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Sevens Report Research’s Tom Essaye Quoted In Barron’s

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Sevens Report Research’s Tom Essaye Quoted In Barron’s

Nasdaq Loses Steam as Stocks Give Back Some Earlier Gains

Sevens Report Research’s Tom Essaye told Barron’s that the Federal Reserve Bank of New York released median inflation expectations from its January survey that were unchanged at the one- and five-year ahead horizons. But three-year expectations fell to 2.4% from 2.6%.

“That will make the Fed more confident in cutting rates and amidst an other wise quiet day, that’s what’s driving this market,” Essaye said.

Also, click here to view the full Barron’s article published on February 13th, 2024. However, to see the Sevens Report’s full comments on the current market environment sign up here.

It’ll be Very Hard for This Market to Rally

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Was Yesterday the Start of a Pullback?

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What’s in Today’s Report:

  • Was Yesterday’s Hot CPI the Start of a Pullback? (Four Issues to Address)
  • VIX Chart Shows Options Trading Amplified Yesterday’s Selloff
  • CPI Takeaways

Stock futures are rebounding back from yesterday’s steep post-CPI selloff thanks to some “cooler” inflation data in the U.K. overnight and better than expected factory data out of Europe. The 10-Yr yield is stable, just below 4.30%.

Economically, the Q4 Eurozone GDP Flash met estimates at a tepid 0.1% y/y but EU Industrial Production jumped 2.6% vs. (E) -0.3% in December easing some ongoing growth worries.

U.K. PPI also favorably declined across the board which is offsetting the nation’s slightly higher than expected CPI data.

Looking into today’s session, there are no notable economic reports but two Fed officials who happen to be scheduled to speak at the open and close: Goolsbee (9:30 a.m. ET), Barr (4:00 p.m. ET).

Goolsbee is notably an FOMC voting member who leans towards the dovish camp and could potentially add support for a relief rally today after yesterday’s sharp decline. VIX futures expiration could also impact money flows in early trade.

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CPI Preview: Good, Bad, and Ugly

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CPI Preview: Good, Bad, and Ugly: Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • CPI Preview – Good, Bad, and Ugly
  • Middle East Update: Understanding the Situation with Rafah

U.S. equity futures are lower with European shares as investors await today’s critical inflation data ahead of the bell while most Asian markets are closed for holidays.

Economically, the German ZEW Survey was mixed as Current Conditions deteriorated to -81.7 vs. (E) -79.0 but Economic Sentiment Improved to +19.9 vs. (E) +18.0. The headline miss is one more of several recent data points that suggests the German economy is slowing more rapidly than most anticipated.

Domestically, the NFIB Small Business Optimism Index was disappointing as it fell to 89.9 vs. (E) 92.4 underscoring a downbeat and cautious mood among small business owners despite economic data otherwise pointing to continued resilience in the U.S. economy.

Today, focus will be almost exclusively on the CPI report (8:30 a.m. ET) with the headline expected to come in at 0.2% m/m and 3.0% y/y while the Core CPI figure is expected to come in at 0.3% m/m and 3.7% y/y (full scenario analysis in today’s report).

There are no Fed speakers on the calendar or Treasury auction scheduled for today which will leave the session likely dominated by how the market digests the latest inflation data. Market-based Fed policy rate expectations are currently pricing in a 16% chance of a March rate cut and a 56% chance of a May cut. If those two figures decline materially, especially the latter one, expect an extension of yesterday’s intraday pullback.

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What Could Interrupt This Rally?

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What’s in Today’s Report:

  • What Could Interrupt This Rally?
  • Weekly Market Preview:  Can Inflation and Growth Data Push Stocks Even Higher?
  • Weekly Economic Preview:  CPI Tomorrow, Key Growth Readings Thursday.

Futures are little changed following a mostly quiet weekend of news, although geo-political risks continued to creep higher over the weekend.

Israel is reportedly planning a ground offensive into the southern Palestinian province of Rafah and that’s met with pushback from numerous nations in the region and risks to further reduce any chances for a cease fire.

Today trading should be mostly quiet as the majority of Asian markets are closed for a holiday, but focus will be on the NY Fed Consumer Inflation Expectations (E: 3.00%) and any number below expectations will support Fed rate cut expectations (and support stocks).  We also have three Fed speakers today, Bowman (9:20 a.m. ET), Barkin (12:00 p.m. ET) and Kashkari (1:00 p.m. ET) but they shouldn’t move markets.

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Commercial Real Estate Primer Part Two: Risks, Opportunities & Indicators to Watch

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What’s in Today’s Report:

  • Commercial Real Estate Primer Part Two:  Risks, Opportunities & Indicators to Watch

Futures are slightly higher following better than expected Chinese economic data and in-line inflation readings from Europe.

China’s new yuan loans were stronger than expected (4.92B yuan vs. (E ) 4.5B yuan) providing some anecdotal evidence that stimulus is starting to work.

On inflation, German CPI met expectations at German CPI met expectations, rising 2.9% y/y.

Today the key event is the annual revisions to the CPI data, which hits at 8:30 a.m. ET.  Usually this is a relative non-event, but last year there were substantial upward revisions that resulted in more rate hikes.  Point being, this can change the inflation outlook (positively or negatively) and it has the potential to move markets.  Any downward revision to the 2023 CPI data should be positive for markets (yields lower/stocks higher) while any upward revisions should be negative (yields higher/stocks lower).

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Is NYCB the Canary in the Commercial Real Estate Coal Mine?

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What’s in Today’s Report:

  • Is NYCB the Canary in the Commercial Real Estate Coal Mine?
  • EIA Update and Oil Market Analysis

Futures are slightly lower following more disappointing Chinese economic data and on dimming hopes for an Israel/Hamas ceasefire.

