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Three Keys to a Bottom Update

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What’s in Today’s Report:

  • Three Keys to a Bottom: Update
  • Weekly Economic Cheat Sheet: Are Growth and Inflation Both Peaking?
  • Weekly Market Preview: Jobs Data in Focus

Stock futures are moderately lower this morning, tracking losses in EU shares amid renewed inflation concerns.

German CPI jumped to 7.9% vs. (E) 7.5% and the Eurozone HICP Flash rose to 8.1% vs. (E) 7.7% in May. Additionally, the EU agreed to a partial ban on Russian energy imports which has sent oil to multi-month highs, compounding inflation fears this morning.

Looking into today’s session, there are three economic reports due to be released: Case-Shiller Home Price Index (E: 2.2%), FHFA HPI (E: 1.9%), and Consumer Confidence (E: 104.0). Investors will want to see the latter report at least meet estimates as the health of the U.S. consumer has become less certain in the face of lofty inflation pressures.

Finally, there are no Fed officials speaking today but Powell is set to meet with Biden at the White House at 1:15 p.m. ET. And following Waller’s more hawkish comments about suggesting 50 bp hikes until inflation is back at 2% from yesterday, any insight to the Fed’s policy plans after the summer rate hikes, which are solidly priced in, will move markets (more aggressive policy expectations could hit stocks today).

Tom Essaye Quoted in Barron’s on May 26th, 2022

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The Dow Rose, and What Else Is Happening in the Stock Market Today

This two-day rally in the market is mostly built on the premise that the Fed may ‘pause’ rate hikes after the two 50-bps adjustments this summer…wrote Tom Essaye, founder of Sevens Report Research. Click here to read the full article.

Sector Trends: Relative Strength to the S&P 500

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What’s in Today’s Report:

  • Sector Trends:  Relative Strength to the S&P 500
  • EIA Analysis and Oil Market Update

Futures are slightly higher as incrementally positive macro news offset more disappointing tech earnings.

Nvidia earnings underwhelmed and the stock fell 5% after hours, and that is weighing on tech this morning.

But, not as hawkish as feared in FOMC minutes and the continued reopening of Shanghai offset the soft NVDA earnings.

Today’s focus will be on economic data via the Revised Q1 GDP (-1.4%), Jobless Claims (E: 208K), and Pending Home Sales (E: -1.3%).  Given the recent weakness in other economic data, the market will want to see stability in the numbers to continue to push back on stagflation concerns.

Bad Things Happen Fast (Part II)

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What’s in Today’s Report:

  • Bad Things Happen Fast, Part II
  • Composite PMI Flash Data Takeaways
  • New Home Sales Plunge – Chart
  • 10-Year Yield Breaking a 15 Year Downtrend – Chart

Stock futures are little changed this morning, well off the overnight highs after a mostly quiet night of news as investors look ahead to the release of the latest Fed meeting minutes.

Economically, the German GfK Consumer Climate Index met expectations of -26.0 while German GDP came in at 3.8% vs. (E) 3.7% but today’s data is not materially impacting markets.

Looking into today’s session, there is one economic report to watch early: Durable Goods Orders (E: 0.5%) and the Treasury will hold an auction for 5-Year Notes at 1:00 p.m. ET. Markets will want to see data that shows healthy demand and steady trade in fixed income markets if stocks are to stabilize further.

As far as the Fed goes, Vice-Chair Brainard is scheduled to speak at 12:15 p.m. ET before the day’s main event, the release of the FOMC Meeting Minutes will hit at 2:00 p.m. ET. If Brainard and the minutes are less hawkish that could support a continuation of the latest attempt at a relief rally. At the same time, any more-hawkish leaning rhetoric or verbiage could lead to a resurgence in volatility as news flow has been decidedly negative over the last week.

Are Bonds a Buy?

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What’s in Today’s Report:

  • If a Recession Is Imminent, Are Bonds a Buy?

Stock futures are down more than 1% this morning following more negative earnings news in the tech sector.

SNAP is down 30% this morning after issuing a profit warning late yesterday, citing a quickly deteriorating macroeconomic environment that is weighing on tech broadly.

Economically, Composite Flash PMI data slightly missed estimates in Europe overnight, but notably remained comfortably in expansion territory, easing some concerns about a looming recession.

