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The Yield Curve Is Hitting Resistance

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What’s in Today’s Report:

  • 10s-2s Into Resistance (Chart)
  • U.S. Consumer Price Index Takeaways
  • Chart – WTI Crude Oil Hits Technical Resistance

Stock futures are attempting to stabilize this morning while global shares were mixed overnight as traders assess the latest economic data ahead of today’s unofficial start to Q1 earnings season and another important U.S. inflation print.

Economic data was negative and again pointed to stagflation overnight as Japanese Machine Orders plunged -9.8% vs. (E) -1.5% while U.K. CPI jumped to 7.0% vs. (E) 6.7%.

Today is lining up to be a very busy session from a news flow and catalyst standpoint as we kick off Q1 earnings season with reports from: JPM ($2.73), BLK ($8.92), and DAL (-$1.33) ahead of the bell. Investors will be looking for solid results to confirm the strength and resilience of corporate America.

Then we will get the March PPI report at 8:30 a.m. ET (E: 1.1%, 10.6%), but as long as the headlines are not materially hotter than expected, and the “core figures” are in line with estimates, stocks could mount a relief rally as the market has become near-term oversold.

 

In the afternoon, there is one Fed speaker: Barkin (12:30 p.m. ET) as well as a 30-Yr Treasury Bond auction at 1:00 p.m. ET. And if bond yields hold below the highs from earlier this week, that should be an additional tailwind for stocks today, especially the beaten-down tech sector.

Why Have Stocks Dropped?

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What’s in Today’s Report:

  • Why Have Stocks Dropped?
  • A Story From the Past to Explain My Caution on the Future Economy
  • Chart: 10-Year Yield Approaches Key Downtrend Line

Futures declined overnight as the 10-year topped 2.80% with a focus on today’s CPI report but yields have since pulled back and futures are trading effectively unchanged.

Economically, the Japanese PPI was hot (9.5% vs. E: 9.3%) and the U.S. NFIB Small Business Optimism Index missed estimates (93.2 vs. E: 95.0), neither of which are helping trader sentiment today.

Geopolitically, Russia was accused of using chemical weapons in Ukraine, which would be a significant escalation if true, but that information has not been substantiated yet.

Looking into today’s session, focus will be on economic data early with CPI (E: 1.1%) due out ahead of the bell. If the core number comes in below estimates, that could offer the market some relief and spark a reversal higher.

Then attention will turn to the Fed as Brainard speaks over the lunch hour (12:10 p.m. ET) and Barkin is scheduled to speak after the close (5:30 p.m. ET). Brainard’s comments will be closely watched as her hawkishness last week caused rates to surge higher and stocks to selloff.

Finally, there is a 10-Yr Treasury Note auction at 1:00 p.m. ET which will offer some fresh insight to demand for Treasuries amid the latest surge in yields. And if the auction is solid, that could also help yields pullback and stocks rebound.

Will Inflation Start to Peak This Week?

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What’s in Today’s Report:

  • Updated Market Outlook
  • Weekly Market Preview:  Will Inflation Start to Peak?
  • Weekly Economic Cheat Sheet:  Key Inflation Data This Week

Futures are modestly lower as Chinese inflation stayed high while the Russia/Ukraine war may be intensifying.

Chinese PPI rose 8.3% vs. (E) 8.1% while CPI gained 1.5% vs. (E) 1.4%, underscoring that inflation has not yet peaked in China.

Geo-politically, Russia is poised for a large assault on eastern Ukraine and analysts are anticipating some of the more intense fighting of the war.

Today there are no economic reports but there are several Fed speakers including Bostic (9:30 a.m. ET), Williams (12:00 p.m. ET) and Evans (12:40 p.m. ET) and we expect them to continue the trend of guiding markets towards a 50 bps hike in May and endorsing the idea of 250 basis points of tightening by year-end (but that shouldn’t move markets as that is already well known).

Are Stock and Bond Markets Starting to Forecast an Economic Slowdown?

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What’s in Today’s Report:

  • Are the Stock and Bond Markets Starting to Forecast An Economic Slowdown?

Futures are slightly higher mostly on momentum from Thursday’s close, following a quiet night of news.

The global trend in central banks turning more hawkish continued overnight as the Reserve Bank of India left rates unchanged (as expected) but warned that inflation was too high.

Geopolitically, a Kremlin spokesman said that Russia hoped to end its “operation” in Ukraine in the coming days or weeks, although analysts are skeptical of the promise.

Today there are no notable economic reports nor any Fed speakers, so between the sparse calendar and the Masters, I’d expect a relatively slow day.  That said, if we get any geo-political headlines from Russia that imply a sooner than expected cease-fire, then stocks can extend Thursday’s rally.

General Technical Take for Equities

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What’s in Today’s Report:

  • What the FOMC Minute Mean for Markets (Hawkish)
  • General Technical Take for Equities
  • EIA Analysis and Oil Market Update

Futures are bouncing slightly following a quiet night as markets digest the declines of the past two days.

