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Three Reasons the June Lows Could Hold

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What’s in Today’s Report:

  • Three Reasons the June Lows Could Hold
  • Understanding Japan’s Currency Intervention

Futures are sharply lower as global yields continued to climb while economic data was largely disappointing.

September flash PMIs showed contraction in the EU (48.2) and the UK (48.4) as signs of a global slowdown grow.

The UK government announced a fiscal stimulus package but the news is spiking UK bond yields and pressuring the Pound as markets view it as inflationary.

Today we get speeches from Powell (2:00 p.m. ET) and Brainard, but don’t expect their message to be any different then what was just said at Wednesday’s FOMC meeting.  Beyond the Fed speak, the key economic report today is the September Flash Composite PMI (E: 47.0) and this data points needs to largely meet expectations, because a strong number will push yields higher, while a weak number will increase stagflation concerns.

Another Hawkish Surprise: What the Fed Decision Means for Markets

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What’s in Today’s Report:

  • Another Hawkish Surprise: What the Fed Decision Means for Markets

Futures are little changed as markets digested yet another hawkish Fed decision amidst more global rate hikes.

The overnight session was mostly quiet as investors digested the Fed rate hike while other global central banks raised rates (five separate central banks hiked rates overnight, as expected).

The Bank of Japan intervened in the currency markets for the first time since 1998, causing a 1% rally in the yen.

Today focus will be on the Bank of England Rate Decision (E: 50 bps hike) and on weekly Jobless Claims (E: 220K).  Fed Chair Powell again highlighted that the labor market is still much too tight, so markets need these jobless claims to start to rise towards 300k to prevent even further Fed tightening in the future.  The sooner the labor market returns to better balance, the sooner we get to “peak hawkishness.”

Tom Essaye Quoted in S&P Global on September 19th, 2022

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Persistent inflation to push Fed to tighten more, delay rate peak

From a Fed standpoint, obviously they cannot even think about stopping until this [inflation] number gets down to something more tenable…said Tom Essaye, a trader and founder of financial research firm The Sevens Report. Click here to read the full article.

FOMC Preview

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What’s in Today’s Report:

  • FOMC Preview

Futures reversed from overnight gains and are now tracking EU markets lower following more very hot inflation data and an aggressive policy hike by the Riksbank.

In Europe, German PPI surged 7.9% vs. (E) 1.5% in August (45.8% vs. E: 37.2% y/y) while Sweden’s Riksbank raised rates by 100 bp vs. (E) 75 bp. Both developments are driving hawkish, risk-off money flows ahead of the Fed.

Today, focus will begin to shift to the Fed as the September FOMC Meeting begins however there is one report on the housing market that will get some attention when it is released mid-morning: Housing Starts (E: 1.440M) and Permits (E: 1.621M).

Beyond that one report, there is a 20-Yr Treasury Bond auction at 1:00 p.m. ET. The auction may not move markets today with the Fed looming but it will be worth watching because if it is weak like last week’s 3-Yr and 10-Yr auctions ahead of the CPI report, it could be forecasting a more hawkish than expected Fed decision Wednesday.

Market Setup into the Fed Decision

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What’s in Today’s Report:

  • Market Setup into the Fed Decision
  • Weekly Market Preview:  All About the Terminal Rate
  • Weekly Economic Cheat Sheet:  Flash PMIs Friday

Futures are moderately lower mostly on momentum from last week’s declines and following a generally quiet weekend of news.

Geo-politically, Russian President Putin and Ukrainian President Zelensky gave interviews over the weekend and neither implied the war would end anytime soon, which is a mild disappointment for markets.

Chinese authorities ended the lockdowns in Chengdu, but gave no indication the “Zero COVID” policy will change.

Today the calendar is sparse given there’s only one economic report, Housing Market Index (E: 48), and the UK and Japanese markets are closed.  So, positioning ahead of Wednesday’s FOMC decision should drive markets, and unless we get some positive corporate commentary to offset the FDX guidance, the path of least resistance into the Fed is lower.

