Has the Fed Reached Peak Hawkishness?

What’s in Today’s Report:

  • Has the Fed Reached Peak Hawkishness?
  • Weekly Market Preview:  Will Powell Sound Hawkish on Tuesday?
  • Weekly Economic Cheat Sheet:  Key inflation data Tuesday and Friday.

Futures are moderately lower mostly on follow-through selling from Friday’s hot jobs report.

The Chinese spy balloon drama dominated weekend headlines but it’s unlikely to materially alter U.S./China relations and as such shouldn’t be an influence on markets.

Rate expectations rose over the weekend following Friday’s jobs report, with markets now pricing in a terminal Fed Funds rate of 4.75% and that’s the main reason stocks are lower this morning.

Today there are no notable economic reports and no Fed speakers, so the focus will remain on yields and rate expectations and if they continue to climb, that will weigh on stocks.

Tom Essaye Quoted in Blockworks on January 30th, 2023

Fed Watch: Bitcoin Gives Up Weekend Gains, Analysts Say Not To Worry

“Reaching peak hawkishness is one of our three keys to a bottom, and the most important one, so if the Fed has reached peak hawkishness that’s a powerful positive to consider,” Tom Essaye, founder of Sevens Report Research, wrote in a note Monday. Click here to read the full article.

Has the Market Priced in Peak Hawkishness?

What’s in Today’s Report:

  • Has the Market Already Priced in Peak Hawkishness?
  • Weekly Market Preview:  Why This is the Most Important Week of Q1
  • Weekly Economic Cheat Sheet:  Fed on Wed, Jobs on Friday (It’s a busy week!)

Futures are moderately lower following a hotter-than-expected Spanish CPI report and as markets look ahead to a week filled with potential market-moving events.

Spanish CPI rose 5.8% vs. (E) 4.8% y/y and that is challenging the idea that disinflation is accelerating, and stocks are dropping as a result.

Investors are also booking profits ahead of a key week of catalysts including Fed/ECB/BOE rate meetings, critical earnings reports (this is the most important week of earnings), and the monthly jobs report on Friday.

This week is very, very busy from an economic standpoint between the Fed on Wednesday, jobs report on Friday, ISM PMIs and key inflation readings.  But, all the important reports start tomorrow so today’s focus will be on the earnings, and some notable reports today include NXPI ($3.60) and WHR ($3.43) which will give us insight into semi-conductor production (any more shortages?) and consumer demand.

Tom Essaye Quoted in Barron’s on November 11th, 2022

Stocks Gain After Their Best Day Since 2020

“Renewed hopes for peak Fed hawkishness on the back of cooler-than-expected domestic inflation data unleashed a historic rally in equities,” writes Sevens Report’s Tom Essaye. Click here to read the full article.

Did the Markets Achieve Peak Inflation & Peak Hawkishness

What’s in Today’s Report:

  • Keys to a Bottom Update:  Did the Markets Achieve Peak Inflation & Peak Hawkishness?
  • Weekly Market Update:  Can Stocks Hold the Recent Gains?
  • Weekly Economic Cheat Sheet:  All About Growth This Week (And the Data Needs to be Solid)

Futures are modestly lower after Chinese economic data missed estimates and the Chinese central bank cut rates in response.

Chinese economic data was soft as Industrial Production (3.8% vs. (E) 4.3%) and Retail Sales (2.7% vs. (E) 4.9%) both missed estimates.  In response, China’s central bank announced a surprise 10 bps rate cut, a move that signals economic concern but also doesn’t offer a lot of help (a 10 bps cut won’t make a difference as long as “Zero COVID” is an in-force policy).

Focus today will be on the August Empire Manufacturing Survey (E: 5.0) and specifically the price index within the report.  The sharp drop in that price index kicked off the “peak inflation” rally of the last month, so markets will be looking for continued signals that growth is stable (so a solid headline reading) and inflation is falling (another drop in the price index).

We also get the July Housing Market Index (E: 55.0) and we have one Fed speaker,  Waller (10:50 a.m. ET), but they shouldn’t move markets.

Tom Essaye Quoted in Courthouse News Service on June 3, 2022

Markets dip slightly on conflicting jobs report data

Tom Essaye of the Sevens Report noted that “very strong data would incur more Fed hawkishness while really soft data would spike stagflation concerns — and ‘moderating’ was just what we got from the ADP jobs report.” Click here to read the full article.

How Should We React to Fed Hawkishness?

What’s in Today’s Report:

  • How Should We React to Fed Hawkishness?
  • Weekly Market Preview:  All About the Fed (Powell testifies Tuesday, Brainard testifies on Thursday).
  • Weekly Economic Cheat Sheet:  All About Inflation (CPI Wednesday is the Key Report).

Futures are slightly lower following a generally quiet weekend as investors digest last week’s hawkish surprises ahead of Powell’s testimony tomorrow and CPI on Wednesday.

Economically, the only notable number was Eurozone Unemployment, which met expectations at 7.2%.

Chances of Build Back Better passing fell further over the weekend as according to the Washington Post, Manchin remains against the current framework for the plan.

Today there are no economic reports and just one Fed speaker, Bostic (12:00 p.m. ET), so we’d not be surprised to see markets churn ahead the three major catalysts coming later this week:  Powell’s testimony on Tuesday, Wednesday’s CPI Report, and Brainard’s testimony on Thursday.  Those three events will determine whether stocks rally of decline this week and any additional hawkish surprises will pressure stocks.