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FOMC Preview: Forward Guidance Will Be Critical

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Forward Guidance Will Be Critical: Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • FOMC Preview – What’s Expected, Dovish-If, Hawkish-If, Forward Guidance Will Be Critical
  • Chart: 10-Yr Yield Approaches Critical Tipping Point

Futures are cautiously higher thanks to more evidence of disinflation in Europe. While an underwhelming yield curve control policy announcement by the BOJ is digested by global investors.

Economically, Eurozone CPI fell from 4.3% in September to 2.9% in October, well below estimates calling for 3.4% which further supports the narrative that global inflation pressures are easing considerably. Meanwhile, quarterly GDP in the EU disappointed, turning negative at -0.1% vs. (E) 0.0% which is rekindling recession worries in the Eurozone.

Looking into today’s session, there are several economic reports to watch this morning. The Employment Cost Index (E: 1.0%) being the most important for markets. The Case-Shiller Home Price Index (E: 0.7%) and latest Consumer Confidence report will also be released later in the morning (E: 100.0) but are less likely to move markets.

This week’s FOMC meeting gets underway today which will likely mean a familiar sense of Fed paralysis will begin to grip markets ahead of tomorrow’s policy decision, however, there is a 52-Week Treasury Bill auction at 1:00 p.m. ET that could move yields and influence equity market trading in the early afternoon.

Finally, earnings season is winding down but there are a few notable releases today. Starting with CAT ($4.75) and JBLU (-$0.27) reporting ahead of the bell with AMD ($0.68) after the close.

FOMC Preview - Magnifying Glass

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Jobs Report Preview

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What’s in Today’s Report:

  • Jobs Report Preview
  • Oil Market Update & EIA Analysis

Futures are little changed following a busy night of mixed economic data.

Positively, the August Chinese PMIs were better than feared, rising to 50.3 vs. (E) 50.1 and helping to slightly reduce China recession worries.

Negatively, the EU flash HICP (their version of CPI) was hot on the headline (5.3% vs. (E) 5.1%) but in-line on core (5.3% y/y), underscoring that inflation is sticky in the EU.

Focus today will be on economic data, specifically Jobless Claims (E: 238K) and the Core PCE Price Index (E: 0.2% m/m, 4.2% y/y).  For stocks to extend the week’s gains (and continue to bounce back from the broader pullback) investors won’t want any surprises.  In the case of jobless claims, that means no big jump in claims that hints at economic weakness, nor a further drop that might make the Fed more hawkish.  On the core PCE Price Index, an in-line to slightly below reading would be positive as it’d further pressure Treasury yields and likely lift stocks.

Finally, there is one Fed speaker today, Collins at 9:00 a.m. ET, but she shouldn’t move markets.

Is “No Landing” Back?

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What’s in Today’s Report:

  • Is “No Landing” Back?
  • Why Thursday’s Data Was Positive for the “Growth On” Basket

Futures are moderately higher mostly on momentum and end of quarter/half positioning, as economic data overnight was mixed but not bad enough to interrupt the rally.

European inflation (HICP) fell to 5.5% vs. (E) 5.7% y/y, although the more important core reading rose to 5.4% y/y from 5.3%, as expected.  So, there was some progress on headline inflation, but core inflation remains a problem.

In China, the June Manufacturing PMI rose to 49.0 vs. (E) 49.1, which is increasing expectations for more stimulus.

Today focus will be on inflation via the Core PCE Price Index (E: 0.4% m/m, 4.7% y/y).  The idea of “No Landing” requires inflation to, at a minimum, stay flat, so any hotter than expected inflation metric will push yields higher and that likely would weigh on stocks today.

Sevens Report Analysts Quoted in ZeroHedge on April 18th, 2023

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WTI Rises After Bigger Than Expected Crude Draw

Looking ahead, economic data will be in focus as a “strong economic recovery in China and the avoidance of hard landings in Europe and the U.S. are both priced into the market with WTI trading with an $80 handle,” said analysts at Sevens Report Research in Tuesday’s newsletter. Click here to read the full article.

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.

Earnings Season Update (What MSFT’s Results Mean for Markets)

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What’s in Today’s Report:

  • Earnings Season Update (What MSFT’s Results Mean for Markets)
  • EIA Analysis and Oil Market Update

Futures are slightly higher thanks mostly to momentum from Wednesday’s rebound and as earnings overnight were no worse than feared.

On earnings, TSLA rallied 6% after hours as Elon Musk teased more deliveries on the call in ‘23 than actual guidance, while IBM results were slightly disappointing.

Today focus will be on economic data and the key reports today are:  Durable Goods (E: 2.8%), Jobless Claims (E: 202K), Q4 ’22 GDP (E: 2.7%), and New Home Sales (E: 614K).  As has been the case through the end of ’22 and early ’23, moderation in the data, not an outright collapse, is what stocks and bonds need to extend yesterday’s rally.