Why the Decline in Core Inflation Could Be Slower than Expected

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What’s in Today’s Report:

  • Why the Decline in Core Inflation Could Be Slower than Expected
  • EIA Analysis and Oil Market Update

Futures are slightly lower following a mostly quiet night of news as markets await a deluge of economic data later this morning.

The most notable headline overnight was that negotiators have reached a tentative deal to avoid a U.S. rail strike, although this was never a major concern for markets so the headline isn’t causing a rally.

There were no notable economic reports overnight.

Today the market will be focused on economic data and the key reports will be Jobless Claims (E: 227K), Philadelphia Fed Manufacturing Index (E: 3.5), and the Empire State Manufacturing Index (E: -14.5) as they give us the latest insights into growth and inflation.  If the price indices in Empire and Philly drop notably, that’ll help offset some of the concerns on inflation from the CPI report.

Other data today includes Retail Sales (E: 0.0%) and Industrial Production (E: 0.2%) but they’ll have to be material surprises to move markets.

Was the CPI Report a Bearish Gamechanger?

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What’s in Today’s Report:

  • Was the Hot CPI Report a Bearish Gamechanger?
  • CPI Takeaways
  • Chart: Real Rates Surge – 5-Yr TIPS Yield Tops 1%

Equity futures are bouncing modestly relative to yesterday’s steep declines as Treasury yields are steady and the dollar is easing back with investors continuing to digest the hotter than expected August CPI report.

Economically, U.K. inflation data came in cooler than feared (PPI unexpectedly declined and CPI undershot estimates) but Eurozone Industrial Production for July badly disappointed at -2.3% vs. (E) -0.8%.

Looking into today’s session, there are no Fed officials scheduled to speak and no potentially market-moving Treasury auctions which will leave the focus on the PPI report due out ahead of the bell(-0.1%, Core: +0.3%).

If the wholesale inflation data comes in “cooler” than expected, leaving yields and the dollar to give back some of yesterday’s gains, stocks should be able to attempt to stabilize, however, another “hot” print would likely mean further losses in the midst of renewed dollar strength and likely rising rates.

Sevens Report Co-Editor Tyler Richey Quoted in MorningStar on September 8th, 2022

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Oil futures end higher as a recent drop to 7-month lows left prices ‘oversold’

Official U.S. government data revealed a “massive” weekly build in commercial U.S. crude stockpiles, leading to a “knee-jerk reaction” lower in oil prices…said Tyler Richey, co-editor at Sevens Report Research. Click here to read the full article.

Sevens Report Co-Editor Tyler Richey Quoted in Market Watch on September 8th, 2022

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Oil futures finish higher on ‘oversold’ condition, despite a hefty weekly rise in U.S. supplies

Oil futures ended higher on Thursday, with prices near-term oversold, following Wednesday’s multi percentage-point drop to multi-month lows…said Tyler Richey, co-editor at Sevens Report Research. Click here to read the full article.

The Ukraine Counteroffensive and Markets

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What’s in Today’s Report:

  • What the Ukraine Counteroffensive Means for Markets

Stock futures are extending recent gains this morning while the dollar continues to fall ahead of today’s CPI report.

In Europe, German CPI for August was unchanged at 7.9% y/y which met expectations and is being well-received by investors ahead of today’s U.S. inflation data.

Domestically, the NFIB Small Business Optimism Index came in at 91.8 vs. (E) 90.5, underscoring the resilience of the U.S. economy in the face of Fed policy tightening so far.

Today, the main event will be the release of the August CPI data (E: -0.1% m/m, 8.1% y/y) ahead of the open. If the data is inline or below estimates, specifically the core figure, then stocks should be able to extend the recent rally as expectations for the “terminal rate” will likely fade lower however a hot print could send yields and the dollar sharply higher and cause a potentially sharp reversal of the recent gains.

The only other potential catalyst today is a 30-Yr Treasury Bond auction at 1:00 p.m. ET. Yesterday’s 3-Yr and 10-Yr auctions did notably move Treasury markets as yields jumped but stocks shrugged off the soft auction outcomes with focus on today’s CPI. If the 30-Yr auction is weak and yields move higher with the CPI data already released as of this morning, that could act as a strengthening headwind on equities in the afternoon.