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Economic Breaker Panel: June Update

What’s in Today’s Report:

  • Economic Breaker Panel – June Update
  • Economic Data Takeaways – Further Signs of Slowing Growth

Stock futures are bouncing modestly with European shares and bond markets are stable this morning as inflation data met expectations in the Eurozone and the BOJ decision was viewed as dovish versus expectations.

The BOJ maintained a very easy monetary policy, sending the yen back towards recent lows while Eurozone HICP (their CPI equivalent) came in at 8.1% vs. (E) 8.1% y/y which is helping markets stabilize this morning.

Looking into today’s session, there is one economic report to watch: Industrial Production (E: 0.4%) and the market will be looking for a strong print to ease concerns surrounding this week’s soft survey-based factory data and bolster the outlook for economic growth in the face of an aggressive Fed.

Fed Chair Powell is also set to deliver a speech at 8:45 a.m. ET and any comments on the economy or future policy plans could move markets today.

Finally, today is quadruple witching options expiration so expect very heavy volumes and the potential for momentum to build in either direction as derivatives traders square their books into the end of the quarter. In the S&P 500 3,650, 3700, and 3750 will all be key levels to watch into the afternoon today.

Ukraine Update

What’s in Today’s Report:

  • Bottom Line: Real Focus Remains on the Fed and Growth
  • Weekly Economic Cheat Sheet: Rising Threat of Stagflation?

Stock futures are down slightly this morning but well off the overnight lows as traders digest the latest geopolitical developments between Russia and Ukraine.

Russian President Putin recognized the independence of two “breakaway” regions in eastern Ukraine yesterday, but the risk of a full scale invasion of Ukraine still remains low.

Looking into today’s session, there are several economic reports due to be released including: Case-Shiller Home Price Index (E: 1.1%), FHFA House Price Index (E: 1.0%), PMI Composite Flash (E: 51.9), and Consumer Confidence (E: 110.0). There is also one Fed speaker on the schedule: Bostic (3:30 p.m. ET).

Finally, there is a 2-Yr Treasury Note auction at 1:00 p.m. ET and with the underlying market focus still on future Fed policy, a soft outcome (hawkish) could add to the current geopolitically fueled market volatility.

Regarding Ukraine, investors will await the announcement of new sanctions from the west against Russia, and depending on how severe they are, it could add to the selling pressure on stocks today. Additionally, as of now, Blinken and Lavrov are still scheduled to meet this week but if that meeting is canceled that will suggest a more severe conflict is imminent, resulting in more risk-off money flows.

Tom Essaye Quoted in ETF Trends on May 24, 2021

Why Are Commodities Having Such a Spectacular Year?

Commodities are the basic input for global growth and contribute and correlate with inflation. Consequently, related ETFs would typically…explained Tom Essaye, a former Merrill Lynch trader who founded “The Sevens Report” newsletter. Click here to read the full article.

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Weekly Market Preview, September 18, 2017

Last Week in Review

Up until Friday, last week’s data looked like it was going to show “green shoots” of an economic reflation. But disappointing economic growth numbers on Friday off-set better inflation readings from earlier in the week, and while Hurricane Harvey likely impacted the growth data, the bottom line is the data just isn’t good enough to spur a rising tide for stocks.

From a Fed standpoint, the higher inflation data did increase the likelihood that we will get a December rate hike, although the market expectation of that remains below 50%. As such, increased expectations of a rate hike in the coming weeks could be a headwind on stocks, especially if economic data doesn’t improve.

Looking at last week’s data, the most important takeaway was that inflation appears to be bottoming. Chinese, (1.8% yoy vs. (E) 1.7% yoy), British (2.7% vs. (E) 2.5%), and US CPI (0.4% m/m vs. (E) 0.3%) all firmed up and beat expectations, and while it’s just one month’s data, it’s still a break of a pretty consistent downtrend.

That turn in inflation potentially matters, a lot, because it’s making central banks become more hawkish. The ECB is going to taper QE, the Bank of England is going to raise rates sooner rather than later (more on that in Currencies), the Fed may hike again in December and the Bank of Canada was the first major central bank to give us a surprise rate hike in nearly a decade. I’m going to be covering the implications of this a lot more this week, but the times, so it seems, they are a changin’.

That makes an acceleration in economic growth now even more important. Unfortunately, the growth data from last week was disappointing. July retail sales missed on the headline (-0.2% vs. (E) 0.1%) as did the
more important “Control” group (retail sales minus autos, gas and building materials). The “control” group fell to -0.2% vs. (E) 0.3%.

Additionally, Industrial Production also was a miss. Headline IP fell to -0.9% vs. (E) 0.1% while the manufacturing subcomponent declined to -0.3% vs. (E) 0.1%. Now, to be fair, Hurricane Harvey, which hit Southeast Texas, likely skewed the numbers negatively. But, the impact of that is unclear, and we can’t just dismiss these numbers because of the hurricane.

Bottom line, the unknown impact of Hurricane Harvey keeps this week’s data from eliciting a “stagflation” scare, given firm inflation and soft growth. But if this is the start of a trend, and it can’t be blamed on Harvey or Irma, then that’s a problem for stocks down the road. We need both inflation and growth to accelerate (and at the same time) to lift stocks to material new highs.

This Week’s Preview

The two key events for markets this week will be the Fed meeting on Wednesday, and the global flash PMIs on Friday.

Starting with the Fed, normally I’d assume this meeting will be anti-climactic, but it’s one of the meetings with the “dots” and economic projections, so there is the chance we get either a hawkish or dovish surprise. I’ll do my full FOMC Preview in tomorrow’s report, but the point here is don’t be fooled into a false sense of security if people you read say this meeting is going to be a non-event. It very well could be, but there’s a betterthan-expected chance for a surprise, too (and if I had to guess which way, I’d say it’d be a hawkish surprise… and that could hit stocks).

Turning then to the upcoming data, given the new-found incremental hawkishness of global central banks, strong growth data is more important than ever to avoid stagflation. We’ll want to see firm global manufacturing PMIs to keep stagflation concerns at bay. Looking more specifically at the US, Philly Fed comes Thursday and that will give us anecdotal insight into manufacturing activity, although the national flash PMI out the next day will effectively steal the thunder from the Philly report.

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