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The Three Assumptions Supporting Stocks

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What’s in Today’s Report:

  • The Three Assumptions Supporting Stocks
  • Weekly Economic Cheat Sheet (All About Inflation and Growth This)
  • Weekly Market Preview:  Can Stocks Continue to Ignore Rising Bond Yields?

Futures are little changed following a mostly quiet weekend of news as markets look ahead to tomorrow’s CPI report.

The only notable economic report overnight was better than expected growth and inflation updates from the European Commission, who now sees EU growth rising 0.9% this year (up from 0.3%) and inflation at 5.6% (down from the previous 6.1%).  These revised estimates are helping to bolster the “No Landing” economic scenario.

Markets should mostly be in a holding pattern today as the CPI report looms tomorrow morning, but there are two notable events on the calendar to watch:  New York Fed Inflation Expectations (One Year: 5.0%, Five-Year: 2.4%) and one Fed speaker:  Bowman (8:00 a.m. ET).  If inflation expectations are higher than before or Bowman is hawkish, that could mildly pressure stocks.

Two Reasons Rising Bond Yields Haven’t Caused a Pullback (Yet)

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What’s in Today’s Report:

  • Two Reasons Rising Bond Yields Haven’t Caused a Pullback (Yet)
  • Natural Gas Update

Futures are modestly weaker following a rally in oil prices and a continued rise in bond yields overnight.

Oil rallied 2% after Russia announced it was voluntarily reducing output by 500k bpd while OPEC+ did not signal any intention to increase output to offset the reduction.

Global bond yields moved higher after Nikkei reported Kazuo Ueda will become the next BOJ governor, and not the ultra-dove Masayoshi Amamiya (who was expected).

Today focus will remain on the data and specifically University of Michigan Consumer Sentiment (E: 65.0) and the inflation expectations in the report (any further decline will be positive for stocks).  We also get two Fed speakers: Waller (12:30 p.m. ET) and Harker (4:00 p.m. ET) and markets will want to see if they echo the hawkish tone from regional Fed presidents this week.

Has the Fed Reached Peak Hawkishness?

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What’s in Today’s Report:

  • Has the Fed Reached Peak Hawkishness?
  • Weekly Market Preview:  Will Powell Sound Hawkish on Tuesday?
  • Weekly Economic Cheat Sheet:  Key inflation data Tuesday and Friday.

Futures are moderately lower mostly on follow-through selling from Friday’s hot jobs report.

The Chinese spy balloon drama dominated weekend headlines but it’s unlikely to materially alter U.S./China relations and as such shouldn’t be an influence on markets.

Rate expectations rose over the weekend following Friday’s jobs report, with markets now pricing in a terminal Fed Funds rate of 4.75% and that’s the main reason stocks are lower this morning.

Today there are no notable economic reports and no Fed speakers, so the focus will remain on yields and rate expectations and if they continue to climb, that will weigh on stocks.

Jobs Report Preview

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What’s in Today’s Report:

  • Jobs Report Preview

Futures are moderately lower following a disappointing night of tech earnings and more hot inflation data.

AAPL, AMZN, and GOOGL all reported earnings overnight and the results underwhelmed.  Each stock is down between 2% and 5% pre-market.

Economically, EU PPI rose 1.1% vs. (E) -0.7% and became the third inflation number this week to hint at a rebound.

Focus today will be on the Employment Situation Report and expectations are as follows: Job Adds 185K, UE Rate 3.6%, Wages 0.3% m/m, 4.5% y/y).  Financial media focus will be on the headline job adds number but thanks to Powell’s less hawkish speech it’ll take a big number (300k or more) to be “Too Hot.”  Instead, focus on wages as they are directly related to services inflation, which remains sticky.  If wages are strong, that’ll be a negative.  The other notable economic report today is the ISM Services Index (E: 49.6) and markets will want to see stability in the data (no not worse than expectations).

Tom Essaye Quoted in Forbes on January 30th, 2023

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Natural Gas Prices Crashing Amid Warmest January In 15 Years—Here’s How Bad Bear Market Could Get

“Warmer-than-average temperatures across much of the country is suppressing heating demand, domestic production remains at record highs, and inventories are seasonably healthy,” explains analyst Tom Essaye, founder of the Sevens Report, of the recently collapsing market for natural gas. Click here to read the full article.

