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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.

What Happens After Inflation Peaks?

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What’s in Today’s Report:

  • What Happens After Inflation Peaks?
  • Weekly Market Preview:  Fed Decision Wednesday
  • Weekly Economic Cheat Sheet:  Q2 GDP and Inflation Stats are the Highlights

Futures are modestly higher as markets bounce from Friday’s declines, following a quiet weekend and as investors look forward to numerous important catalysts this week.

Chinese authorities are considering some restrictions on movement in Shanghai as COVID cases rise, but are still resisting broad lockdowns (for now).

Economically, German Ifo Business Expectations declined further (80.3 vs. (E) 83.3).

Today there’s only one notable economic report, the Chicago Fed National Activity Index (E: 0.05), and markets will want to see stability here following last week’s disappointing data.  If this number is surprisingly weak (like the PMIs last Thursday/Friday) then that will likely weigh on stocks as recession fears grow.

Earnings season continues and this will be a very busy and important week for results.  Some earnings we’ll be watching today include:  WHR ($5.22), NXPI ($3.39), and LOGI ($3.39).

Why Stocks Dropped Again

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What’s in Today’s Report:

  • Why Stocks Dropped Again
  • Consumer Confidence Takeaways
  • Gold Update: A Soft Landing Is the Worst-Case Scenario

Stock futures are modestly lower thanks to some hawkish Fed chatter and another hot inflation print in Europe.

Economically, Spanish CPI jumped to 10.2% vs. (E) 9.2% in June, up from 8.5% in May suggesting inflation has not yet peaked, at least in parts of Europe.

Domestically, the Fed’s Mester reiterated that a 75 bp hike is likely in July given elevated consumer inflation expectations.

Today, there is one economic report to watch early: Final Q1 GDP (E: -1.4%) and investors would like to see the headline at least hold unchanged from the previous revision (if not get revised higher) before focus turns to several global central bankers speaking at an ECB Forum including Fed Chair Powell at 9:00 a.m. ET.

If the discussion takes on a more hawkish tone or there is any sign the market is losing confidence in the Fed (which would be evident in the bond markets) then yesterday’s selling pressure could continue.

Yield Curve Update

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What’s in Today’s Report:

  • Yield Curve Update (Are Recession Risks Rising?)
  • Why European Energy Companies Buying Gas in Rubles Matters to Stocks
  • Q1 GDP – Not as Bad as It Looks

Futures are moderately lower following underwhelming earnings and guidance from AMZN and AAPL.

AMZN results underwhelmed the street (especially margins) while APPL beat earnings but had cautious guidance for Q2 based on supply chain issues.

Economically, inflation pressures remained high as core EU HICP (their CPI) rose 3.5% yoy vs. (E) 3.1%.

Today focus will be on inflation as we get two important readings: Core PCE Price Index (E: 0.3%, 5.3%) and the Employment Cost Index (E: 1.1%).  Markets will want to see the actual numbers miss estimates, and in doing so further hint at a peak of inflation.  If the opposite happens (the numbers are hotter than estimates) that will further pressure stocks.  We also get Consumer Sentiment (E: 65.6) and the Inflation Expectations sub-index will be watched closely.

On the earnings front, some important results today include:  XOM ( $2.25), CVX ($3.44), CL ($0.74).

December Economic Breaker Panel

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What’s in Today’s Report:

  • December Economic Breaker Panel – Are Economic Clouds Gathering on the Horizon?

Futures are little changed following a quiet night as investors digest the recent volatility and look ahead to the holiday at the end of the week.

Economic data was sparse overnight and the only notable report was UK GDP which slightly missed estimates (1.1% vs. (E ) 1.3%) although that’s not moving markets.

The Omicron outlook remained unchanged, as cases continued to surge but hospitalizations remain low, and as long as that’s the case market fallout will be limited.

Today we get three economic reports including Final Q3 GDP (E: 2.1%), Consumer Confidence (E: 110.7) and Existing Home Sales (E: 6.510M) but unless they provide a major surprise they won’t move markets. So, with the holiday quickly approaching and tomorrow’s Core PCE Price Index the only remaining “big” report of the week, and we’d expect both liquidity and activity to begin to decline into the weekend starting today.

 

Annual Discounts on Sevens Report, Alpha and Quarterly Letter

We’ve continued to be contacted by advisor subscribers who want to use the remainder of their 2021 pre-tax research budgets to extend their current subscriptions, upgrade to an annual (and get a month free), or add a new product (Alpha or Quarterly Letter).

If you have unused pre-tax research dollars, we offer month-free discounts on all our products. If you want to extend current subscriptions or save money by upgrading to an annual subscription (across any Sevens Report product), please email:  info@sevensreport.com.

