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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.

Why Stocks Rallied Last Week (And Is It Sustainable?)

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What’s in Today’s Report:

  • Why Stocks Rallied Last Week (And Is It Sustainable?)
  • Weekly Market Preview:  Can Inflation Fall Quickly and Growth Stay Resilient?
  • Weekly Economic Cheat Sheet:  CPI Tomorrow is the Key Report

Futures are moderately higher as the U.S. Dollar extended Friday’s declines thanks to a hawkish ECB article.

The euro is surging another 1% and pushing the Dollar Index lower following a hawkish ECB Reuters article that stated the ECB may have to raise rates to 2% to curb inflation, which is higher than current expectations.

Economic data was slightly underwhelming as UK Industrial Production (0.1% vs. (E) 0.3%) and UK Monthly GDP (0.2% vs. (E) 0.4%) both missed estimates.

Today there are no notable economic reports nor any major Fed speakers, so we’d expect stocks to continue to follow the dollar ahead of tomorrow’s CPI report.  If the dollar extends this morning’s declines, stocks should be able to hold this early rally.

What the Latest Fed Speak Means for Markets (Updated)

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What’s in Today’s Report:

  • What the Latest Fed Speak Means for Markets (Updated for Powell, the ECB, and RBA).

Futures are sharply higher on encouraging Chinese inflation data and a drop in the U.S. Dollar.

Chinese PPI (2.3% vs. (E) 2.8% y/y) and CPI (2.3% vs. (E) 3.2% y/y) both declined from last month and came in under expectations, providing more evidence that the global economy has hit “peak inflation.”

The encouraging Chinese inflation data combined with yesterday’s hawkish ECB is pushing the dollar 1% lower.

Today there are no notable economic reports but there are several Fed speakers, including Evans (10:00 a.m. ET), Waller (12:00 p.m. ET) and George (12:00 p.m. ET).  If they sound optimistic on inflation, that will help extend this morning’s rally.

Market Multiple Table Chart

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What’s in Today’s Report:

  • Market Multiple Table Chart
  • What Fed Speak Means for Markets (Yesterday and Today)

Futures are little changed following a mostly quiet night and ahead of the ECB decision and Powell Q&A session.

The Reserve Bank of Australia signaled it will slow the pace of rate hikes going forward but gave no insight into its “Terminal Rate.”

Economically, Japanese GDP slightly beat estimates (3.5% vs. (E) 3.0%) but that’s not moving markets.

Today’s focus will be on Powell (9:10 a.m. ET) and the ECB (75 bps hike), and any hint of “peak hawkishness” from Powell or the ECB will be a positive catalyst for markets (and no hints of it will likely be a headwind on stocks).  Outside of Powell and the ECB, we also get Jobless Claims (E: 240K) and there’s one Fed speaker, Evans (12:00 p.m. ET), but neither of those should move markets.