“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.
What’s in Today’s Report:
Futures are modestly lower as global bond yields rose further while the British Pound remained extremely volatile.
The British Pound plunged to an all time low vs the dollar earlier this morning before rebounding and the extreme volatility is adding to investor worries.
Economically, the German Ifo Business Expectations Index fell to the lowest level since March 2020 (84.3 vs. (E) 87.1).
Today there are no notable economic reports but there are numerous Fed speakers, including Collins (10:00 a.m. ET), Bostic (12:00 p.m. ET), Logan (12:30 p.m. ET) and Mester (4:00 p.m. ET). But, they shouldn’t move markets (we already know what the Fed intends to do).
Instead, the Pound and global bond yields (especially 10-year GILT yields) will determine trading today. Markets need to see the Pound stabilize and 10-year GILT yields stop rising (they’re up nearly 60 bps in two days) to inject some macro-economic stability into the markets. Don’t be shocked if the Bank of England announces a surprise rate hike today (or in the coming days) and if so, that should help global yields stabilize (which would be positive for sentiment and markets).
“Tomorrow’s FOMC decision will likely either further pressure stocks… or offer some relief to markets that the Fed isn’t going to raise rates as much as feared, and in doing so allow markets to bounce,” wrote Sevens Report’s Tom Essaye. Click here to read the full article.
What’s in Today’s Report:
Futures are little changed as markets digested yet another hawkish Fed decision amidst more global rate hikes.
The overnight session was mostly quiet as investors digested the Fed rate hike while other global central banks raised rates (five separate central banks hiked rates overnight, as expected).
The Bank of Japan intervened in the currency markets for the first time since 1998, causing a 1% rally in the yen.
Today focus will be on the Bank of England Rate Decision (E: 50 bps hike) and on weekly Jobless Claims (E: 220K). Fed Chair Powell again highlighted that the labor market is still much too tight, so markets need these jobless claims to start to rise towards 300k to prevent even further Fed tightening in the future. The sooner the labor market returns to better balance, the sooner we get to “peak hawkishness.”
What’s in Today’s Report:
Stock futures are trading with cautious gains this morning as traders shrug off escalating tension between Russia and Ukraine while the BOJ initiated new stimulus overnight as focus turns to today’s Fed meeting.
Geopolitically, Russia is mobilizing 300,000 reservists to bolster military operations in Ukraine and indirectly threatened nuclear options in the latest escalation in the conflict which is driving gains in safe havens ahead of the Fed this morning.
Today, there is one economic report to watch in the morning: Existing Home Sales (E: 4.70M) but the primary market focus will clearly be on the Fed with the FOMC Announcement at 2:00 p.m. ET followed by Fed Chair Powell’s press conference at 2:30 p.m. ET.
Regarding the Fed, a 75 basis point hike and terminal Fed Funds rate near 4.25% is the consensus expectation so anything more hawkish than that will likely spark volatility and potentially even result in a test of the June lows in the S&P while anything more dovish than expectations has the potential to unleash a sizeable relief rally.
What’s in Today’s Report:
Futures reversed from overnight gains and are now tracking EU markets lower following more very hot inflation data and an aggressive policy hike by the Riksbank.
In Europe, German PPI surged 7.9% vs. (E) 1.5% in August (45.8% vs. E: 37.2% y/y) while Sweden’s Riksbank raised rates by 100 bp vs. (E) 75 bp. Both developments are driving hawkish, risk-off money flows ahead of the Fed.
Today, focus will begin to shift to the Fed as the September FOMC Meeting begins however there is one report on the housing market that will get some attention when it is released mid-morning: Housing Starts (E: 1.440M) and Permits (E: 1.621M).
Beyond that one report, there is a 20-Yr Treasury Bond auction at 1:00 p.m. ET. The auction may not move markets today with the Fed looming but it will be worth watching because if it is weak like last week’s 3-Yr and 10-Yr auctions ahead of the CPI report, it could be forecasting a more hawkish than expected Fed decision Wednesday.
The labor market needs to show signs that it’s on the path to returning to a state of relative balance, where job openings are roughly the same as the number of people looking for jobs — and if it does not show that, then concerns about a more hawkish-for-longer Fed will rise, and that’s not good for stocks, wrote Tom Essaye, a former Merrill Lynch trader and the founder of the Sevens Report newsletter. Click here to read the full article.
If the market responds to Powell in a dovish manner that should send inflation expectations even higher, while the dollar and yields should pull back, which would all result in tailwinds on gold. However, a hawkish and ‘growth-insensitive’ Powell would likely send gold back down towards $1,700, potentially by Friday’s close…analysts at Sevens Report Research said in a note. Click here to read the full article.
What’s in Today’s Report:
Futures are down close to 1% on follow through selling from Friday as hopes of a near term “Fed Pivot” continue to fade in reaction to Powell’s speech last week.
European shares are also sharply lower as tightening expectations for the ECB rose sharply on Friday. Markets are now pricing in a minimum 50 bps hike next week with a 75 bps hike a real possibility.
There were no notable economic reports overnight.
Markets dropped on Friday as Powell dismissed the idea of an imminent “Fed Pivot,” but the ECB also signaled more hawkish intentions on Friday, and it was the two events that combined to cause the ugly declines. Today there are no economic reports but there is an important Fed speaker, Brainard (2:15 p.m. ET) and if she echoes Powell’s comments from Friday, expect more losses in stocks.
Bottom line, the market continues to view virtually all Fed utterances as implying a less-hawkish pivot and Wednesday wasn’t any exception as the FOMC minutes erased the dollar’s earlier gains and cut the rise in Treasury yields as stocks continue to ignore signals from the currency and bond markets that imply the Fed will not be making this hoped for pivot anytime soon, wrote Tom Essaye of The Sevens Report. Click here to read the full article.
