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Incremental Positive Developments

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What’s in Today’s Report:

  • Bottom Line – Incremental Positive Developments, But Not Enough for a Bottom
  • Industrial Production Takeaways
  • Chart: 5-Yr Breakevens Continue to Trend Lower Amid Confidence in the Fed
  • Housing Market Index Underscores Cooling Real Estate Market

Futures are slightly higher in more cautious trade this morning as strong earnings from NFLX (+14%)  and UAL (+3%) are helping offset hot inflation data overseas.

UK CPI rose 0.2% to 10.1% vs. (E) 10.0%, revisiting a 40-year high which is bringing inflation back into focus today.

From a catalyst standpoint, there is one economic report to watch today: Housing Starts (1.475M), and two Fed speakers to watch: Kashkari (1:00 p.m. ET) and Evans (6:30 p.m. ET).

There is also a 20-Yr Treasury Bond Auction at 1:00 p.m. ET. If yields rise in the wake of the auction, that could once again weigh on equities.

Finally, earnings continue with: ALLY ($1.73), PG ($1.55), CFG ($1.21), and WGO ($2.99) reporting ahead of the bell, and TSLA ($1.01), IBM ($1.78), AA ($0.09), and PPG ($1.67) releasing their results after the bell.

Bottom line, there have been some incremental fundamental positives that have helped support the relief rally in stocks this week, and if fixed-income markets can remain orderly and earnings continue to surprise to the upside, the S&P 500 could continue towards 3,800 or beyond today.

Tom Essaye Quoted in Forbes on October 17th, 2022

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Yet Another Rollercoaster Week For Stocks On Deck: Dow Jumps 550 Points

Inflation cooling is the “key to market stabilization,” Sevens Report analyst Tom Essaye wrote in a Monday note, pointing out that the Federal Reserve and other central banks will not ease their monetary policy until there’s “conclusive” proof of inflation receding. Click here to read the full article.

Is the UK Fiscal Crisis Over?

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What’s in Today’s Report:

  • Is the U.K. Fiscal Crisis Over? (If So, What Does It Mean for Markets?)
  • Empire State Manufacturing Index Takeaways

U.S. equity futures are up more than 1% in sympathy with EU markets following mixed messages about BOE policy.

An FT article overnight said the BOE would delay QT plans further in an attempt to insure stability in U.K. markets which fueled a continued rebound in risk assets, however, the BOE later said the report was “inaccurate” which has seen some of those pre-market moves unwind.

Looking into today’s session, there are two economic reports to watch: Industrial Production (E: 0.1%) and the Housing Market Index (E: 44) while there are two Fed officials scheduled to speak: Bostic (2:00 p.m. ET) and Kashkari (5:30 p.m. ET).

Earnings season will continue to pick up today with GS ($7.47), JNJ ($2.49), and LMT ($6.60) reporting ahead of the bell while NFLX ($2.11), UAL ($2.21), and JBHT ($2.46) releasing results after the close.

Bottom line, risk assets remain buoyant following last week’s volatility, and as long as fixed-income markets continue to stabilize and earnings do not materially disappoint, the relief rally that stocks enjoyed yesterday should be able to extend higher today.

Tom Essaye Quoted in Barron’s on October 12th, 2022

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S&P 500, Nasdaq Hit New Lows After Release of Fed Minutes

“I don’t think there’s anything in here [minutes] that changes the outlook,” said Sevens Report’s Tom Essaye. Click here to read the full article.

What Yesterday’s Rebound Means for Markets

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What’s in Today’s Report:

  • Five Reasons Stocks Rallied Yesterday
  • What the Rebound Means for Markets

Futures are slightly higher as markets digest Thursday’s rebound amidst more positive news from the UK.

Support for the Truss spending/tax cut plan has totally eroded and markets are hopeful the plan will be scrapped entirely, and that’s helping global bond yields fall.

Today there are two notable economic reports, Retail Sales (E: 0.2%) and University of Michigan Consumer Sentiment (E: 58.8), but the key for markets will be the inflation expectations within Consumer Sentiment and if the five-year inflation expectations fall further below 3.0%, that’ll be a positive for markets.  We also get two Fed speakers, George (10:00 a.m. ET) and Cook (10:30 a.m. ET) but we don’t expect them to move markets.

