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Powell Testimony Takeaways

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What’s in Today’s Report:

  • What Powell’s Comments Mean for Markets
  • Powell Testimony Takeaways

Stock futures are stable as yesterday’s Powell-driven losses continue to be digested while the yield curve is hitting new cycle lows with the 2-Yr Note holding above 5% for the first time since 2007 while the 10-Yr hovers just below 4%.

Economic focus was on German data o/n as Industrial Production topped estimates while the previous Retail Sales print was revised notably higher, bolstering Bund yields.

Looking into today’s session, focus will be on labor market data early, especially considering Powell’s “data dependent” policy comments from yesterday’s testimony.

The ADP Employment Report (E: 175K) will hit the wires before the bell and then JOLTS (E: 10.6 million) will be released after the open. Investors want to see some deterioration in the jobs market but not an all-out collapse while any indication of declining wages would be well received. International Trade in Goods and Services (E: -$69.0B) will also be released this morning but is less likely to move markets.

From there, Powell’s two-day testimony continues before the House Banking Committee today at 10:00 a.m. ET and investors will continue to listen intently for further clues about policy plans and terminal rate expectations.

Finally, there is a 10-Year Treasury Note auction at 1:00 p.m. ET that could move yields and ultimately impact the bond market, specifically if the auction tails and rates move meaningfully higher.

Fed Pause Playbook & Powell Preview

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What’s in Today’s Report:

  • Fed Pause Playbook
  • Powell Testimony Preview
  • Chart – Return Comparison After the Last Rate Hike Pauses

U.S. equity futures are trading with tentative gains amid a stable bond market following good data out of Europe as focus shifts to Powell’s Congressional testimony today.

The ECB’s latest consumer survey showed a notable drop from 3.0% to 2.5% in three year inflation expectations which is helping bonds stabilize while German Manufacturers Orders came in at 1.0% vs. (E) -0.6%, underscoring a resilient Eurozone economy.

This morning, focus will be exclusively on Powell testimony before the Senate which begins at 10:00 a.m. ET as investors will be looking for any new insight on the pace of future rate hikes (25 or 50 basis point hike this month?) and/or the expected terminal rate (currently priced in near 5.375%). If Powell strikes a hawkish tone, expect volatility in stocks amid a potentially sharp rise in yields.

Looking into the afternoon, there is a 3-Yr Treasury Note auction at 1:00 p.m. ET which should offer some clues to how the bond market digests Powell’s first day of Congressional testimony (a badly tailing auction could further weigh on stocks), while there is one economic report due out late in the day: Consumer Credit (E: $26.4B), but unless the number comes in well above estimates, it should not move markets.

Technical Update: Key Levels to Watch

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What’s in Today’s Report:

  • Technical Update:  Key Levels to Watch
  • Value vs. Growth – What Do the Charts Say?

Futures are modestly higher as a soft EU inflation reading is helping to extend Thursday’s rally.

Euro Zone PPI came in much lower than expectations (15% vs. (E) 17.7% y/y) and that’s helping to slightly offset the hot inflation data from earlier in the week.

Economically, Euro Zone and UK Composite PMIs were generally in-line with expectations.

Today the key report will be the ISM Services PMI (E: 54.5).  For stocks and bonds, the best case for this report is that the headline is stable (not much above expectations) while the price indices decline.  If that happens, stocks can extend the rally.

We also get several Fed speakers today including Logan (11:00 a.m. ET), Bostic (11:45 a.m. ET), Bowman (3:00 p.m. ET) and Barkin (4:15 p.m. ET).  If they echo Bostic’s comments from yesterday about the Fed being done with hikes by mid to late summer, that will be a tailwind on stocks.

Why Fed Rate Hike Expectations Are Still Rising

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What’s in Today’s Report:

  • Why Fed Rate Hike Expectations Are Still Rising
  • Did Yesterday’s Economic Data Signal Stagflation?
  • EIA Analysis and Oil Market Update

Futures are extending Wednesday’s declines and are moderately lower as more global inflation data came in hotter than expected.

Euro Zone HICP rose 8.5% vs. (E) 8.2% y/y and joined French, Spanish and German CPIs as signaling a bounce back in inflation.  That’s pushing global yields higher and weighing on futures (just like it weighed on stocks on Wednesday).

Today focus will remain on economic data and the key report is Unit Labor Costs (E: 1.4%).  Wages are a major source of inflation the Fed is trying to bring down, so if Unit Labor Costs are lower than expected, that will likely cause a bounce in stocks and bonds.  Other notable events today include Jobless Claims (E: 200K) and two Fed speakers, Waller (4:00 p.m. ET) and Kashkari (6:00 p.m. ET), although they shouldn’t move markets.

Disinflation On, Disinflation Off

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What’s in Today’s Report:

  • Disinflation On, Disinflation Off (Scenario Table with Asset Performance Guide)
  • Chart – 2 Yr. Note Futures Approach Multiyear Lows
  • Chart – “Another Bull Trap” Update

U.S. stock futures are tracking global shares higher this morning as investors cheer better than expected economic data out of China.

Economically, China’s Manufacturing PMI jumped to 51.6 vs. (E) 49.9 in February, up from 49.2 in January, indicating the recovery process is gaining momentum. The Eurozone Manufacturing PMI, meanwhile, met estimates at 48.5.

Today, investor focus will be on economic data early beginning in Europe with the German CPI release at 8:00 a.m. ET (E: 8.7%). So far this week, European yields have led global yields higher on hot inflation data and if the German print is above estimates, expect that trend to continue and stocks to remain under pressure.

In the U.S. we will get the February ISM Manufacturing Index (E: 48.0) as well as the lesser followed Construction Spending report (E: 0.2%). Investors will want to see improving, but not overly strong growth metrics and fading price pressures to see some of the recent hawkish money flows ease.

Finally, there is one Fed speaker today: Kashkari (E: 9:00 a.m. ET), and as a voting member of the FOMC, his comments will be closely watched for any new hints at the Fed’s policy plans.

Tom Essaye Quoted in Blockworks on February 24th, 2023

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Risk-Off Is Back: Crypto, Equities Slide on Persistent Inflation

“To be clear, the report won’t be enough to change the Fed’s thinking (this is very old data at this point) nor was it enough to move bonds or currencies, but for a market that’s concerned about stagflation, this report won’t do anything to ease those concerns.” Tom Essaye added. Click here to read the full article.

Tom Essaye Quoted in Forbes on February 21st, 2023

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‘Damage Is Done’: Stock Market Likely Set For Another Plunge As Economic Warning Signs Abound, JPMorgan Cautions

“Markets are admitting the Fed may not be close to done,” Sevens Report strategist Tom Essaye wrote in a Tuesday note, as stocks sank following worse-than-expected retail earnings. Click here to read the full article.

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.