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Is the VIX Broken?

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What’s in Today’s Report:

  • Is the VIX Broken?

Futures are modestly higher following in-line inflation readings from China and more gridlock in Washington as markets look ahead to today’s inflation readings.

Chinese CPI met expectations rising 1.6% and that benign reading will keep stimulus coming in that economy.

Politically, Arizona Senator Sinema left the Democrat party and registered as an independent, although the move is unlikely to change her voting patterns.

Today focus will be on inflation data, specifically PPI (E: 0.2% m/m, 7.2% y/y) and the University of Michigan Five Year Inflation Expectations (E: 3.0%).  If those reports come in under expectations and further hint at dis-inflation, it will extend the early rally.

If Inflation Drops and Growth Slows, What Benefits?

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What’s in Today’s Report:

  • If Inflation Drops and Growth Slows, What Benefits? (Answer Inside)
  • Why the Manheim Used Vehicle Value Index Was Important yesterday
  • EIA and Oil Market Analysis

Futures are marginally higher on additional China reopening headlines, although China embarking on a re-opening process is now well known and mostly priced into stocks.

The South China Morning Post reported that Hong Kong will ease isolation rules for COVID-positive residents and travelers, in what is the latest step towards reopening.

Economic data was sparse overnight and the only notable report was Japanese GDP which slightly beat estimates (-0.2% vs. (E) -0.3%).

Today’s focus will be on weekly Jobless Claims (E: 228K) as markets need to see further deterioration in the labor market to move the Fed closer to an ultimate “pivot.”  Any move towards 250k in should be welcomed by markets.

Sevens Report Co-Editor Tyler Richey Quoted in S&P Global on December 7th, 2022

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Stock market’s ‘fear gauge’ plunges as investors shift hedging strategies

Still, the VIX has not behaved in its typical fashion for much of this year, said Tyler Richey, a co-editor at Sevens Report Research. Click here to read the full article.

Market Multiple Levels: S&P 500 Chart

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What’s in Today’s Report:

  • Market Multiple Levels – S&P 500 Chart
  • VIX Breaks Longstanding Downtrend in Cautious Signal

Futures are modestly lower as persistent concerns about hawkish Fed policy and fading global growth overshadow positive Covid policy news out of China and encouraging EU economic data.

Economically, German Industrial Production was better than feared at -0.1% vs. (E) -0.6% while  Q3 Eurozone GDP topped estimates at 2.3% vs. (E) 2.1% Y/Y suggesting the EU economy may be stabilizing.

China’s NHC issued new guidelines on Covid restrictions overnight that eased certain testing and quarantine requirements and will hold a press conference tomorrow which points to the potential for more progress in moving away from Covid-Zero.

Looking into today session, there is one economic report before the bell: Productivity & Costs (E: 0.4%, 3.3%) and then Consumer Credit (E: 27.3B) will be released in the afternoon. The latter report is not one we typically follow closely but there has been increasing concern about the health of household balance sheets, so a sharp move higher in outstanding credit could raise concerns about defaults in the coming quarters.

Finally, there are no Fed speakers today but stocks have been taking queues from rate markets and the dollar so if either meaningfully move higher, that will add pressure to the broader equity market today.

Less Bad Isn’t Good (Especially at the Valuations)

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What’s in Today’s Report:

  • Bottom Line:  Less Bad Isn’t Good (Especially at these Valuations)
  • Weekly Market Preview:  Can the S&P 500 Hold Recent Gains?
  • Weekly Economic Cheat Sheet:  More Signs of Dis-Inflation This Week?

Futures are moderately lower despite in-line economic data and more re-opening optimism from China, as markets further digest Friday’s jobs report.

Reuters reported that COVID may be downgraded to “Category B” in China which may result in new, less restrictive guidance from the government as early as this week.

Economic data largely met expectations as the Euro Zone Composite PMI, UK Composite PMI, and Euro Zone Retail Sales reports were all basically in line.

Today the calendar is mostly quiet but the focus will be on the ISM Services PMI (E: 53.5) and if the headline can remain firm (above 50) and prices can drop further, that’ll help support stocks.

Jobs Day

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What’s in Today’s Report:

  • Jobs Day
  • Signs of Slowing Growth and Inflation Are Growing
  • Technical Update

Futures little changed following a quiet night of news as investors further digest Wednesday’s big rally in stocks and Thursday’s big rally in bonds all while awaiting today’s jobs report.

Economically, the only notable number overnight was Euro Zone PPI which fell more than expected (-2.9% vs. (E) -2.0%), adding to this week’s list of indicators showing global dis-inflation.