Economic data was mixed overnight as German Industrial Production missed estimates while Euro Zone Retail Sales beat expectations, but neither number is moving markets.

Geopolitically there was no new news on Russia/Ukraine as the conflict continues with little signs of any progress towards a cease fire.

Today we get one notable economic report, Jobless Claims (E: 202K) but three Fed speakers:  Bullard (9:00 a.m. ET), Evans (2:00 p.m. ET) and Williams (4:05 p.m.).  We expect each of them to further hammer the point that rates are rising by 50 bps in May, with balance sheet reduction beginning in the same month.  But, as long as they don’t say anything “hawkishly new” then stocks should be able to look past the commentary.

Market Multiple Table: April Update

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What’s in Today’s Report:

  • Market Multiple Table: April Update

Futures are modestly lower with European markets while oil rallies and global bond yields move higher amid simmering geopolitical tensions and lingering inflation fears.

Economically, Final Composite PMI data was mostly better than expected in Europe overnight but price measures continued to rise, suggesting inflation has still not peaked.

Today, we will get two economic reports starting with International Trade (E: -$88.8B), but the ISM Services Index (E: 58.5) will be the more important release to watch shortly after the opening bell as a continued rise in the price measures could further stoke inflation/stagflation fears.

Additionally, there are multiple Fed speakers today: Kashkari (10:00 a.m. ET), Brainard (11:05 a.m. ET), Daly (12:30 p.m. ET), and Williams (2:00 p.m. ET). And if their tone is more hawkish than current market expectations, that could send yields to new highs and pressure high growth tech names which would drag the broad market lower.

Tom Essaye Quoted in CNBC on March 31, 2022

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Dow drops to snap four-day winning streak, Nasdaq falls more than 1%

Above 4,600 in the S&P 500, markets have now traded through most fundamental bounds of valuation, and for this rally to continue, we’ll need to see real, actual positive events (not just events that aren’t as bad as feared)…Tom Essaye of The Sevens Report said in a note to clients Wednesday. Click here to read the full article.

Tom Essaye Quoted in Forbes on April 1, 2022

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This Recession Indicator Is Flashing Warning Signs As Fed, War And Oil Threaten Economic Recovery

Instead, it’s a signal that the bull market’s time is now limited… said market analyst Tom Essaye of the Sevens Report. Click here to read the full article.

Updated Jobs Report Preview

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What’s in Today’s Report:

  • Jobs Report Preview (Slightly Updated)

Futures are modestly higher ahead of today’s jobs report as markets bounce back from Thursday’s late-day selloff.

Markets dropped into the close yesterday but that was driven by quarter-end re-positioning and rebalancing, not be any news, so it’s being partially unwound this morning.

Economic data underwhelmed as the EU and UK March Manufacturing PMIs both slightly missed estimates.

Today’s focus will be on the Jobs Report and expectations are as follows: Job Adds:  490K, UE Rate:  3.7%, Wages: 0.4% m/m, 5.5% y/y).  The estimates for the jobs report have crept higher the past two days so we slightly revised our “Too Hot” and “Just Right” ranges for today’s jobs report, and they are included inside today’s Sevens Report.

Outside of the jobs report, we also get the ISM Manufacturing PMI (E: 58.6), and markets will want to see stability in the data above all else (so no big miss vs. expectations).  We also get one Fed speaker, Evans at 9:05 a.m. ET, but he shouldn’t move markets.

For Sevens Report Quarterly Letter subscribers, the Q1 ’22 Quarterly Letter and compliance back up will be delivered via email around mid-day today.  If you are not a subscriber and are interested in the letter, please click this link to learn more.

Finally, today is April Fools Day, so be extra wary of any preposterous declarations from your family, friends, or colleagues.

Would a Ceasefire Be a Bullish Catalyst?

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What’s in Today’s Report:

  • Is a Ceasefire in Ukraine a Bullish Catalyst?
  • Oil Chart: Trend Remains Higher

Stock futures are lower with EU shares amid negative economic forecasts, a deteriorating state of Russia-Ukraine negotiations, and growing concerns about the yield curve.

Geopolitically, the Kremlin stated that the latest talks have not been “promising” and much work still needs to be done which is weighing on risk assets and bolstering oil prices this morning.

Economically, Germany cut its GDP growth forecast to just 1.8% in 2022 from 4.6% previously and an EU economic sentiment survey missed estimates.

Looking into today’s session, focus will be on jobs and growth data early with the ADP Employment Report (E: 438K) and Final Q4 GDP report (E: 7.1%) due out before the bell.

Additionally, there are two Fed speakers: Barkin (9:15 a.m. ET) and George (1:00 p.m. ET) but based on this morning’s price action, geopolitics remain the most notable influence on markets, and sentiment towards the war in Ukraine will likely be the biggest driver of markets again today.