Looking into today’s session, focus will be on economic data early with the PMI Composite Flash (E: 55.5) and New Home Sales (E: 748K) due to be released and the market will be looking for fresh signs that the economy is in good shape and not significantly losing momentum right now. There is also a 2-Yr Treasury Note auction at 1:00 p.m. ET today which could move yields on the short end of the curve, and in turn, impact equity trading.

Focus will turn to monetary policy midday with Fed Chair Powell scheduled to speak at 12:20 p.m. ET. Any hints at a less aggressive approach to policy tightening in the months ahead will be welcomed by investors and could help the latest attempt at a relief rally regain its footing. However, the combination of soft data in the morning and a hawkish-leaning Powell could send stocks lower.

Bullish If/Bearish If Scenarios

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What’s in Today’s Report:

  • Bottom Line:  Bullish If/Bearish If Scenarios
  • Weekly Market Preview:  More Earnings and Growth Data This Week
  • Weekly Economic Cheat Sheet:  Is Growth Rolling Over?

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

COVID news from China remains mixed as Shanghai continues to relax lockdowns although Beijing is seeing a continued increase in cases (keeping the threat of more lockdowns alive).

The dollar is down one percent after ECB President Lagarde signaled two rate hikes were likely in the 3rd quarter (this was a bit more hawkish than expected).

Today there are no notable economic reports and just one Fed speaker, Bostic (12:00 p.m. ET).  If Bostic echoes Bullard’s slightly less hawkish than feared commentary from Friday afternoon, then stocks can extend Friday’s rebound.

Why Are the VIX and S&P 500 Possibly Diverging?

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What’s in Today’s Report:

  • Why Are the VIX and S&P 500 Possibly Diverging?
  • Is Selling Becoming Mechanical?
  • CPI Takeaways (It Won’t Make the Fed More Hawkish)

Futures are moderately lower mostly on momentum from Wednesday’s afternoon selloff.

Economically, UK economic data disappointed (GDP and Industrial Production both missed estimates) while BOE officials warned of more rate hikes reminding markets there’s a real stagflation threat in the UK.

Geo-politically, Finland formally applied to join NATO (and Sweden is expected to follow), keeping NATO/Russia tensions high for the foreseeable future (meaning quarters and years).

Today, we get Jobless Claims (E: 190K) and PPI (0.5% m/m, 10.7% y/y) and one Fed speaker, Daly (4:00 p.m. ET), but barring a big spike in claims, a big move in PPI or incrementally hawkish commentary from Daly (all of which are unlikely) these events won’t move markets.  So, short-term technical will continue to be the main driver of stocks, and markets need to show some stabilization, otherwise, the declines themselves will invite more selling.

Tom Essaye Quoted in Barron’s on May 9th, 2022

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The Dow Fell, Palantir Tumbled—and What Else Happened in the Stock Market Today

The selling is technical and emotions (fear/greed) that are driving the markets on an intraday basis and we should all prepare for more elevated volatility ahead…wrote Tom Essaye, founder of Sevens Report Research. Click here to read the full article.

Market Multiple Levels Chart

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What’s in Today’s Report:

  • Market Multiple Levels: S&P 500 Chart
  • Quick CPI Preview

There is a tentative sense of relief in markets this morning with stock futures tracking global equities higher while bond yields and the dollar pullback ahead of key inflation data in the U.S. today.

Economically, Chinese CPI and PPI were both hotter-than-expected however German CPI met estimates of 7.4% y/y which is giving investors hope that price pressures are still high but in the process of peaking.

Looking into today’s session investors will be primarily focused on the CPI report (E: 0.2% m/m, 8.1% y/y), and more specifically the Core CPI figures (E: 0.4% m/m, 6.0% y/y).

We will also hear from one Fed speaker: Bostic (12:00 p.m. ET), and there is a 10-Yr Treasury Note auction at 1:00 p.m. ET.

Bottom line, if today’s inflation data comes in below expectations, it will likely bolster this morning’s already solid gains in stock futures and lead to a further relief rally. Conversely, if inflation runs hot, expect more volatility across asset classes and the potential for new lows in the major equity indices.

Tom Essaye Quoted in CNBC on May 9th, 2022

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10-year Treasury yield rises to its highest level since November 2018

To start the year, we knew that central bank tightening would make for a challenging market, but that has been compounded by two surprise events: The Russia/Ukraine war (no one expected that in January) and Chinese lock-downs (it’s quasi-shocking the Chinese are still adopting these policies and crushing their economy)…wrote Tom Essaye of The Sevens Report. Click here to read the full article.