Chinese CPI fell more than expected (-0.8% vs. (E –0.5%) and increased deflation concerns for that economy.

Geopolitically, Secretary of State Blinken returned from the Mid-East without a Israel/Hamas cease fire deal and oil is rallying as a result.

Today focus will be on Jobless Claims (E: 222K), which rose to a one-month high last week and if claims move closer towards 250k, it will get people’s attention as a hint the labor market is starting to soften (something that’s not priced into stocks).  We also have one Fed speaker, Barkin (8:30 a.m. and 11:30 a.m. ET), but he shouldn’t move markets.

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Updated Market Multiple Targets: S&P 500 Chart

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What’s in Today’s Report:

  • S&P 500 Market Multiple Targets Chart – February Update (Shareable PDF)

Stock futures are little changed amid a stable bond market as investors await another busy day of Fed commentary and another key Treasury auction.

Economically, German Industrial Production was better than feared at -3.1% vs. (E) -3.9% Y/Y in December, but the still negative headline is not helping ongoing concerns for a potential recession in Europe this year.

Looking into the U.S. session today, there are two economic reports on the calendar: International Trade in Goods and Services (E: -$62.2B) and Consumer Credit (E: $16.2B). Neither release should move markets but a meaningful rise in Consumer Credit could stoke concerns about a potential rise in delinquencies and weigh on stocks.

Beyond the data, we have another very busy day of Fed speak with Kugler (11:00 a.m. ET), Collins (11:30 a.m. ET), Barkin (12:00 p.m. ET), and Bowman (2:00 p.m. ET) all due to speak around mid-day. Markets have largely absorbed the hawkish shift in tone of the last week but if there is any more dovish-leaning chatter today, it could support a continued rally in equity markets and further stabilize bonds.

Finally, there is a 10-Yr Treasury Note auction at 1:00 p.m. ET and if demand is as strong as it was in yesterday’s 3-Yr Note auction, that could be another bullish catalyst for both stocks and bonds in the afternoon.

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Jobs Day (Updated Jobs Report Preview)

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What’s in Today’s Report:

  • Jobs Day (Updated Jobs Report Preview)

Futures are solidly higher ahead of today’s jobs report thanks to strong earnings overnight.

META (up 17% pre-market) and AMZN (up 7% pre-market) posted strong earnings while AAPL (down 2% pre-market) underwhelmed, but overall earnings results were good overnight and that’s pushing futures higher.

Today focus will be on the jobs report and expectations are as follows: 187K job adds, 3.8% Unemployment Rate, 0.3%/4.1% wage growth.  Powell pushing back on a March rate cut helped increase the threshold for a “Too Hot” report, so there’s a wider lane for a “Just Right” reading.  But, if job growth remains very strong (so solidly above 200k) and the other details are “Too Hot,” don’t be surprised if yields rise and stocks decline as some investors start to doubt a May rate cut.

Other notable events today include Consumer Sentiment (E: 78.8, 1-Yr inflation expectations: 2.9%) and the last “important” day of earnings, although neither of those should move markets.

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Was the Fed Decision Hawkish? No. Here’s Why.

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What’s in Today’s Report:

  • Was the Fed Decision Hawkish?  No.  Here’s Why.
  • Do We Need to Start to Worry About Banks Again?

Futures are bouncing modestly following Wednesday’s declines as investors digest the Fed decision and look ahead to important earnings after the close.

Economically, EU Core HICP (their CPI) rose 3.3% vs. (E) 3.2% and that’s slightly reducing rate cut expectations.

Today is another important day of economic data and arguably the most important day of earnings results for the Q4 reporting season.

The most important events today start with earnings as we get AMZN ($0.81), AAPL ($2.09) and META ($4.82) earnings after the close and obviously investors will want to see solid results.   Economically, the key reports today are the ISM Manufacturing PMI (E: 47.4), Jobless Claims (E: 214K) and Unit Labor Costs (E: 2.1%), and markets will be looking for in-line data to keep hard landing worries low.  Finally, we also get a Bank of England rate decision, but no change to rates is expected.

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Key Technical Levels to Watch on Fed Day

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What’s in Today’s Report:

  • Key Technical Levels to Watch on Fed Day (Shareable PDF Available)
  • Jobs Report Preview

Stock futures are in the red this morning after mega-cap tech earnings failed to meet overly optimistic estimates (but were not that bad, all things considered), Chinese Manufacturing PMI missed estimates, and French CPI was higher than expected.

On the earnings front, AMD (-11%), GOOGL (-6%), and MSFT (-1%) are all lower in the pre-market despite generally healthy quarterly reports with most earnings and revenue figures topping analysts estimates while some corporate guidance was not as strong as hoped.

Today is lining up to be a very busy day full of catalysts. Starting with the economic data, we get the first look at January labor market data with the ADP Employment Report (E: 130K) while Q4 Employment Cost Index (E: 1.0%) will offer a look at wage pressures from late 2023.

The Treasury will release the official Refunding Announcement details before the open (8:30 a.m. ET) before focus will turn to the Fed with the FOMC Decision (2:00 p.m. ET) and Powell’s press conference (2:30 p.m. ET) in the afternoon.

There are no “Mag7” earnings today, but a few notables to watch include: MA ($3.08), QCOM ($2.37), and MET ($1.95).

Bottom line, equities are on edge in pre-market trade this morning with all of today’s catalysts looming, but, if the Treasury Refunding Announcement supports the bond market (keeps a lid on yields) and the Fed doesn’t not offer a hawkish surprise, we should be able to see markets stabilize. Conversely, any disappointments or hawkish reactions will support further volatility into the back half of the week.

Computer chips

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