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What the Good CPI and Mixed Fed Message Means for Markets

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What the Good CPI and Mixed Fed Message Means for Markets: Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • What Yesterday’s Good CPI and Mixed Fed Messaging Means for Markets

Futures are little changed despite more positive tech earnings as markets digest Wednesday’s CPI driven rally.

Broadcom (AVGO) became the latest AI-linked tech company (after AAPL and ORCL) to post strong earnings as the stock is up 14% pre-market.

Economically, it was a mostly quiet night as EU Industrial Production slightly missed estimates (-0.1% vs. (E) 0.1%) but that isn’t moving markets.

Today focus will remain on economic data and the two notable reports are Jobless Claims (222k) and PPI (E: 0.1% m/m, 2.5% y/y).  Of the two, PPI is more important and if it is lower than expected that’ll strengthen the belief in disinflation and increase September rate cut expectations, and stocks should extend yesterday’s rally.

Additionally, we do get one Fed speaker today, Williams at 12:00 p.m. ET, and he is part of leadership so his commentary on rate cuts could move markets.

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FOMC Preview (All About the Dots)

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FOMC Preview (All About the Dots): Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • FOMC Preview (All About the Dots)

Futures are slightly higher following more solid tech earnings and despite some stagflationary economic data.

ORCL earnings beat estimates and the stock is up 9% pre-market, helping to support stock futures.

Economically, Chinese inflation ran slightly hot while UK Industrial Production badly missed estimates.

Today brings the two key events of the week via CPI and the Fed Decision.  For CPI, estimates are:  E: 0.1% m/m, 3.4% y/y, Core CPI (0.3% m/m, 3.5% y/y).  The key here is that core CPI is flat or declines from last month.  If we see a bounce back above 3.6% that will likely be a material surprise negative.

For the Fed, there is no change expected to rates and focus at 2:00 will be on the dots (and how much they changed since March).  Anything from the Fed (dots or Powell commentary) that makes a September rate cut more likely will help stocks, while anything that makes it less likely will be a headwind.

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CPI Preview: Good, Bad & Ugly

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

What’s in Today’s Report:

  • CPI Preview:  Good, Bad & Ugly

Futures are modestly lower again following a quiet night of news as investors focus on tomorrow’s CPI report and Fed rate decision.

Economically, the UK Labour Market Report showed higher than expected average earnings (5.9% vs. (E) 5.7%) and that’s pushing back slightly on expectations for a rate cut this summer.

European bond yields remained elevated as polling suggests France’s far-right party should win the election.

Today should be another mostly quiet day as investors await the two potentially major catalysts on Wednesday, although we do get one notable economic report today via the NFIB Small Business Optimism Index (E: 89.7).  However, it’d have to be substantially lower or higher than estimates to move markets.

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Jobs Day Technical Preview & Wildcards to Watch

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Jobs Day Technical Preview & Wildcards to Watch: Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • Jobs Report Technical Preview – S&P 500, 10Y, Gold, VIX (Shareable PDF)
  • Two “Wildcard Scenarios” to Watch for Today
  • Initial Jobless Claims Show Signs of Bottoming: Chart

Futures are flat while international markets were mostly lower overnight as traders await the widely anticipated May jobs report to gauge the outlook for Fed policy.

Economically, Eurozone GDP met estimates in Q1 at 0.4% y/y, however wage growth accelerated to 5.1% y/y in Q1 vs. 4.9% in Q4 after the ECB lowered inflation forecasts yesterday. The “warming” wage inflation data raises concerns the ECB moved to cut rates too early.

Today, focus will be on the May BLS Employment Situation release at 8:30 a.m. ET with an estimated +188K Job Adds, 3.9% Unemployment Rate, and 3.9% Wage Growth. The market needs to see an inline number preferably with a modest downside surprise on wages in order for dovish money flows and soft-landing hopes to continue to drive stocks to new records.

There is also one Fed speaker mid-day today: Cook (12:00 p.m. ET) and Consumer Credit (E: $10.4B) will be released late in the day but neither should more markets with markets digesting the jobs report.

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Recent data have traders worried that the economy is slowing

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Recent data have traders worried that the economy is slowing: Sevens Report Editor, Tom Essaye, Quoted in Barron’s

Stocks Are Slipping. The Market Can’t Find Middle Ground.

Recent data have traders worried that the economy is slowing more than people think, Sevens Report Research’s Tom Essaye tells Barron’s. He notes that if the economy slows too much, the question becomes whether rate cuts in September and December would be enough to turn things around.

“The market can’t ever find the middle,” Essaye says.

He says that sentiment has bounced back and forth between worries about hot inflation to worries that the Federal Reserve won’t be able to navigate a slowing economy. Essaye thinks the pullback in stocks can be chalked up to already-high valuations.

“It’s not that things have suddenly turned bad,” says Essaye. “It’s that we’re priced for a very still-perfect environment, and the data is implying it’s maybe not so perfect.”

Also, click here to view the full Barron’s article published on June 5th, 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 RallyIf you want research that comes with no long term commitment, yet provides independent, value added, plain English analysis of complex macro topics, then begin your Sevens Report subscription today by clicking here.

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The data is starting to show a potential soft landing

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The data is starting to show a potential soft landing: Sevens Report Editor, Tom Essaye, Quoted in Barron’s

Only Two S&P 500 Sectors Are Rising

Sevens Report Research’s Tom Essaye told Barron’s the data is starting to show a potential soft landing, though where it goes from here is anyone’s guess.

“A soft landing was always a slowing of growth that sort of didn’t get too bad,” Essaye says. “So it appears we are kind of arriving at that point. Now, the issue is that every hard landing started with a soft landing. You don’t just jump from growth to contraction.”

