Tom Essaye Quoted in Barron’s on March 20, 2019

Tom Essaye Quoted in Barron’s on March 20, 2019. “The single most prominent bullish influence on stocks right now is the dovish Fed, and the run to fresh five-month…” Click here to read full article.

Sevens Report’s Tom Essaye quoted in Axios on January 30, 2019

Sevens Report’s Tom Essaye quoted in Axios on January 30, 2019. Read the full article here.

Pre-Fed Technical Update

What’s in Today’s Report:

  • Pre-Fed Technical Update: Levels to Watch
  • Why Did Tech Lag so Badly Yesterday?

Futures are drifting modestly higher this morning as investors focus on the Fed, U.S.-China trade talks, and earnings.

News flows were slow overnight although the well-received AAPL earnings from late yesterday are helping US futures rally.

Today, primary focus will be on the Fed with the FOMC Meeting Announcement at 2:00 p.m. ET followed by Chair Powell’s press conference at 2:30 p.m. ET.

There are two economic reports due out this morning: ADP Employment Report (E: 174K) and Pending Home Sales (E: 0.3%). The former will be closely watched but it is unlikely we see any sort of material move in markets ahead of the Fed.

Earnings season is reaching its peak so there are a slew of reports to watch today with: BABA ($1.65), BA ($4.52), T ($0.85) before the open and FB ($2.17), MSFT ($1.09), TSLA ($2.15), V ($1.25), and QCOM ($1.09) all due to report after the close.

Again, earnings and data will be followed today and ultimately will be digested by the market accordingly, but the Fed this afternoon will be the major focus and whether or not the outcome of the meeting is as dovish as recent Fed commentary has been will decide whether the S&P breaks higher towards 2700 or retests initial, key support at 2600.

FOMC Preview

What’s in Today’s Report:

  • FOMC Preview

U.S. equity futures are little changed this morning after a generally quiet night as investors focus turns to the Fed.

Late yesterday, the DOJ officially accused Huawei with financial fraud, stealing trade secrets, and sanctions violations and formally requested the extradition of the CFO from Canada which mildly pressured stock futures o/n.

Today, there are two, second tiered economic reports due to be released: S&P Case-Shiller HPI (E: 0.4%) and Consumer Confidence (E: 124.6), and the FOMC meeting begins which will likely bring a sense of “Fed paralysis” over the markets.

Earnings season remains in full swing and there are a few notable corporate releases on the calendar today: VZ ($1.09), MMM ($2.27), PFE ($0.63), AAPL ($4.17), AMD ($0.09), EBAY ($0.68).

If earnings are generally in-line (especially AAPL after the close) then the market will likely remain fairly choppy into tomorrow’s Fed Announcement and Powell’s press conference.

FOMC Takeaways (Not Good)

What’s in Today’s Report:

  • FOMC Decision Takeaways – Not Good.

Futures are slightly higher as markets bounce following Wednesday’s post Fed selloff.

It was a quiet night of news as there were no new headlines on trade, and most commentary focused on the takeaways of the Fed decision.

Economically, UK data was mixed as Nov. Retail Sales were strong (1.4% vs. (E) 0.3%) while Dec. Distributive Trades were weak (-13 vs. (E) 15).

Today focus will remain on the economic data, which becomes even more important in the face of the not dovish enough Fed.  We get to notable reports today, Jobless Claims (E: 220K) and Philadelphia Fed Business Outlook Survey (E: 16.5) and if the later misses expectations, look for more selling.

FOMC Preview

What’s in Today’s Report:

  • FOMC Preview

US stock futures are enjoying a pre-Fed bounce this morning due to positioning and short-covering as stocks remain oversold after the steep losses Friday and Monday.

Despite the bounce in futures, news flows were actually bearish since yesterday’s close as both FDX and MU made cautious comments about slowing global growth in their respective earnings calls and both cut guidance for 2019.