Earnings season also unofficially starts today and key reports to watch include: JPM ($2.97), MS ($1.51), C ($1.55), WFC ($1.09), PNC ($3.66), USB ($1.17) and FRC ($2.19).  If results are better than expected, that can extend Thursday’s rebound.

VIX History and the Current Bear Market

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What’s in Today’s Report:

  • A Look at VIX History and the Current Bear Market
  • Chart: 30-Yr Treasury Bonds Fall to New Lows

Stock futures are testing the 2022 lows this morning as global bond yields push multi-year highs amid renewed turmoil in the U.K.’s government bond market.

The BOE expanded its emergency bond-buying program overnight after Gilt yields spiked higher, with officials warning that market dysfunction is threatening the U.K.’s financial stability.

Economically, the NFIB Small Business Optimism Index came in at  92.1 vs. (E) 91.5 for September.

There are no additional economic reports today but there are two Fed officials scheduled to speak: Harker (11:30 a.m. ET) and Mester (12:00 p.m. ET).

Looking back to the bond markets, there is a 3-Yr Treasury Note auction at 1:00 p.m. ET and if the results are weak, sending yields higher, that would further pressure stocks today.

Bottom line is, turmoil in the U.K. Gilts market is once again sending global yields higher and weighing on risk assets and if we don’t see bond markets stabilize this morning, then expect stocks and other risk assets to remain under pressure today.

Tom Essaye Quoted in S&P Global Market Intelligence on October 7th, 2022

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US job growth slows in September as labor market cools

“This just reinforces to the Fed that they have to stay the course, there’s nothing in this report that will make the Fed think: ‘Oh gee, we need to alter our plan.” said Tom Essaye, a trader and publisher of The Sevens Report. Click here to read the full article.

Sevens Report Analysts Quoted in Yahoo on October 6th 2022.

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U.S. Stock Futures Slip as Investors Mull Fed Policy Path

“The key to tomorrow’s jobs report will be whether it keeps the hopes for a Fed pivot alive. If the jobs report is ‘Too Hot’ that kills the idea of a Fed pivot, and we should expect the S&P 500 to drop back towards levels where we ended the third quarter,” Sevens Report analysts said in a note. Click here to read the full article.

Jobs Day

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What’s in Today’s Report:

  • Jobs Day (Abbreviated Jobs Report Preview)
  • Why Price Controls Still Don’t Work

Futures are slightly lower as the looming jobs report helps offset soft economic data and disappointing earnings.

Economically, German Industrial Production, German Retail Sales, and Japanese Household spending all missed estimates.

On earnings, AMD became the latest widely held company to miss earnings, positing a material revenue shortfall.

Today focus will be on the Jobs Report and expectations are as follows: Job Adds: 250K, UE Rate 3.7%, Wages 0.3% m/m, 5.1% y/y.  If the numbers are in the lower end of the “Just Right” range that will spur more hopes of a Fed pivot between now and year-end, and stocks will likely rally.    Away from the jobs report there are also several Fed speakers including:  Williams (10:00 a.m. ET), Kashkari (11:00 a.m. ET) and Bostic (12:00 p.m. ET) but they shouldn’t move markets (expect them to be hawkish in tone but not say anything new).

Is Credit Suisse Going the Way of Lehman?

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What’s in Today’s Report:

  • Is Credit Suisse Going the Way of Lehman?
  • Chart: 10-Yr Yield Breaks Critical Uptrend
  • ISM Manufacturing Takeaways

U.S. stock futures and European equities are solidly higher this morning while bond yields continue to pull back with the dollar amid renewed hopes of a “less-hawkish pivot” by global central banks.

The RBA was seen as dovish overnight, raising their policy rate by 25 basis points vs. (E) 50 bp which is helping pressure global bond yields and support continued risk-on money flows this morning.

Economically, EU PPI rose to 5.0% vs. (E) 4.9% in August but the fact that the print was not a “hotter” surprise is also adding a tailwind to global equities this morning.

Today, there are two economic reports to watch: Factory Orders (E: 0.2%) and JOLTS (11.150M) and multiple Fed officials speaking: Williams (9:00 a.m. ET), Logan (9:00 a.m. ET), Mester (9:15 a.m. ET), Jefferson (11:45 a.m. ET), and Daly (1:00 p.m. ET).

As long as the pullback in bond yields and the dollar continue over the course of the day, stocks should be able to extend yesterday’s gains however the pace of the early quarter rebound has approached an unsustainable level and at some point, we will need to see some consolidation across asset classes.