What the Fed Decision Means for Markets

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What’s in Today’s Report:

  • What the Fed Decision Means for Markets
  • EIA and Oil Market Update

Futures are marginally higher following some infrastructure progress combined with a bounce in Chinese stocks.

The bi-partisan $1 trillion infrastructure bill (which the market wants) comfortably passed a key Senate vote on Wednesday, although it still remains a long way from becoming law.

Chinese shares bounced as officials tried to calm markets, although nothing materially positive happened and this should be viewed as nothing more than an oversold bounce.

Today the financial media focus will be on Initial Q2 GDP (E: 8.0%), but as we and others have said, GDP doesn’t usually move markets, and likely won’t today.  Instead, Jobless Claims (E: 390K) will be the key economic report today, specifically whether the increase from last week continues, or is reversed (if it’s reversed, that will be a mild positive for stocks).  We also get Pending Home Sales (E: -0.8%) but that shouldn’t move markets.

On the earnings front, the key number today comes after the close from AMZN ($12.22), while we’ll also be watching MA ($1.72) and MO ($1.17).

All About Demand

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What’s in Today’s Report:

  • All About Demand
  • Weekly Market Preview:  The Fed and Inflation
  • Weekly Economic Cheat Sheet:  Fed Meeting, Core PCE Price Index and GDP.

Futures are marginally lower as increased concerns about regulation in China caused a sharp drop in Chinese shares, and that’s weighing on global equities.

The Hang Seng dropped more than 4% on Monday on fears of increased regulation from the Chinese government, following reports China was going to make the education business sector “not for profit.”

COVID headlines remained generally unchanged over the weekend as cases continued to rise in the U.S, although governments continue to resist restrictions and lockdowns.

Today there’s only one notable economic report, New Home Sales (E: 800k), and that shouldn’t move markets.  On the earnings front, the key report today comes after the close (TSLA $0.96), so focus will be on COVID headlines and if there are any reports of increased restrictions or lockdowns here in the U.S., that will hit stocks.

How to Allocate to Commodities

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What’s in Today’s Report:

  • How to Allocate to Commodities

Stock futures are under pressure for the third day in a row this morning as inflation fears continue to grip global markets ahead of today’s key April CPI report in the U.S.

Economically, Eurozone Industrial Production missed expectations while both the U.K. Monthly GDP and Industrial Production reports handily topped estimates which is helping the FTSE buck the trend and rally today.

Looking into today’s session, all eyes will be on the April CPI report due out at 8:30 a.m. ET (E: 0.2% m/m, 3.6% y/y). A hot print could spook investors and cause a continuation of the early week’s risk-off money flows.

Later in the session, there are multiple Fed speakers including: Clarida (9:00 a.m. ET), Bostic (1:00 p.m. ET), and Harker (1:30 p.m. ET) however Fed speak has remained decidedly dovish and none of today’s speakers should move markets.

Finally, there is a 10-Yr Treasury Note Auction at 1:00 p.m. ET and the outcome could give investors an idea of how bond traders view inflation in the wake of the CPI report.

Ultimately a soft bond auction and a subsequent rise in yields would likely compound this week’s already elevated inflation concerns and cause more volatility in equity markets while a strong auction could ease those concerns and see a relief rally develop.

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Tom Essaye Quoted in SPGlobal on March 10, 2021

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The Federal Reserve Bank of Atlanta on March 8 estimated real GDP will grow 8.4% in the first quarter. Adding the new stimulus package is likely to push economic growth close to record levels in 2021, said Tom Essaye, president of Sevens Report Research, in an interview. Click here to read the full article.

FOMC Takeaway: Will Three Rate Cuts Save the Bull Market?

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What’s in Today’s Report:

  • Will Three Fed Rate Cuts Be Enough To Save the Bull Market?
  • Why Wednesday’s GDP Report is Important
  • Oil Market Update

Futures are modestly lower as weak global economic data offsets good earnings from AAPL and FB.

The Chinese October manufacturing PMI fell to 49.3 vs. (E) 49.8, the lowest level since January 2016.  German retail sales and EU unemployment also slightly missed estimates and the takeaway is that the hoped for stabilization in the global economy isn’t happening yet.

On U.S./China trade, a Bloomberg headline hit early this morning saying a long term U.S./China trade deal is unlikely, but that’s not news as it was never expected.  Instead, consensus expectations are for an ineffectual Phase One document to be signed, and then no further progress after that (the key to this whole drama remains whether there’s any tariff relief).

Today’s focus will remain on economic data as earnings begin to move towards the back burner.  Key reports to watch today, in order of importance, are:  Core PCE Price Index (E: 0.1%, 1.7%), Employment Cost Index (E: 0.7%) and Jobless Claims (E: 215K). From a data standpoint, with the Fed now on hold, “good” economic news is good for stocks, and “bad” economic news is bad.  So, the bulls are looking for good news for the remainder of the week.