In the US today, there is one economic report due to be released: Existing Home Sales (E: 5.190M) and a “beat” would be well received after the string of soft housing data points of recent, but frankly all eyes will be on the Fed and the report will not materially move markets.

The New York session is likely to be slow in the morning with traders positioning into the Fed. The FOMC Meeting Announcement and Forecasts will hit at 2:00 p.m. ET and then Fed Chair Powell’s press conference is scheduled for 2:30 p.m. ET.

Fed Wildcard to Watch

What’s in Today’s Report:

  • The FOMC Wildcard to Watch: Powell’s Presser
  • The Oil Rally (And How Long It Can Last)

Stock futures are slightly positive this morning ahead of the Fed today while global markets were largely flat after another quiet night of news.

There were no market moving economic reports overnight.

Oil prices are slightly lower this morning after the API reported a +2.9M bbl build in crude stocks vs. (E) -1.3M bbls draw ahead of this morning’s weekly EIA release.

Today, the main market focus will be the Fed Events: FOMC Announcement and Forecasts (2:00 p.m. ET), Fed Chair Press Conference (2:30 p.m. ET) although, there is also one economic report out in the U.S. this morning: New Home Sales (E: 630K).

Barring any bombshell headlines about trade or to a lesser degree, politics, it is likely to be a quiet session with price action being driven by positioning until the Fed starts up at 2:00 p.m. ET.

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FOMC Meeting Takeaways, August 17, 2017

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The FOMC minutes resulted in a “dovish” reaction in currencies and bonds, but in reality they didn’t reveal anything new.

The two big takeaways from Wednesday’s FOMC were 1) The Fed is united in reducing the balance sheet in September (which will be the start of the removal of additional accommodation) and 2) The Fed is divided on whether to hike rates in December because of low inflation. Neither of those takeaways should be surprising to anyone who has been paying attention.

The former (that the Fed is committed to reducing its balance sheet) was reaffirmed by the minutes yesterday, and while the market seems to be ignoring this event, I do want to remind everyone that the Fed will be reducing its Treasury holdings for the first time in a decade. That will, over time, have a “tightening” effect on the economy (although admittedly not at first).

The latter was where the market generated it’s “dovish” interpretation of the Fed minutes, but in reality the fact that “some” Fed members want to not hike rates again this year shouldn’t be a surprise. Bullard, Kashkari, Mester and others have voiced caution about further rate hikes in the past few weeks due to low inflation.

Conversely, Dudley, Williams and others have stressed very low unemployment and still-loosening financial conditions as reasons to continue with gradual rate increases. Otherwise, they risk getting behind a sudden upshot in inflation that forces them to raise rates very quickly.

Point being, we know there is this divide, and it will be resolved in the coming months based on inflation data. If inflation data bottoms and heads higher, they’ll hike rates in December. If it doesn’t, they probably won’t. That’s no different than it was Wednesday at noon.

From a market standpoint, the reaction was “dovish” as the dollar and bond yields dropped, and stocks rallied modestly. But, yesterday’s FOMC minutes should not be enough to elicit a material rally in stocks, nor should it be enough to push the dollar or bond yields to recent 2017 lows.

About the only notable takeaway from the minutes is that it’s likely anecdotally bullish for the “Stagnation” portfolio…(withheld for subscribers only—unlock specifics and ETFs by signing up for a free two-week trial).

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Weekly Market Cheat Sheet, July 31, 2017

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Last Week in Review

Data has been remarkably consistent the last few weeks, including last week: “OK” but not great economic growth, and consistent signs that inflation is losing momentum. As such, the economic data continues to point to a “Stagnation” set up for stocks and other assets.

Given that inflation trends are more important than growth trends right now, I’ll start with the Quarterly Employment Cost Index, which, like many other inflation indicators in Q2, slightly missed estimates. The Q2 ECI rose 0.5% vs. (E) 0.6, maintaining a 2.4% yoy increase from Q1, but slightly disappointing vs. expectations.