On earnings, the key report today comes after the close with INTC ($0.20), while other notable reports include: V $($2.01), MA ($2.56), AAL ($1.14), JBLU ($0.19), and VLO ($7.45).

Why Stocks Dropped Again

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What’s in Today’s Report:

  • Why Stocks Dropped (Again)
  • A Question About Silver

Futures are sharply lower following a very negative earnings pre-announcement from FedEx (FDX).

FedEx (FDX) earnings were terrible as the company reported EPS of $4.37 vs. (E) $5.10 and guidance was even worse with estimates of $2.75 vs. (E) $5.46.  The company sited significant macro-economic deterioration and the CEO warned about a “worldwide recession.”

Economically results were mixed as Chinese data beat estimates while UK Retail Sales were soft (–5.4% vs. –3.9%).

Today focus will be on Consumer Sentiment (E: 59.9) and more specifically the five-year inflation expectations.  In August they were 2.9% and if they rise back above 3.0% that’ll only compound the damage from Tuesday’s CPI and push stocks lower, while a decline below 2.9% will help offset CPI and help support stocks (although I think it’d take a sharp from below 2.9% for stocks to fully erase these early losses).

Time to Reduce Commodity Allocations?

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What’s in Today’s Report:

  • Is it Time to Reduce Commodity Allocations?
  • Why Q2 GDP Wasn’t as Bad As It Seemed

Futures are moderately higher following a solid night of earnings.

AAPL (up 2%) and AMZN (up 12%) both beat estimates and that’s helping to extend this week’s rally.

Eurozone inflation came in slightly hotter than expected, as EU HICP rose 8.9% yoy vs. (E ) 8.8% yoy, but stronger than expected earnings are helping the market look past the slightly hot number.

Today the focus will be on inflation as we get three notable inflation readings:  Core PCE Price Index (E: 0.5% m/m, 4.7% y/y), Employment Cost Index (E: 1.1%), and the University of Michigan Five Year Inflation Expectations (E: 2.8%).  Markets have aggressively priced in a near term peak in inflation, and the data needs to start to confirm that, starting today.  If these inflation stats run hot, don’t be surprised to see stocks decline.

On the earnings front, the season is starting to wind down but there are still a few more days of notable results.  Some reports we’re watching today include: XOM ($3.80), CVX ($5.02), PG ($1.23) and CL ($0.71).

Two Clear Takeaways from the Fed Decision

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What’s in Today’s Report:

  • Two Clear Takeaways from the Fed Decision
  • EIA Analysis and Oil Update

Futures are modestly lower on disappointing earnings and the increased probability of higher corporate taxes.

Earnings from META, QCOM, and others disappointed and that’s reversing some of Wednesday’s tech-driven gains.

Senate Democrats agreed on a smaller Build Back Better bill that includes some corporate tax increases, although it’s still not clear when this becomes law.

Today will be a busy day from a data and earnings standpoint.  Economically, Jobless Claims (E: 249K) is the key report and if it moves considerably above 250k that will signal further deterioration in the labor market.  We also get Preliminary Q2 GDP (E: 0.5%) and as we said yesterday, don’t be shocked if it’s negative and you hear a lot of recession commentary.

On the earnings front, today is an important day and the key reports will be:  PFE ($1.72), MA ($2.36), AAPL ($1.14), AMZN ($0.15), INTC ($0.69).

Brace for a Recession on Thursday

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What’s in Today’s Report:

  • Brace for a Recession on Thursday
  • Housing Data Points to Slowdown in Real Estate Market
  • Chart: S&P 500 Holds 50-Day Moving Average by One Point

Stock futures are solidly higher this morning as quarterly earnings results from tech giants MSFT and GOOGL were both well received by investors after the close yesterday while investor focus shifts to the Fed today.

This morning, economic data will be in focus early with Durable Goods Orders (E: -0.5%), International Trade in Goods (-$103.2B), and Pending Home Sales (-1.0%) all due out by 10:00 a.m. ET.

From there, expect price action to slow considerably as focus turns to the Fed with the FOMC Meeting Announcement at 2:00 p.m. ET followed by the Fed Chair Press Conference at 2:30 p.m. ET.

Markets have priced in a 75% chance of a 75 basis point hike today while no changes to forward-guidance are expected so any variance from those expectations could result in sizeable moves in the market this afternoon.

Finally, earnings season remains in full swing with SHOP ($0.03), TMUS ($0.41), HLT ($1.06), SHW ($2.81) reporting ahead of the bell and META ($2.51), F ($0.43), and QCOM ($2.86) releasing results after the close. Any of those reports could lead to sector specific volatility despite the Fed today.