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What is the “Short Vol” Trade and How Is It Impacting Markets?

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What’s in Today’s Report:

  • What is the “Short Vol” Trade and How Is It Impacting Markets?
  • An Important Trading Range to Watch
  • EIA Analysis:  A Bearish Report for Oil

Futures are slightly higher despite soft economic data and more earning guidance cuts.

UK monthly GDP declined –0.3% and the UK officially entered recession, although that’s also boosting rate cut expectations.

On earnings, both CSCO and DE cut guidance and both stocks are solidly lower pre-market.

Today is a very busy day of economic data and the data will likely determine if stocks extend yesterday’s rebound or give some of it back.

The key reports are, in order of importance:  Retail Sales (E: -0.1%), Jobless Claims (E: 219k), Philly Fed (E: -9.0), Empire Manufacturing Index (E: -12.5) and Industrial Production (E: 0.2%).  For Empire and Philly Fed, the price indices will be closely watched and if they show further substantial gains, expect that to push yields higher on inflation concerns.

There are also two Fed speakers today,  Waller (1:15 p.m. ET) and Bostic (7:00 p.m. ET), and Waller could move markets as he is part of Fed leadership.

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Why Did Stocks and Bonds Drop to Start 2024?

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What’s in Today’s Report:

  • Why Did Stocks and Bonds Drop to Start 2024?
  • Weekly Market Preview:  Can Data Meet Market Expectations For Growth and Rate Cuts?
  • Weekly Economic Cheat Sheet:  Inflation In Focus (CPI on Thursday)

Futures are slightly lower following some disappointing EU economic data and on hawkish Fed commentary.

Economically, German Manufacturers’ Orders and Euro Zone retail sales both missed estimates, reminding investors of recession risks in Europe.

This weekend, Dallas Fed President Logan warned that financial conditions have eased materially recently and that may prevent the Fed from cutting rates anytime soon.

Today there are two notable market events including the NY Fed Inflation Expectations (E: 3.4%) and comments by Atlanta Fed President Bostic (12:00 p.m. ET).  If either event pushes back on the idea of imminent rate cuts (via inflation expectations being higher than estimates or Bostic sounding hawkish) expect more modest pressure on stocks and bonds.

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2024 Technical Outlook: Key Levels to Watch in Q1

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What’s in Today’s Report:

  • 2024 Technical Outlook:  Key Levels to Watch in 2024
  • Jobs Day

Futures are modestly lower following more evidence of a bounce back in inflation in the EU and ahead of today’s jobs report.

The EU December HICP (their CPI) rose less than expected (2.9% vs. 3.0% y/y) but still increased from the 2.4% Nov. reading and that’s further reducing ECB rate cut expectations and weighing on global markets.

Today focus will be on economic data and there are two potentially market moving reports:  The jobs report and the ISM Services PMI.

Regarding the jobs report, expectations are as follows:  Job Adds: 158K, UE Rate: 3.8%,  Avg Hourly Earnings: 0.3% m/m, 3.9% y/y.  The key here is moderation in the data and a job adds number above 200k or Avg. Hourly Earnings much above 4.0% will further push back on rate cut expectations and likely weigh on stocks.

Looking at the ISM Services PMI (E: 52.7), the key here is that the number stays solidly above 50 (which it should).  A drop below 50 will increase slowdown worries (and weigh on stocks).  Finally, there is one Fed speaker today, Barkin at 1:30 p.m. ET, but he shouldn’t move markets.

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Jobs Report Preview

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What’s in Today’s Report:

  • Jobs Report Preview

Futures are rebounding very slightly following better than expected global service PMIs.

The December Chinese Service PMI handily beat estimates (52.9 vs. (E) 51.6) offering an encouraging signal on Chinese growth while the EU and UK services PMIs also slightly best estimates.

On inflation, data was more mixed as French CPI met estimates at 3.7% but rose slightly from last month challenging the disinflation narrative.

Today focus will be on economic data and specifically the labor market via Jobless Claims (E: 218K) and the ADP Employment Report (E: 115K) and the key here remains Goldilocks data that isn’t so strong it reduces rate cut expectations nor so bad it stirs worries about the economy.  Also, we get the December PMI Composite Index (E: 51.0) but barring a major surprise that shouldn’t move markets.

Jobs Report

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Market Multiple Table: December Update

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What’s in Today’s Report:

  • Market Multiple Table – December Update (Unbranded Copy Available)
  • Chart – 10-Yr Yield Violates Long-Term Uptrend, 2023 Lows in Focus

Stock futures are slightly higher and bond yields are falling modestly this morning. This is as traders digest a dovish BOJ decision and largely in-line Eurozone inflation report.

The Bank of Japan left their benchmark policy rate unchanged at -0.10%. With no hint of a January rate hike sending the yen down >1% and the Nikkei up nearly 1.5% overnight.

Economically, the Eurozone HICP Narrow-Core inflation rate favorably fell from 4.2% to 3.6% last month, meeting estimates.

Looking at today’s potential market catalysts, there is one economic report to watch: Housing Starts (E: 1.360 million), and two Fed officials are to speak: Bostic (12:30 p.m. ET) and Goolsbee (6:00 p.m. ET).