Tom Essaye Quoted in Blockworks on January 30th, 2023

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Fed Watch: Bitcoin Gives Up Weekend Gains, Analysts Say Not To Worry

“Reaching peak hawkishness is one of our three keys to a bottom, and the most important one, so if the Fed has reached peak hawkishness that’s a powerful positive to consider,” Tom Essaye, founder of Sevens Report Research, wrote in a note Monday. Click here to read the full article.

Has the Market Priced in Peak Hawkishness?

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What’s in Today’s Report:

  • Has the Market Already Priced in Peak Hawkishness?
  • Weekly Market Preview:  Why This is the Most Important Week of Q1
  • Weekly Economic Cheat Sheet:  Fed on Wed, Jobs on Friday (It’s a busy week!)

Futures are moderately lower following a hotter-than-expected Spanish CPI report and as markets look ahead to a week filled with potential market-moving events.

Spanish CPI rose 5.8% vs. (E) 4.8% y/y and that is challenging the idea that disinflation is accelerating, and stocks are dropping as a result.

Investors are also booking profits ahead of a key week of catalysts including Fed/ECB/BOE rate meetings, critical earnings reports (this is the most important week of earnings), and the monthly jobs report on Friday.

This week is very, very busy from an economic standpoint between the Fed on Wednesday, jobs report on Friday, ISM PMIs and key inflation readings.  But, all the important reports start tomorrow so today’s focus will be on the earnings, and some notable reports today include NXPI ($3.60) and WHR ($3.43) which will give us insight into semi-conductor production (any more shortages?) and consumer demand.

Did Yesterday’s Data Imply a Soft Landing is More Likely?

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What’s in Today’s Report:

  • Did Yesterday’s Data Imply a Soft Landing is More Likely?

Futures are slightly lower as markets digest Thursday’s rally following a mostly disappointing night of earnings.

Intel (INTC) posted very disappointing results and the stock dropped –9% overnight while other earnings reports were mostly mixed.

Economic data was sparse as Euro Zone Money supply was the only notable indicator and it rose 4.7% vs. (E) 4.8%.

Today focus will turn to inflation via the Core PCE Price Index (E: 0.3%, 4.4%) and five-year inflation expectations in U-Michigan Consumer Sentiment (E: 64.6).  The lower those inflation numbers, the better, and if we get soft inflation data that likely will help extend this week’s rally as it’ll increase expectations for a Fed pause in the next month or two.  We also get Pending Home Sales (E: -1.0%) but that shouldn’t move markets.

On the earnings front, important reports today include: CVX ($4.16), AXP ($2.18), and CL ($0.76).

Tom Essaye Quoted in MarketWatch on January 24th, 2023

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Tech rally is ‘biggest game of chicken between the Fed and the market I’ve ever seen’: analyst

“We are now witnessing the biggest game of ‘Chicken’ between the Fed (who says rates are going to above 5%) and the market (who thinks the Fed cuts rates at least twice this year) that I’ve ever seen,” said Tom Essaye, founder of Sevens Report Research, in a Tuesday newsletter. Click here to read the full article.

Economic Breaker Panel: January Update

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What’s in Today’s Report:

  • Economic Breaker Panel – January Update
  • January Composite PMI Data Takeaways

U.S. stock futures are lower this morning, led by mega-cap tech after MSFT earnings topped estimates but guidance disappointed which is weighing on sentiment broadly.

Economically, the Business Expectations component of the German Ifo Survey notably firmed to 86.4 vs. (E) 85.0 further supporting hopes that Europe will avoid a recession in 2023 but concerns about the global tech sector is offsetting the good economic data this morning.

There are no notable economic reports and no Fed officials are scheduled to speak today which will leave the focus on earnings.

Notable companies releasing quarterly results today include: BA ($0.30), T ($0.58), and FCX ($0.40) ahead of the bell, and TSLA ($1.15), IBM ($3.60), CSX ($0.47), and STX ($0.08) after the close.

Intraday, the Treasury will hold a 5-Yr Note auction at 1:00 p.m. ET, and as we saw with yesterday’s 2-Yr auction which sent stocks to new session highs, the outcome of the auction could move markets before focus returns to post-market earnings reports.