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What Happens After Inflation Peaks?

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What’s in Today’s Report:

  • What Happens After Inflation Peaks?
  • Weekly Market Preview:  Fed Decision Wednesday
  • Weekly Economic Cheat Sheet:  Q2 GDP and Inflation Stats are the Highlights

Futures are modestly higher as markets bounce from Friday’s declines, following a quiet weekend and as investors look forward to numerous important catalysts this week.

Chinese authorities are considering some restrictions on movement in Shanghai as COVID cases rise, but are still resisting broad lockdowns (for now).

Economically, German Ifo Business Expectations declined further (80.3 vs. (E) 83.3).

Today there’s only one notable economic report, the Chicago Fed National Activity Index (E: 0.05), and markets will want to see stability here following last week’s disappointing data.  If this number is surprisingly weak (like the PMIs last Thursday/Friday) then that will likely weigh on stocks as recession fears grow.

Earnings season continues and this will be a very busy and important week for results.  Some earnings we’ll be watching today include:  WHR ($5.22), NXPI ($3.39), and LOGI ($3.39).

Why the Transmission Protection Instrument Matters to Markets

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What’s in Today’s Report:

  • Why the Transmission Protection Instrument Matters to Markets
  • ECB Decision Takeaways (Not Hawkish Enough)
  • Another Sign Inflation Has Peaked?

Stocks are resilient this morning as futures are only slightly lower despite disappointing overnight earnings and ugly economic reports from Europe.

Earnings overnight were bad with several ugly reports including SNAP (-30%), COF (-3.5%), and STX (-13%).

Economically, July flash PMIs from the EU were also ugly as the composite PMI fell into contraction territory at 49.6 vs. (E) 51.0.

Hope that inflation has peaked is the reason stocks are resilient lately, so today’s focus will be on the July Flash Manufacturing PMI (E: 51.8) and the July Flash Services PMI (E: 52.3).  If these reports show meaningful drops in the price indices (like we’ve seen in the Empire and Philly Fed surveys) then that will further the idea that inflation is peaking and support stocks (as long as the headline readings aren’t huge misses).

On the earnings front, results to watch today include TWTR (-$0.06), VZ $1.34), and AXP ($2.37).

Another Factor Fueling the Rally

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What’s in Today’s Report:

  • SPX Breaks Through Several Key Resistance Levels: Chart
  • Another Factor Fueling the Rally

Stock futures are slightly higher this morning as yesterday’s sizeable rally is digested amid news that Russia will resume gas flows through the Nord Stream 1 pipeline this week.

Economically, German PPI came in below expectation but U.K CPI and PPI both came in slightly hot which is offering mixed signals regarding whether we have reached peak inflation not globally.

Looking into today’s session, we will get another report on the housing market: Existing Home Sales (E: 5.400M), and investors will again be looking for a less dismal print than Monday’s Housing Market Index release.

There are no Fed speakers today, but the Treasury will hold a 20-Yr Bond auction at 1:00 p.m. ET that could move yields and impact equity trading (especially if it sends yields meaningfully higher).

Finally, traders will remain focused on earnings with ABT ($1.07) and BIIB ($4.10) releasing results ahead of the bell and TSLA ($1.73), UAL ($1.86), CSX ($0.47), and DFS ($3.74) reporting after the close.

Bottom line, near-term market momentum has taken a decidedly bullish shift, and while we could see a modest pullback as yesterday’s outsized gains are digested further if news flow remains even slightly positive, the path of least resistance is still higher into the end of the week.

Three Keys to a Bottom (Updated)

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What’s in Today’s Report:

  • Three Keys to a Bottom (Updated)
  • Weekly Market Preview:  Focus Turns to Earnings
  • Weekly Economic Cheat Sheet:  Flash PMI on Friday is the Big Report to Watch

Futures are moderately higher mostly on momentum from Friday’s rally and following a generally quiet weekend.

Investors continue to hope for a near-term peak in inflation and Friday’s drop in University of Michigan inflation expectations (2.8% vs. (E) 3.0%) and multi-month lows in the Empire Manufacturing price indices fueled that hope and resulted in the rally on Friday and in futures this morning.

Today’s focus will shift to earnings, and they will dominate market action early this week as there are no Fed speakers and no market-moving economic reports till later this week.  If earnings are better than feared, they can help extend this rally in the near term while disappointing results will cause more volatility.  Some reports we’re watching today include BAC ($ 0.77), GS ($6.99), SCHW ($0.91), IBM ($ 2.29).

