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February Inflation Expectations Update

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What’s in Today’s Report:

  • Inflation Expectations Update: February 2022

Stock futures are solidly higher this morning after another mostly quiet night of news as tech shares rise amid falling bond yields ahead of tomorrow’s CPI report.

There were no market-moving economic reports overnight and no data is due to be released in the U.S. today.

With no economic data on the calendar, the focus will be on Fed speakers: Bowman (10:30 a.m. ET) and Mester (12:00 p.m. ET) as well as a 10-Yr Treasury Note auction at 1:00 p.m. ET.

There are also a few notable companies due to release earnings today including: TEVA ($0.70), UBER (-$0.33), and DIS ($0.57).

Bottom line, the market remains keenly focused on inflation right now and with bond yields pulling back from recent highs, stocks are enjoying a renewed relief rally that could extend higher today as long as yields don’t reverse back towards recent highs.

Market Multiple Levels: S&P 500 Chart

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What’s in Today’s Report:

  • Market Multiple Levels: S&P 500 Chart

Futures are solidly higher this morning after more strong tech earnings as investor focus shifts to January jobs data.

Q4 results from GOOGL and AMD handily beat estimates, sending both stocks higher by more than 10% overnight.

Economically, the Eurozone HICP Flash rose to 5.1% vs. (E) 4.3% which is rekindling some global inflation concerns.

Today, there are no Fed speakers on the calendar which will leave the focus on economic data including: the ADP Employment Report (E: 225K) and Motor Vehicle Sales (E: 12.6 million).

On the earnings front, we hear from: ABBV ($3.28), MPC ($0.47), TMO ($5.22), and CHRW ($1.85) before the open and FB ($3.78), QCOM ($3.00) and TMUS ($0.16) after the close.

Fed officials have been talking down the January jobs report so far this week, so if today’s ADP report comes in hot, that could cause another wave of hawkish money flows and equity volatility while the prospect of more upbeat tech earnings could see this week’s relief rally continue.

Market Multiple Table: February Update

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What’s in Today’s Report:

  • Market Multiple Table: February Update

Stock futures swung between gains and losses overnight as the sizeable two-day rally to end January is being digested while most global equity markets rallied to start the month of February.

Economically, the EU unemployment rate fell to 7.0% vs. (E) 7.2% but final Manufacturing PMIs were disappointing. None of the data is materially impacting markets this morning, however.

Looking into the U.S. session, there are a few economic reports to watch today: ISM Manufacturing Index (E: 57.5), Construction Spending (E: 0.7%), and JOLTS (10.5 million) while no Fed officials are scheduled to speak.

We are getting into the heart of earnings season and there are some notable companies releasing Q4 results today including: UPS ($3.11), and XOM ($1.96) before the open and then PYPL ($1.13), AMD ($0.76), GOOGL ($26.69), GM ($1.15) and SBUX ($0.80) after the close.

Bottom line, near-term momentum continues to favor the bulls right now and this relief rally can continue if economic data is inline or slightly better than estimates (not too hot), earnings remain positive, and Fed policy expectations continue to get less hawkish.

Sevens Report Co-Editor Tyler Richey Quoted by MarketWatch on January 27, 2022

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Why natural-gas futures logged their biggest one-day percent gain on record

Physical demand is so high with this looming storm in the Northeast that the February futures contract got piled into for those looking to reload stockpiles they expect to offload…explained Tyler Richey, co-editor at Sevens Report Research. Click here to read the full article.

 

Early Earnings Season Takeaways

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What’s in Today’s Report:

  • Early Earnings Season Takeaways

Futures are modestly higher as China made two surprise interest rate cuts overnight, helping stocks bounce from Wednesday’s late-day declines.

China’s central bank made two small surprise interest rate cuts overnight which helped Asian stocks rally (Hang Seng up 3%) and that’s pushing U.S. futures higher.

Today focus will be on economic data and earnings, and for stocks to extend the early morning rebound we need to see stable data and solid earnings (meaning no extreme cost pressures).  Economically, the key report today is the  Philly Fed Manufacturing Index (E: 19.1).  If it suddenly plunges as Empire did on Tuesday, that will slightly increase anxiety about the economy.  We’ll also be watching Jobless Claims (E: 207K) and Existing Home Sales (E: 6.40M).

On the earnings front, the key report today is NFLX ($0.82) after the close, but we’ll also be watching:  AAL (-$1.54), TRV ($3.86), UNP ($2.60), CSX ($0.41) and PPG ($1.19).  If margins are much weaker than expected, look for more earnings-related volatility.

Market Multiple Chart

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What’s in Today’s Report:

  • Market Multiple Chart

Futures are slightly higher following mixed economic data as markets look ahead to today’s jobs report.

