (E: 2.9%). Fed speakers include Bostic (10:50 a.m. ET) and Daly (2:00 p.m. ET) and as has been the case for two weeks, any data or comments that increase rate hike expectations will pressure stocks (and vice-versa).

Tom Essaye Joins Yahoo Finance To Discuss The Economy on February 21st, 2023

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‘The economy is stronger than everybody thought,’ Sevens Report Research Founder says

Sevens Report Research Founder and President Tom Essaye to discuss the expectations for the Fed’s upcoming FOMC minutes meeting, the future of Fed policy pathway, why investors should remain on recession watch in 2023, and the outlook for markets. Click here to watch the full discussion.

Equity Risk Premium Hits 2007 Levels

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What’s in Today’s Report:

  • Equity Risk Premium at 2007 Levels
  • February Composite PMI Flash Takeaways
  • Why Are Rising Rates Causing Stocks to Drop Now?
  • S&P 500 Chart: Trend Support From the October Lows In Focus

U.S. equity futures are little changed this morning following yesterday’s steep losses as Treasuries have stabilized ahead of today’s Fed meeting minutes release.

Economically, German CPI met estimates at 8.7% y/y but that remains a historically very high reading which continues to warrant aggressive policy from the ECB in the months ahead.

Looking into today’s session, there are no notable economic reports which will leave investors primarily focused on the FOMC meeting minutes release (2:00 p.m. ET). Before that release, the Treasury will hold a 5-Yr Note auction at 1:00 p.m. ET which could move bond markets, and if we see new highs in yields, expect additional pressure on stocks.

Finally, the Fed’s Williams speaks after the close at 5:30 p.m. ET and his comments could move markets in after-hours trading if he is materially hawkish.

Tom Essaye Quoted in Benzinga on February 17th, 2023

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3 Reasons The 2023 Stock Market Rally May Be ‘Another Bull Trap’

Tom Essaye, founder of Sevens Report Research, said Friday there are at least three warning signs that the rally could be yet another bull trap for investors. Market expectations for Fed rate hikes are now showing a 56% probability of a June rate hike, up from basically 0% just four weeks ago!” he said. Click here to read the full article.

Three Technical “Cs” for a Lasting Market Bottom

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What’s in Today’s Report:

  • Three Technical “Cs” for a Lasting Market Bottom

Futures are sharply lower on continued momentum from Thursday’s late day drop and following hot German inflation data and strong UK retail sales.

German CPI didn’t decline as much as hoped, falling –1.0% vs. (E) -1.6% and rising 17.8% vs. (E) 16.0%.  UK Retail Sales were also better than expected (0.5% vs. (E) -0.3% and the two reports are combining with yesterday’s hot US PPI to push rate hike expectations higher.

Today focus will remain on data and Fed speak.  The two notable economic reports are Import & Export Prices (E: -0.1%, -0.2%) and Leading Indicators (E: -0.3%).  The first deals with inflation and the second deals with growth, and if inflation is hot and growth is cool, expect more selling pressure.

There are also two Fed speakers today, Barkin (8:30 a.m. ET) and Bowman (8:45 a.m. ET) and we should expect them to sound hawkish (as most Fed speakers have been this week).

Tom Essaye Quoted in MarketWatch on February 8th, 2023

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The bond market is flashing a warning that U.S. stocks could be headed lower

“The spike in the 2-year yield tells us the market is now believing the Fed when it has been saying it’s going to raise rates close to or above 5%, notably, it wasn’t Powell’s commentary that got the market to believe that — it was the economic data from Friday, notably the jobs report and ISM Services PMI,” Essaye said, the founder of Sevens Report Research. Click here to read the full article.

The Three Assumptions Supporting Stocks

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What’s in Today’s Report:

  • The Three Assumptions Supporting Stocks
  • Weekly Economic Cheat Sheet (All About Inflation and Growth This)
  • Weekly Market Preview:  Can Stocks Continue to Ignore Rising Bond Yields?

Futures are little changed following a mostly quiet weekend of news as markets look ahead to tomorrow’s CPI report.

The only notable economic report overnight was better than expected growth and inflation updates from the European Commission, who now sees EU growth rising 0.9% this year (up from 0.3%) and inflation at 5.6% (down from the previous 6.1%).  These revised estimates are helping to bolster the “No Landing” economic scenario.

Markets should mostly be in a holding pattern today as the CPI report looms tomorrow morning, but there are two notable events on the calendar to watch:  New York Fed Inflation Expectations (One Year: 5.0%, Five-Year: 2.4%) and one Fed speaker:  Bowman (8:00 a.m. ET).  If inflation expectations are higher than before or Bowman is hawkish, that could mildly pressure stocks.

Two Reasons Rising Bond Yields Haven’t Caused a Pullback (Yet)

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What’s in Today’s Report:

  • Two Reasons Rising Bond Yields Haven’t Caused a Pullback (Yet)
  • Natural Gas Update

Futures are modestly weaker following a rally in oil prices and a continued rise in bond yields overnight.

Oil rallied 2% after Russia announced it was voluntarily reducing output by 500k bpd while OPEC+ did not signal any intention to increase output to offset the reduction.

Global bond yields moved higher after Nikkei reported Kazuo Ueda will become the next BOJ governor, and not the ultra-dove Masayoshi Amamiya (who was expected).

Today focus will remain on the data and specifically University of Michigan Consumer Sentiment (E: 65.0) and the inflation expectations in the report (any further decline will be positive for stocks).  We also get two Fed speakers: Waller (12:30 p.m. ET) and Harker (4:00 p.m. ET) and markets will want to see if they echo the hawkish tone from regional Fed presidents this week.

Market Multiple Table: February Update

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What’s in Today’s Report:

  • Market Multiple Table: February Update
  • EIA Analysis and Oil Update

Futures are enjoying a moderate bounce overnight thanks to slightly better than expected inflation data and earnings.

German CPI rose less than expected (8.7% vs. (E) 9.1%) and that’s helping to slightly calm fears of a bounce back in inflation.

Earnings overnight were also solid as DIS beat estimates and it’s fair to say this earnings season has been not as bad as feared.

Focus will remain on economic data and the only notable report today is Jobless Claims (E: 190K).  Holiday effects should be working their way out of these numbers so investors will want to see claims begin to rise over the coming weeks, otherwise it’ll imply the labor market remains much, much too tight (and that means more potential future rate hikes).

Earnings season is winding down but some notable reports today include: PM ($1.29), PYPL ($1.20), LYFT ($0.13).

Has the Fed Reached Peak Hawkishness?

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What’s in Today’s Report:

  • Has the Fed Reached Peak Hawkishness?
  • Weekly Market Preview:  Will Powell Sound Hawkish on Tuesday?
  • Weekly Economic Cheat Sheet:  Key inflation data Tuesday and Friday.

Futures are moderately lower mostly on follow-through selling from Friday’s hot jobs report.

The Chinese spy balloon drama dominated weekend headlines but it’s unlikely to materially alter U.S./China relations and as such shouldn’t be an influence on markets.

Rate expectations rose over the weekend following Friday’s jobs report, with markets now pricing in a terminal Fed Funds rate of 4.75% and that’s the main reason stocks are lower this morning.

Today there are no notable economic reports and no Fed speakers, so the focus will remain on yields and rate expectations and if they continue to climb, that will weigh on stocks.