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Powell’s Testimony Takeaways

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What’s in Today’s Report:

  • Powell’s Testimony Takeaways
  • NFIB Small Business Survey Signals Cautious Outlook

Markets are trading with a risk-on tone this morning as U.S. equity futures track global shares higher after Powell’s testimony helped stabilize bond markets yesterday while investors look ahead to today’s CPI report.

Chinese inflation data was cooler than feared o/n with CPI dipping to 1.5% vs. (E) 1.8% and PPI falling to 10.3% vs. (E) 11.3% Y/Y which is helping ease inflation concerns today.

Looking into today’s session, the December CPI report (E: 0.4%, 7.1%) will be the main focus of markets early with the annual figures expected to hit a fresh multi-decade high. But as long as the headline and core figures are not materially “hotter” than feared, this week’s relief rally, led by tech shares, should be able to continue amid further stabilization in bond markets.

Outside of the early inflation data, there is one Fed speaker to watch: Kashkari (1:00 p.m. ET) as well as a 10-Year Treasury Note auction at 1:00 p.m. ET. And as long as Kashkari does not contradict any of Powell’s comments from yesterday regarding the balance sheet runoff coming “later in the year,” and the auction doesn’t spark a new move higher in yields, then risk-on money flows should be able to continue.

How Should We React to Fed Hawkishness?

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What’s in Today’s Report:

  • How Should We React to Fed Hawkishness?
  • Weekly Market Preview:  All About the Fed (Powell testifies Tuesday, Brainard testifies on Thursday).
  • Weekly Economic Cheat Sheet:  All About Inflation (CPI Wednesday is the Key Report).

Futures are slightly lower following a generally quiet weekend as investors digest last week’s hawkish surprises ahead of Powell’s testimony tomorrow and CPI on Wednesday.

Economically, the only notable number was Eurozone Unemployment, which met expectations at 7.2%.

Chances of Build Back Better passing fell further over the weekend as according to the Washington Post, Manchin remains against the current framework for the plan.

Today there are no economic reports and just one Fed speaker, Bostic (12:00 p.m. ET), so we’d not be surprised to see markets churn ahead the three major catalysts coming later this week:  Powell’s testimony on Tuesday, Wednesday’s CPI Report, and Brainard’s testimony on Thursday.  Those three events will determine whether stocks rally of decline this week and any additional hawkish surprises will pressure stocks.

 

Tom Essaye Interviewed on TD Ameritrade Network The Watch List on January 5, 2022

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Breaking Down The FOMC December Minutes

The Fed is already actively discussing shrinking the balance sheet showing they are serious about being hawkish, and stocks dropped…says Tom Essaye of The Sevens Report. Click here to watch the full interview.

 

Market Multiple Chart

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What’s in Today’s Report:

  • Market Multiple Chart

Futures are slightly higher following mixed economic data as markets look ahead to today’s jobs report.

Markets are looking for any signs inflation has peaked but that was not the case in Europe today as EU HICP  (their CPI) rose 5.0% vs. (E) 4.8%.  Economic growth was also solid (EU Retail Sales beat estimates) so the high inflation number isn’t hitting stocks ahead of the jobs report.

Today focus will be on the Employment Situation Report and estimates are:  Job Adds 400K, UE Rate 4.1%, Wages 0.3% m/m & 4.1% y/y.  Markets will be especially sensitive to a “Too Hot” number as that will further stoke fears of a more hawkish Fed and a “Too Hot” report will hit stocks.  There are also three Fed speakers today, Daly (10:00 a.m. ET), Bostic (12:15 p.m. ET) and Barkin (12:30 p.m. ET) and while they aren’t Fed leadership, if they are “hawkish” and talk about March rate hikes or balance sheet reduction, that will be a headwind on stocks.

 

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Will Politics Force a Fed Policy Error?

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What’s in Today’s Report:

  • Will Politics Force a Fed Policy Error?
  • PPI Takeaways: Inflation Still Rising

U.S. equity futures are flat and global markets were mixed overnight as investors digest another hotter-than-expected inflation print and soft growth data ahead of the Fed.

U.K. CPI rose 5.1% vs. (E) 4.7% in November while Chinese growth data missed expectations across the board, rekindling stagflation fears ahead of the slew of central bank meetings in the back half of the week.

There are multiple economic reports due out this morning including: Retail Sales (E: 0.8%), Empire State Manufacturing Index (E: 25.5), Import & Export Prices (E: 0.7%, 0.7%) and the Housing Market Index (E: 84). But once again, unless there are any material surprises, the market impact should be limited ahead of the Fed this afternoon.

The FOMC Announcement will hit at 2:00 p.m. ET and Fed Chair Powell’s Press Conference begins at 2:30 p.m. ET. Bottom line, the biggest risk to equities remains a more hawkish shift in tone with a faster than anticipated acceleration in tapering of QE and any hints at more than two rate hikes next year.