Focus today will be on the jobs report and expectations are as follows:  Job Adds 200K, UR Rate 3.7%, Wages 0.3% m/m 4.6% y/y.  Due to the big rally in stocks and bonds on Wed/Thurs, a lot of the “benefit” from a “Just Right” number is likely priced in at these levels, so the risk going into the report today is for disappointment, especially if we get a job adds number in the mid to high 200k.

Away from the jobs report, we also get two Fed speakers: Barkin (9:15 a.m. ET) and Evans (10:15 a.m., 1:00 p.m. ET).

Was Powell’s Speech That Bullish? No. Here’s Why.

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What’s in Today’s Report:

  • Was Powell’s Speech That Bullish?  No.  Here’s Why
  • Jobs Report Preview
  • EIA Update and Oil Market Analysis

Futures are slightly lower as markets digest yesterday’s post-Powell speech rally and focus on key economic data today (manufacturing PMI) and tomorrow (jobs report).

Global economic data underwhelmed overnight, as the Euro Zone manufacturing PMI missed estimates (47.1 vs. (E) 47.3) while the UK manufacturing PMI remained firmly in contraction territory (46.5 vs. (E) 46.2).

Looking forward to today, there are three important economic reports including (in order of importance):  ISM Manufacturing Index (E: 49.9), Core PCE Price Index (E: 0.3% m/m, 5.0% y/y), and Jobless Claims (E: 235K).  Markets will want to see 1) More evidence of easing price pressures in the ISM Manufacturing PMI and Core PCE Price Index and 2) Further labor market deterioration in jobless claims if the data is to help extend yesterday’s rally.

We also get three Fed speakers today, Logan (9:25 a.m. ET), Bowman (9:30 a.m. ET), and Barr (3:00 p.m. ET), but their commentary should be largely overshadowed by Powell’s less hawkish-than-feared remarks yesterday and I don’t expect them to move markets.

Powell Speech Cheat Sheet

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What’s in Today’s Report:

  • Three Topics to Watch During Powell’s Speech Today
  • More Signs of Disinflation
  • Chart – Has the Dollar Bottomed?

Stock futures are cautiously higher as traders look ahead to Powell’s speech today while international markets were mixed following some key economic data overnight.

The Eurozone HICP Flash (their CPI equivalent) fell to 10.0% in November from 10.7% in October (E: 10.6%), offering fresh evidence that inflation may have finally peaked in Europe while China’s Composite PMI was worse than expected. The soft data in China however was shrugged off thanks to continued optimism about easing Covid restrictions by the government.

Today is lining up to be a busy day with markets focusing on economic data early with the ADP Employment Report (E: 200K), GDP (E: 2.7%), International Trade in Goods (E: -$90.6B), JOLTS (E: 10.4M), and Pending Home Sales (E: -5.0%) all due out this morning.

Additionally, there are two Fed speakers through midday: Bowman (8:50 a.m. ET) and Cook (12:35 p.m. ET) before focus will turn to Powell’s speech in the early afternoon (1:30 p.m. ET) which will be the primary potential market catalyst today.

Current Fed Expectations

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What’s in Today’s Report:

  • Current Fed Expectations (Print This Table/Section)
  • VIX Chart – Getting Closer to a Bearish Signal

Stock futures are rebounding modestly this morning following yesterday’s sharp drop as worries surrounding China’s Covid policies and the subsequent protests ease.

The Hang Seng jumped over 5% and the offshore yuan rallied 1% after the Chinese government announced a renewed push to vaccinate elderly citizens and said excessive restrictions will be avoided, both of which are incremental steps away from “Covid Zero.”

Today, market focus will be on housing data early with the Case-Shiller Home Price Index (E: -1.3%) and FHFA House Price Index (E: -1.2) due out ahead of the bell and then the Consumer Confidence (E: 100.0) report will print shortly after the open.

There are no Fed officials scheduled to speak today so focus will likely remain on the situation in China, and if sentiment towards Covid policy expectations and the latest wide-spread protests improves then stocks will be able to stabilize as that was a major bearish influence on the market yesterday.

Tom Essaye Quoted in Forbes on November 17th, 2022

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Major Retailers Are Bracing For A Disappointing Holiday Season Due To Inflation

“There’s frankly little doubt that consumers are already 1) Reining in spending and 2) Becoming more value conscious,” Sevens Report analyst Tom Essaye wrote in a Thursday note. Click here to read the full article.