Additionally on Friday, the PCE Price Indices from the Q2 GDP report showed deceleration in the pace of inflation. The PCE Price Index rose just 1% in Q2 vs. (E) 1.2%. Now, none of these inflation statistics are particularly bad. Yet from a policy standpoint, these numbers won’t make the Fed eager to tighten policy ahead of the current schedule (balance sheet reduction in September, rate hike, probably, in December).

Turning to actual growth data, it was “ok” but not great. Q2 GDP met expectations with a 2.6% yoy gain, and that was a true number as Final Sales of Domestic Product (which is GDP less inventories) was also 2.6%. Consumer Spending, or PCE as it’s known in the GDP report, rose 2.8%, again a solid but unspectacular number.

Similarly, June Durable Goods, while a decent report, wasn’t that strong. The headline was a big beat at 6.5% vs. (E) 3.5%, but that was because of one-time airline orders. New Orders for Non-Defense Capital Goods ex-aircraft, the best proxy for corporate spending and investment, was revised higher in May but dipped 0.1% in June.

Point being, like most growth data recently, it wasn’t a bad report, but it’s not the kind of strength that will spur a reflationary rally.

Finally, the one economic data point that was strong last week was the July flash manufacturing PMI. It rose to 54.2 vs. (E) 53.2, but while that is a potential positive (it’s a July report so it’s the most current) the PMIs are surveys, and the gap between soft survey data and “hard” economic numbers remains wide.

Turning to the Fed meeting last week, the two takeaways were: 1) The Fed confirmed that they will reduce the balance sheet in September, barring any big economic or inflation surprises. 2) The Fed did slightly downgrade the inflation outlook, but importantly it kept open the option to hike rates at any meeting, and as such a December rate hike is still likely).

This Week’s Preview

As stated, inflation is more important than growth data right now, so that means two most important numbers this week will be tomorrow’s Core PCE Price Index (contained in the Personal Income and Outlays report) and Friday’s wage data in the jobs report.

Stocks have rallied since Yellen turned incrementally dovish at her Humphrey-Hawkins testimony, and soft inflation data will further that sentiment and underpin stocks.

Conversely, if we see inflation bounce back, that will push bond yields higher and help reflation assets (banks, small caps, inverse bond funds, cyclicals).

But, inflation stats aren’t the only important numbers this week as we get the latest final manufacturing and composite US and global PMIs. They remain important because they will provide anecdotal insight into the pace of the US and global economy. But again, it would be a pretty big surprise if the data suddenly showed slowing in the global economy.

On the flip side, at least for the US, a strong report would be welcome, because strong economic data won’t cause the Fed to get more “hawkish” unless inflation ticks higher.

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FOMC Takeaways, July 27, 2017

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FOMC Decision
• As expected, the Fed left rates unchanged and did not alter its balance sheet.

The Fed decision met our “What’s Expected” scenario, as the Fed said balance sheet reduction “relatively soon,” which is Fed speak for September.

To boot, as was also generally expected, the Fed slightly downgraded the outlook for inflation, saying that inflation was running “below 2%,” as opposed to the previous “running somewhat” below 2%. It’s a minor change that largely reflects the Fed’s recent cautious language on inflation. However, the Fed said that risks to the recovery remained “roughly balanced,” which is Fed speak for “We still can hike rates at any meeting.” That last point is important, because risks remaining “roughly balanced” leaves a rate hike in December on the table (Fed fund futures odds have it at 50/50).

Currency and bond markets reacted “dovishly” to the decision, but again that’s due more to a Pavlovian dovish response to any Fed decision rather than an accurate reflection of the Fed yesterday. In reality, the Fed wasn’t materially dovish.

Bottom line, the policy outlook remains the same: The Fed will reduce its balance sheet in September, and likely will hike rates again in December, barring any economic slowdown or further decline in inflation statistics (at which point both events will become less certain). That was the market’s expectation before the Fed meeting Wednesday, and that’s the market expectation
after the Fed decision.


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