Lastly, as long as the housing market data is not a big shock, the release shouldn’t move markets this morning while Bostic’s comments will be closely watched to see if he joins Daly and others from the Fed in acknowledging concerns about the labor market (which would add a dovish tailwind).

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Is It Time to Buy Gold

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What’s in Today’s Report:

  • Is It Time to Buy Gold? Bull Case vs. Bear Case
  • ISM Services Index Takeaways – Still Healthy Readings But Cracks Emerge
  • JOLTS Plunge Below Pre-Pandemic Trend

U.S. equity futures are tracking global stocks higher this morning. More underwhelming economic data overseas is helping bolster the case for rate cuts from the world’s biggest central banks in the first quarter of 2024.

Economically, German Manufacturer’s Orders fell -3.7% vs. (E) +0.5% in October. Eurozone Retail Sales edged up just +0.1% vs. (E) +0.3%. This is helping drive a bid in bond markets amid dovish money flows across asset classes today.

Looking into today’s session, focus will be on economic data early. The ADP Employment Report (E: 123K), International Trade in Goods and Services (E: -$64.1B) and Productivity and Costs (E: +4.8%, -0.9%) data will release before the bell.

Finally, there are no Fed officials scheduled to speak today. So the market will be looking for a still healthy but not “hot” ADP print, steady trade data, and a continued decline in unit labor costs (wage inflation) to help support soft-landing hopes and extend the November rally.

Is It Time to Buy Gold

Annual Discounts on Sevens Report, Alpha, Quarterly Letter, and Technicals.

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Separating Short Term vs. Longer Term in this Market

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What’s in Today’s Report:

  • Separating Short Term vs. Longer Term in this Market
  • Important Context for Economic Data Going Forward
  • Weekly Market Preview:  How Much Higher Can Markets Rally in 2023?
  • Weekly Economic Cheat Sheet:  Does Data Start to Roll Over?

Futures are modestly lower following a generally quiet weekend as markets further digested last week’s stock and bond rally.

On inflation, Swiss CPI rose less than expected (1.4% y/y vs. (E) 1.7%) continuing last week’s trend of smaller than expected increases in inflation in the EU region.

On growth, German exports underwhelmed (-0.2% vs. (E) 1.1%) continuing the recent trend of both lower inflation and slowing growth.

Today the only notable economic report is Factory Orders (E: -2.6%) and it’d take a major beat or miss to move markets, so we should expect continued general digestion of last week’s rally.

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Separating Short Term vs. Longer Term in this Market

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What Can Stop This Selloff?

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What’s in Today’s Report:

  • What Can Stop This Selloff?
  • Weekly Market Preview:  A Very Important Week of Earnings, Fed Decision and Economic Data
  • Weekly Economic Cheat Sheet:  A Busy Week (Jobs Report Friday, ISM PMIs Wed/Fri)

Futures are moderately higher on a small reduction in geo-political tensions and better than expected inflation data.

Geo-politically, Israel moved forces into Gaza over the weekend but the operation isn’t as large as feared (yet) and that’s helping to slightly reduce geopolitical anxiety.

On inflation, Spanish CPI rose 3.5% vs. (E) 3.8%, providing another reminder that global inflation is declining.

This week will be a very busy one as we get a Fed decision and important economic/inflation data, as well as the final “big” week of earnings.  But, it starts slowly as there are no economic reports today, so focus will be on earnings and some important reports today include:  MCD ($3.00), WDC ($-1.87), ON ($1.35), SOFI ($-0.07), ANET ($1.58).

What Can Stop This Selloff?

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Rising Oil Prices Will Continue to Act as a Headwind

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Rising Oil Prices Will Continue to Act as a Headwind: Tom Essaye Quoted in Barron’s

Stocks Open Lower Amid Rising Tensions in the Middle East

“Looking into today’s session, there will remain considerable focus on the conflict between Israel and Hamas amid Biden’s visit to the region and if no progress is made towards a ceasefire, rising oil prices will continue to act as a headwind on risk assets,” writes Sevens Report Research’s Tom Essaye.

President Joe Biden arrived in Tel Aviv to meet with Israeli Prime Minister Benjamin Netanyahu. President Biden’s trip to Israel followed the explosion of a hospital in Gaza.

Also, click here to view the full Barron’s article published on October 18th, 2023. However, to see the Sevens Report’s full comments on the current market environment sign up here.

Rising oil prices

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Gold’s Outlook Following The Federal Reserve’s Decision

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Gold’s Outlook: Sevens Report Analysts Quoted in MarketWatch

Gold gains for a 4th straight session to settle at a more than 2-week high

Gold futures posted a modest gain on Tuesday to mark another settlement at their highest in over two weeks, a day ahead of the Federal Reserve’s decision on interest rates.

“A hawkish decision would be decidedly bearish for gold…while a dovish surprise would support a run beyond $2,000” for gold, said analysts at Sevens Report Research, in Tuesday’s newsletter.

December gold climbed by 30 cents, or less than 0.1%, to settle at $1,953.70 an ounce on Comex.

Also, click here to view the full MarketWatch article published on September 19th, 2023. However, to see the Sevens Report’s full comments on economic data & inflation sign up here.

Gold's Outlook

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