Two Key Inflation Reports Today

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What’s in Today’s Report:

  • Future Headwinds on Gold?

Futures are modestly higher following a generally quiet night as markets await the latest readings on inflation via today’s CPI and inflation expectations index in Consumer sentiment.

Economic data slightly underwhelmed as UK Industrial Production (1.3% vs. (E) 1.4%) and UK GDP (0.9% vs. (E) 1.0%) both missed expectations.

There were no notable Omicron updates overnight.

Today the focus will be on inflations via the  Consumer Price Index (E: 0.7% m/m, 6.8% y/y) and the inflation expectations index in the Consumer Sentiment report (E: 67.0).  Markets are already expecting the Fed to materially accelerate the pace of tapering of QE next week, but if these inflation readings come in much hotter than expected, that likely will be a headwind on stocks as it will only encourage the Fed to get even more aggressive in tapering QE.

Market Multiple Table: December Update

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What’s in Today’s Report:

  • Market Multiple Update: December Update
  • A Surge in Unit Labor Costs Rekindle Inflation Worries

Equity futures are little changed this morning as investors digest the sizeable rally so far this week with concerns about the Chinese property market offsetting more progress by Congress towards raising the debt ceiling.

Kaisa Group, a large Chinese developer, had its shares halted overnight pending a corporate announcement after a debt deadline passed which has rekindled fears about China’s property market.

Today, there is just one economic report to watch: JOLTS (E 10.4M), but it is a lagging report from October so unlikely to move markets and there are no Fed officials scheduled to speak.

In the afternoon, there is a 10-Year Treasury Note auction (1:00 p.m. ET) that could move bonds and subsequently stocks, however, given the quiet calendar today, it would not be surprising to see the markets digest some of this week’s outsized gains now that the S&P 500 is back within reach of all-time highs.

Why the Fed is Causing the Pullback (Not Omicron)

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What’s in Today’s Report:

  • Why the Fed is Causing the Pullback (Not Omicron)
  • Weekly Economic Cheat Sheet:  All About Inflation (Key Reports Friday)
  • Weekly Market Preview:  Can tech stabilize?

Futures slightly higher following generally positive comments on Omicron over the weekend.

There were multiple articles and commentary from public health officials suggesting the Omicron variant is more contagious but produces mild symptoms. Also, existing vaccines appear to give protection against severe illness, although markets are waiting for official word from both PFE and MRNA.

Economic data was mixed as German Manufacturers Orders fell –6.9% vs. (E) -0.5% while the UK Construction PMI rose to 55.5 vs. (E) 52.0 but the numbers aren’t moving markets.

Today there are no economic reports and no Fed speakers.  Like Friday, how the Nasdaq trades will likely determine the day, as markets want to see the tech sector stabilize after intense weakness late last week.  If Nasdaq can stabilize, the broad market can bounce.

What Powell’s Renomination Means for Markets

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What’s in Today’s Report:

  • What Powell’s Renomination Means for Markets
  • Gold Update: Cooling Inflation Outlook Favors the Bears

U.S. stock futures are trading lower with most overseas equity markets as elevated bond yields continue to weigh on big-cap tech names.

Economically, Composite PMI data in Europe was better than expected with the Eurozone figure hitting 55.8 vs. (E) 53.1 for November however the upbeat data is further supporting bond yields which are weighing on equities.

Looking into today’s session, there is one domestic economic report to watch: PMI Composite Flash (E: 57.8) and if it is as strong as the releases in Europe, that could support a further rise in yields which will keep pressure on equity markets.

There are no Fed officials scheduled to speak today but the Treasury will hold a 7-Yr Note auction at 1:00 p.m. ET that could serve as another catalyst for higher yields. And again, that is a potential negative for stocks as big-cap tech names will almost certainly extend yesterday’s late-day declines if yields continue this week’s rise.

Why Last Week Was More Positive for Stocks Than It Seems

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What’s in Today’s Report:

  • Why Last Week Was More Positive for Markets Than It Seems
  • Weekly Market Preview:  Will COVID Concerns Recede?
  • Weekly Economic Cheat Sheet:  Key Inflation Report on Wednesday

Futures are moderately higher on Powell optimism and as there were no incremental COVID restrictions in Europe.

President Biden was reportedly highly complimentary of Powell in meetings this weekend, leading markets to fully expect he will be reappointed as Fed Chair this week.

There were no new COVID restrictions announced in Europe over the weekend, providing some hope lockdowns won’t be extensive.

There were no notable economic reports overnight.

Today there are no Fed speakers and just one economic report, Existing Home Sales (E: 6.20 M), and that won’t move markets.  So, any news on Powell’s reappointment as Fed Chair and incremental COVID headlines will move markets today (if Powell is reappointed and COVID headlines don’t get worse, stocks can extend the rally).