FOMC Preview: How Long Will Rates Stay High?

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What’s in Today’s Report:

  • FOMC Preview – How Long Will Rates Stay High?
  • VIX Chart – Is Volatility About to Surge

S&P futures are modestly higher this morning after a favorable dip in EU inflation statistics and upward revisions to global growth forecasts while oil continues to climb towards $100/barrel.

The Eurozone’s Narrow Core HICP (their CPI equivalent) met estimates at 5.3% in August, down from 5.5% in July. The OECD raised their global growth forecast from 2.7% to 3.0%, primarily thanks to strength in the U.S. and Japan while growth estimates for Europe and China were reduced. However, the net increase in the global growth outlook was received as a mild positive this morning.

Looking into the U.S. session, there is just one economic report: Housing Starts and Permits (E: 1.435M, 1.440M). As long as there are no big surprises in the release, markets should fall into a holding pattern as the September FOMC meeting begins in Washington.

However, there is a 20-Yr Treasury Bond auction at 1:00 p.m. ET, and if the outcome moves rates materially, stocks could react amid last-minute positioning ahead of tomorrow’s Fed decision.

Fed Preview

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FOMC Minutes: Not as Dovish as the Market Reaction

What’s in Today’s Report:

  • FOMC Minutes:  Not as Dovish as the Market Reaction
  • Retail Earnings Takeaways
  • EIA and Oil Market Analysis

Futures are slightly higher on better-than-expected earnings, following an otherwise quiet night of news.

Cisco (CSCO) posted strong earnings and gave positive commentary on tech demand going forward.

Economically, EU HICP (their CPI) met expectations at 8.9% yoy and that reading means a 50 bps rate hike from the ECB is still likely in September.

Today’s focus will be on economic data, specifically the Philadelphia Fed Manufacturing Survey (E: -5.0).  If Philly Fed echoes the weak Empire Manufacturing reading and the price indices don’t decline, we’ll see stagflation concerns rise.  Other reports today include Jobless Claims (E: 265K) and Existing Home Sales (E: 4.85M) but neither should move markets.

We also get two Fed speakers, George (1:20 p.m. ET) and Kashkari (1:45 p.m. ET), and the market will be looking for any insight on a 50 bps vs. 75 bps hike in September (markets are expecting 50 bps).

Jobs Report Preview

What’s in Today’s Report:

  • Jobs Report Preview
  • Why Surging EU HICP Matters to Us
  • EIA Analysis and Oil Market Update

Futures are sharply lower following a big earnings miss by Facebook (FB was down 20% after hours).

FB posted disappointing margins and guidance and the steep decline in the stock is pulling futures lower.

EU and UK Composite PMIs were mixed as the EU reading slightly missed while the UK PMI beat estimates, although neither number is moving markets.

Today will be a busy day.  First, we get two central bank announcements (BOE at 7:00 a.m. and ECB at 7:45 a.m.).  The BOE is expected to hike rates 25 basis points and while there’s no change expected to ECB policy if Lagarde is hawkish at her press conference that will add to the earnings-inspired declines.

We also get some notable economic data, including the ISM Services PMI (E: 59.9), Jobless Claims (E: 250K), and Productivity and Costs (E: 2.4%, 1.7%) and as has been the case, markets will crave stability to ward off stagflation fears.

Finally, on the earnings front, AMZN ($3.88) after the close is the big report today.  Of the super cap tech stocks, we’re had some good reports (AAPL/MSFT/GOOGL) and some bad reports (NFLX/FB), and markets need AMZN to land in the former.  Beyond AMZN, some other reports we’ll be watching include: MRK ($1.52), LLY ($2.51), COP ($2.20), HON ($2.08),  SNAP ($0.10), and F ($0.43).