Also, click here to view the full Barron’s article published on June 5th, 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 RallyIf you want research that comes with no long term commitment, yet provides independent, value added, plain English analysis of complex macro topics, then begin your Sevens Report subscription today by clicking here.

To strengthen your market knowledge take a free trial of The Sevens Report.

Join hundreds of advisors from huge brokerage firms like Morgan Stanley, Merrill Lynch, Wells Fargo Advisors, Raymond James, and more! To start your quarterly subscription and see how The Sevens Report can help you grow your business, click here.

A bearish-leaning reality that OPEC+

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A  bearish-leaning reality that OPEC+: Sevens Report co-editor Tyler Richey Quoted in MarketWatch

Oil futures settle at lowest since early February

The market’s bullish hopes for some degree of commitment to ‘price stability’ via the potential for further production cuts were dashed, and instead met with a bearish-leaning reality that OPEC+ does not seem willing to cut production any further than they already have despite ongoing recession risks that would cripple demand,” said Tyler Richey, co-editor at Sevens Report Research.

Also, click here to view the full MarketWatch article published on June 3rd, 2024. However, to see the Sevens Report’s full comments on the current market environment sign up here.

If you want research that comes with no long term commitment, yet provides independent, value added, plain English analysis of complex macro topics, then begin your Sevens Report subscription today by clicking here.

To strengthen your market knowledge take a free trial of The Sevens Report.

Join hundreds of advisors from huge brokerage firms like Morgan Stanley, Merrill Lynch, Wells Fargo Advisors, Raymond James, and more! To start your quarterly subscription and see how The Sevens Report can help you grow your business, click here.

Jobs Report Preview (Too Hot, Too Cold, and Just Right)

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Jobs Report Preview (Too Hot, Too Cold, and Just Right): Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • Jobs Report Preview: Too Hot, Too Cold, and Just Right Scenarios
  • ISM Services Index Takeaways – A “Warm” Report
  • EIA Data Takeaways and Oil Update

Equity markets are mixed in the pre-market as tech-heavy Nasdaq 100 futures are extending gains to new record highs while small-cap Russell 2000 futures are lower ahead of the ECB decision and more U.S. economic data. NVDA notably rose as much as 2% overnight.

Economically, Taiwan’s May CPI rose from 1.95% to 2.24% while German Manufacturing Orders were down -0.2% vs. (E) +0.5% and EU Retail Sales fell -0.5% vs. (E) -0.2%. The market is “ok” with the soft European data ahead of the widely anticipated ECB rate cut this morning.

Looking into today’s session, trader focus will be on the ECB Decision early (8:15 a.m. ET) and as mentioned, rate cuts to benchmark interest rates are expected which will leave commentary from Lagarde and any forward guidance provided critical to the market’s reaction.

In the U.S., there are no Fed speakers or notable Treasury auctions today so focus will shift to the several U.S. economic reports due to be released including: Jobless Claims (E: 216K), International Trade (E: -$75.2B), and potentially most importantly, Productivity & Costs (E: 0.2%, 4.7%).

Bottom line, any “cold” or stagflationary data has the potential to put this week’s rally on pause ahead of tomorrow’s all important jobs report.

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A Concerning Divergence in Bond Markets

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A Concerning Divergence in Bond Markets: Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • What Is the Smart Market Telling Us? (Part II)
  • JOLTS Data Takeaways – Normalizing or Rolling Over?
  • Chart: JOLTS Fall Below Pre-Pandemic Trend Path

Futures are tracking European markets higher this morning on the back of “goldilocks” growth and inflation data overnight ahead of more key domestic economic data today.

Economically, China’s May Composite PMI handily beat estimates at 54.1 vs. (E) 52.7 which was a welcomed print as Chinese data has been underwhelming recently.

In Europe, the Eurozone Composite PMI rose to 52.2 vs. (E) 52.3 while April PPI fell -1.0% m/m vs. (E) -0.5%. Stabilizing growth numbers and evidence of further disinflation are exactly what the ECB want to see ahead of their first rate cut as it helps shore up the soft-landing argument.

Looking into today’s session, there are no Fed officials scheduled to speak but two important economic reports on the calendar. First, the May ADP Employment Report (E: 173K) will be released pre-market and second, the ISM Services Index (E: 50.7) is due out a half hour after the opening bell.

Investors will want to see a labor market print that is close to estimates. A number too strong will push back on the recent dovish money flows while a weak number will add to recession worries. With the ISM, a steady number above 50 with cooling price indices would be the best case scenario for risk assets leading into the jobs report Friday.

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Growing Economic Concerns

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Growing Economic Concerns: Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • Why I am Getting More Concerned About an Economic Slowdown
  • Weekly Economic Preview – A Critical Week of Data

Futures are higher on momentum from Friday’s late-day rally while news wires were mostly quiet this weekend.

Economically, the Eurozone Manufacturing PMI rose from 45.7 to 47.3 vs. (E) 47.4 in May while the UK’s Manufacturing PMI headline rose from 49.1 to 51.2 vs. (E) 51.3. The as-expected data is having a limited impact on markets, leaving stocks to extend Friday’s rally.

Today, focus will be on the ISM Manufacturing Index (E: 49.8) early with a report on Construction Spending (E: 0.2%) also due out after the open. There are no Fed officials scheduled to speak today which leaves the ISM data the key catalysts of the session. A report that is “too hot” or “too cold” could see volatility pick up while a “Goldilocks” number would likely allow Friday’s relief rally to continue.

Finally, the Treasury will hold 3-Month and 6-Month Bill auctions at 11:30 a.m. ET, and while these auctions don’t typically move markets, we are within 6-months of the first expected rate cuts from the Fed so any surprises could impact yields and in-turn move equities.

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