Markets are looking for any signs inflation has peaked but that was not the case in Europe today as EU HICP  (their CPI) rose 5.0% vs. (E) 4.8%.  Economic growth was also solid (EU Retail Sales beat estimates) so the high inflation number isn’t hitting stocks ahead of the jobs report.

Today focus will be on the Employment Situation Report and estimates are:  Job Adds 400K, UE Rate 4.1%, Wages 0.3% m/m & 4.1% y/y.  Markets will be especially sensitive to a “Too Hot” number as that will further stoke fears of a more hawkish Fed and a “Too Hot” report will hit stocks.  There are also three Fed speakers today, Daly (10:00 a.m. ET), Bostic (12:15 p.m. ET) and Barkin (12:30 p.m. ET) and while they aren’t Fed leadership, if they are “hawkish” and talk about March rate hikes or balance sheet reduction, that will be a headwind on stocks.

 

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The Single Reason the FOMC Minutes Were Hawkish

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What’s in Today’s Report:

  • Jobs Report Preview
  • The Single Reason the FOMC Minutes Were Hawkish

Futures are little changed following Wednesday’s sell-off, as solid economic data is helping sentiment.

The Chinese December Composite PMI beat estimates at 53.0 vs. (E) 51.2, the second straight better than expected data point from China.  UK Composite PMI also beat estimates, imply a resilient economy in response to Omicron.

President Biden and Senator Manchin are set to resume negotiations on “Build Back Better” signaling the legislation isn’t dead (again passage of this in Q1 shouldn’t shock markets but it will not likely be a major market influence, either).

Today’s focus will be on economic data, specifically Jobless Claims (E: 205K) and the ISM Services PMI (E: 67.0).  If the data is very strong, will that increase concerns the Fed will get even more hawkish, and that will pressure stocks again.

What Could Go Right in 2022

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What’s in Today’s Report:

  • What Could Go Right in 2022

S&P 500 futures are trading at a fresh record high as investors shrug off rising COVID cases while global markets rallied following fresh monetary stimulus from China.

The PBOC injected 200B yuan to help meet end-of-year demand for cash, the largest injection since October which is easing liquidity and adding to risk-on money flows.

Japanese Industrial Production surged 7.2% vs. (E) 1.8% in November, bolstering hopes that the economic recovery is regaining momentum.

This morning, there are two reports on the housing market due to be released: Case-Shiller Home Price Index (E: 1.0%), FHFA House Price Index (E: 0.7%) but neither should move markets.

There are no Fed speakers today but there is a 5-Year Treasury Note auction at 1:00 p.m. ET that could impact that bond markets and potentially equities but with the calendar otherwise pretty clear, a continued “Santa Claus rally” appears to be the path of least resistance for equities this week.

Omicron Optimism

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What’s in Today’s Report:

  • Why Omicron Optimism is Helping Stocks Rally

Futures are marginally higher as studies and articles continue to be released that confirm that the Omicron variant results in much fewer severe COVID cases.

Over the past 48 hours, studies from South Africa, Denmark, and England and numerous articles (Washington Post, Bloomberg, WSJ) have all generated the same conclusion, that Omicron results in substantially fewer severe

COVID cases and that confirmation is easing COVID anxiety.

Today there is a lot of economic data but the most important report is the Core PCE Price Index (E: 0.4% m/m, 4.5% y/y).  As long as it’s not materially worse than feared, it likely won’t hit markets.  And, if the data comes in better than expected, that will add to the idea that inflation pressures have peaked, and we could easily see an extension of this week’s rally.

Other data today includes Durable Goods (E: 1.5%), Jobless Claims (E: 205k),  New Home Sales (E: 770k), and Consumer Sentiment (E: 70.4), but barring a major surprise those numbers shouldn’t move markets.

Fed Meeting Preview

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What’s in Today’s Report:

  • FOMC Preview

U.S. futures are trading lower with most global equity markets after some negative Omicron headlines while investor focus shifts ahead to this week’s central bank meetings.

Initial studies in South Africa show the PFE vaccine has a lower efficacy rate against Omicron, rekindling concerns about the strain potentially leading to new restrictions or lockdown measures around the globe.

Economically, EU Industrial Production grew 1.1% vs. (E) 1.2% in October and the U.S. NFIB Small Business Optimism Index came in at 98.4 vs. (E) 98.3 but neither release materially changed the outlook for central bank policy.

Looking into today’s session, there is one inflation data point due ahead of the bell: PPI (E: 0.5%) but unless it is a material surprise against expectations, it should not move markets with the December FOMC meeting getting underway.

Bottom line, the focus has largely turned to this week’s central bank meetings, most importantly the FOMC, so it is likely that we see a form of “Fed paralysis” grip the markets between now and tomorrow afternoon’s meeting announcement, barring any unforeseen surprises regarding Omicron.