Why Is the Market Suddenly Resilient?

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What’s in Today’s Report:

  • Why Is the Market Suddenly Resilient?

Futures are slightly higher on momentum from yesterday’s recovery and despite mixed Chinese economic data.

Chinese Industrial Production and Fixed Asset Investment both slightly missed estimates while Retail Sales beat expectations, but importantly the data didn’t show the Chinese economy had lost significant momentum.

Today there are numerous economic reports and some of them potentially will move markets.  The most important report today is 5-Yr Inflation Expectations (3.1% previous) and if they drop to 3.0% or lower that will be a good sign on inflation.  Retail Sales (E: 0.9%) and Empire State Manufacturing Index (E: -1.3) are the next most important reports today and again markets will want to see moderation – a slowing of activity but not a collapse.  Finally, we also get Industrial Production (E: 0.1%) and Consumer Sentiment (E: 50.0).

We also have one Fed speaker today, Bostic (8:45 a.m. ET), and we’d expect him to follow yesterday’s script and push back on the inevitability of a 100 basis point hike (although acknowledge that anything’s possible depending on the data).

What The Hot CPI Report Means for Markets

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What’s in Today’s Report:

  • What the Hot CPI Report Means for Markets
  • EIA Analysis and Update (Demand Falling)

Futures are sharply lower as markets digest the hot CPI amidst numerous hawkish central bank decisions.

Global central banks are aggressively tightening policy and that was displayed yesterday and overnight as the Bank of Canada and the central banks of Singapore, Philippines, and, Chile all hiked more than expected.

Meanwhile, U.S. Fed Fund Futures are now pricing in a 100-bps hike in July.

Today we get two notable economic reports via Jobless Claims (E: 234K) and PPI (0.8% m/m, 10.4% y/y).  Starting with PPI, if we see a big drop (which isn’t expected but possible) that will be a mild positive as PPI is sometimes a leading indicator for broader inflation.  Jobless claims, meanwhile, should continue to tick higher towards 250k.

On the earnings front, Q2 earnings season unofficially kicks off today with results from JPM ($2.85) and MS ($1.55) and in addition to wanting to see earnings beats, markets will be looking for commentary from management on the state of the economy, and if that commentary is cautious it’ll be a headwind on stocks.

Tom Essaye Quoted in Market Watch on July 13th, 2022

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Stock market faces inflation test Wednesday: Here are ‘good, bad and ugly’ scenarios

This would likely spark a move higher in stocks, allowing the relief rally to continue, since waning inflation pressures might allow the Federal Reserve to potentially pause its interest rate hikes later this year…Tom Essaye said. Click here to read the full article.

Tom Essaye Quoted in CNBC on July 12th, 2022

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Bond yields fall with key part of yield curve hits lowest level since 2007

The widening spread between the 2-year and the 10-year is signaling a very clear recession warning, especially if it reaches 15 basis points…wrote Tom Essaye of The Sevens Report. Click here to read the full article.

Tom Essaye Quoted in Barron’s on July 12th, 2022

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Dow Drops, Peloton Gains—and What Else Happened in the Stock Market Today

Rising recession concerns in the EU…continue to drive the dollar relentlessly higher vs. the euro, pound, and yen…wrote Tom Essaye, founder of 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

Stock futures are trading with cautious gains this morning as inflation data overseas met expectations as traders look ahead to today’s all-important CPI report in the U.S.

Economically, German and French CPI headlines both met estimates in June, holding steady from May levels which is offering hope that global inflation pressures have peaked while several growth metrics in the EU topped estimates.

Today, the focus will almost entirely be on the June CPI report with the headline expected to rise 1.1% m/m and 8.8% y/y from 8.6% in May while core CPI is expected to moderate with a rise of 0.5% m/m and 5.8% y/y from 6.0% previously.

There are no Fed officials scheduled to speak today but the Treasury will hold a 30-Yr Bond auction at 1:00 p.m. ET that could move markets in the afternoon.

Bottom line, markets are at a tipping point here and today’s CPI report could cause a breakout if the data suggests we are beyond peak inflation and peak Fed hawkishness, while conversely, we could see sharp declines if the data comes in hot again