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What Number Would Make Core PCE Negative for Stocks?

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What Number Would Make Core PCE Negative for Stocks? Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • What Number Would Make Core PCE Negative for Stocks?
  • EIA and Oil Market Analysis

Futures are modestly lower as EU inflation data disappointed overnight while tech earnings underwhelmed.

Economically, French and Spanish CPIs showed on going disinflation but it was slower than expected (mirroring what we’ve seen recently in the U.S.).

On earnings, CRM and SNOW posted underwhelming earnings and that’s modestly weighting on tech shares.

Today focus will be on the Core PCE Price Index (E: 0.4% m/m, 2.8% y/y) as that’s the most important report of the week.  Risk/reward into this number is skewed slightly positive as inflation concerns are already elevated and partially priced in, so it should take a solidly hot number to weigh on markets, while just an “in-line” reading would be welcomed.

Other data notable data today includes Jobless Claims (E: 210K) and Pending Home Sales (E: 0.8%) and we have three Fed speakers, Bostic (10:50 a.m.), Goolsbee (11:00 a.m.) and Mester (1:15 p.m. ET) although barring a major surprise from those reports/speakers, they shouldn’t move markets.

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Why Didn’t Hot Inflation Data Cause a Bigger Drop?

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Why Didn’t Hot Inflation Data Cause a Bigger Drop? Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • Why Didn’t the Hot Inflation Data Cause a Bigger Drop?
  • Economic Takeaways – Are Stagflation Risks Rising?

Stock futures are lower to start the week as a rate cut by China’s central bank failed to bolster investors’ appetite for risk overseas while domestic focus shifts to NVDA earnings.

The PBOC slashed the 5-Yr Loan Prime Rate by a record 25 bp overnight (E: -5 bp) but the rate cut failed to ease lingering concerns about the health of the property market and markets are trading with a moderate risk-off tone this morning.

Looking into today’s session, there are two economic reports to watch: Leading Economic Indicators (E: -0.1%) which has been flashing a recession signal for months, and Canadian CPI (E: 0.4%) which could further stoke inflation worries if the number comes in hot.

There are no Fed officials scheduled to speak today, however the Treasury will hold 3-Month and 6-Month Bill auctions at 11:30 a.m. ET and a 52-Week Bill action at 1:00 p.m. ET. Based on the market’s increased sensitivity to rising bond yields in recent weeks, signs of weak demand in the auction could send yields to new highs which would act as a strengthening headwind on risk assets as we start the week.

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The Reason Stocks Dropped Was Because The CPI Report

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The Reason Stocks Dropped Was Because The CPI Report: Tom Essaye Quoted in Blockworks

Bitcoin breaks $52k, outperforms stocks to new 2024 high

After markets digested the CPI print in the US, inflation data from the United Kingdom came in lower than expected, showing prices are holding steadily at 4% higher year-over-year. The more positive inflationary data helped stock futures rise ahead of Wednesday’s open, Tom Essaye, founder of Sevens Report Research said.

It’s important to realize that while the hot CPI was the catalyst for yesterday’s stock and bond market declines, stocks didn’t decline because CPI implied inflation was bouncing back,” Essaye said. “Instead, the reason stocks dropped was because the CPI report was the first data point in 2024 to not confirm these fantastically positive assumptions that have driven this rally.”

Also, click here to view the full Blockwork article published on February 14th, 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.

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The Market Had Gotten Ahead Of Itself

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The Market Had Gotten Ahead Of Itself: Tom Essaye Quoted in Barron’s

Stocks Drop as Market Dials Back Fed Rate-Cut Expectations After CPI Data

Sevens Report Research’s Tom Essaye told Barron’s in a phone interview that while the report didn’t imply that inflation was bouncing back significantly, the market had gotten ahead of itself by pricing in inflation crashing to the Federal Reserve’s 2% target.

“I think this is more symptomatic of a market that’s frankly, gotten ahead of itself on what it expects to happen,” Essaye says. “And we’re having that expectation dialed back now.”

“It’s just one report, but I think it is a little bit of a reminder, and an important one, that what has really fueled this rally since October has been the assumption of Fed rate cuts and falling inflation,” Essaye says. “And while that likely will happen later this year, it may not happen as soon as they expected. And I think that’s what we’re seeing in markets.”

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

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.

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

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.

Was Yesterday the Start of a Pullback?

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Was Yesterday the Start of a Pullback? Start a free trial of The Sevens Report.

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 Could Interrupt This Rally? Start a free trial of The Sevens Report.

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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Commercial Real Estate Primer Part Two: Start a free trial of The Sevens Report.

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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Is NYCB the Canary in the Commercial Real Estate Coal Mine? Start a free trial of The Sevens Report.

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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