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Tom Essaye Quoted in Market Watch on September 1st, 2022

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What does Friday’s jobs report mean for the market? ‘Too hot’ and stocks could tumble, says market pro.

The labor market needs to show signs that it’s on the path to returning to a state of relative balance, where job openings are roughly the same as the number of people looking for jobs — and if it does not show that, then concerns about a more hawkish-for-longer Fed will rise, and that’s not good for stocks, wrote Tom Essaye, a former Merrill Lynch trader and the founder of the Sevens Report newsletter. Click here to read the full article.

 

Three Keys to a Bottom (Updated)

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What’s in Today’s Report:

  • Three Keys to a Bottom Updated (Some Progress But Not There Yet)
  • Economic Takeaways – Goldilocks Trends Emerging
  • Weekly Economic Cheat Sheet

There is a tentative risk-on tone to trading this morning as U.S. equity futures track global shares higher thanks to new stimulus measures in China and easing natural gas prices in Europe.

The PBOC announced new measures to help stabilize the yuan and bolster the economy in the face of renewed Covid lockdowns and recent signs of slowing growth which was welcomed by markets overnight.

In Europe, German Manufacturers Orders fell -1.1% vs. (E) -0.4% but that is helping dial back some of the recently more hawkish policy expectations ahead of this week’s ECB meeting.

Looking into today’s session, there is one economic report to watch: ISM Services Index (E: 55.4), and no Fed officials are scheduled to speak.

That should leave the focus on currency and bond markets in the U.S. if both the dollar and short-duration yields can stabilize, and not move materially higher, then stocks should be able to make an attempt to stabilize after Friday’s late session reversal lower.

Additionally, if we see natural gas prices in Europe continue to pull back from Friday and yesterday’s rise, that should help the risk-on mood in markets persist as the Nord Stream 1 halt was the main catalyst for stocks rolling over on Friday.

What a “Soft Landing” Looks Like

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What’s in Today’s Report:

  • What A “Soft Landing” Looks Like (At Least From One Economic Report)

Futures are slightly lower following a mostly quiet night as investors await today’s jobs report.

Economic data was disappointing as German exports unexpectedly declined (-2.1% vs. (E) 4.1%) while Euro Zone PPI was hotter than expected (37.9% y/y vs. (E) 36.4% y/y).

In China, authorities announced that companies in Chengdu could implement “closed loop” systems and stay in operation, which should reduce supply chain disruptions.

Today the key event is the August Employment Situation report and expectations are as follows: Job Adds: 293K, UE Rate: 3.5%, Wages: 0.4% m/m, 5.3% y/y.  If markets can get a “Just Right” number (small job adds, a rise in the unemployment rate and a drop in wages) then stocks can extend yesterday’s rally as that will be the second straight “Goldilocks” report in two days (the other being yesterday’s ISM Manufacturing PMI) and it’ll increase hopes for an economic soft landing.

What Should Clients Do in This Environment?

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What’s in Today’s Report:

  • What Should Clients Do in This Environment?
  • S&P 500 Approaching Key Support: Chart
  • JOLTS Data Takeaways – Labor Market Remains Tight

Stock futures pulled back from overnight gains and are now trading flat as most international markets are lower following mixed economic data.

Japanese Retail Sales and Industrial Production figures both handily topped estimates but the August HICP Flash in Europe (their CPI equivalent) showed core inflation jumped 4.3% vs. (E) 4.0%, reiterating inflation risks.

Today, the early focus will be on the ADP Employment Report (E: 200K) which will be the first one since they updated the methodology of the report so be prepared for a potentially surprising print.

From a market standpoint, traders will want to see a moderation in the labor market (especially after yesterday’s JOLTS report) to show the Fed’s tightening actions are beginning to cool the labor market which is one of the key steps towards reaching “peak hawkishness.”

There are also a few Fed speakers to watch today: Mester (8:00 a.m. ET), Logan (6:00 p.m. ET), and Bostic (6:30 p.m. ET) and the market would welcome any degree of less hawkish commentary as the more hawkish tone of the last week has been largely responsible for the equity market losses into the end of the month.

Sevens Report Analysts Quoted in ETF Trends on August 25th, 2022

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Gold ETFs Could Still Find a Place in a Diversified Portfolio

If the market responds to Powell in a dovish manner that should send inflation expectations even higher, while the dollar and yields should pull back, which would all result in tailwinds on gold. However, a hawkish and ‘growth-insensitive’ Powell would likely send gold back down towards $1,700, potentially by Friday’s close…analysts at Sevens Report Research said in a note. Click here to read the full article.

What Powell’s Speech Means for Markets

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What’s in Today’s Report:

  • What Powell’s Speech Means for Markets
  • Weekly Market Preview:  Are Central Banks Getting More Hawkish?
  • Weekly Economic Cheat Sheet:  How Strong is Growth (Jobs Report on Friday)

Futures are down close to 1% on follow through selling from Friday as hopes of a near term “Fed Pivot” continue to fade in reaction to Powell’s speech last week.

European shares are also sharply lower as tightening expectations for the ECB rose sharply on Friday.  Markets are now pricing in a minimum 50 bps hike next week with a 75 bps hike a real possibility.

There were no notable economic reports overnight.

Markets dropped on Friday as Powell dismissed the idea of an imminent “Fed Pivot,” but the ECB also signaled more hawkish intentions on Friday, and it was the two events that combined to cause the ugly declines.  Today there are no economic reports but there is an important Fed speaker, Brainard (2:15 p.m. ET) and if she echoes Powell’s comments from Friday, expect more losses in stocks.

What’s Changed With the Fed

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What’s in Today’s Report:

  • What’s Changed with the Fed (and What Hasn’t)
  • Technical Update

Futures are moderately lower following mixed economic data and after a WSJ article warned the market was underestimating Fed conviction on rate hikes.

Economically, German PPI surged 37.2% vs. (E) 30.9% y/y on exploding electricity costs while UK Retail Sales fell –3.4% vs. (E) -3.3%.  Both numbers highlight the economic challenges facing the EU and UK.

A WSJ article warned of a “reckoning” for stocks as markets think the Fed is bluffing about further hikes and that’s weighing on sentiment this morning.

Today there are no notable economic reports but there is one Fed speaker, Barkin at 9:00 a.m. ET, and if he echoes this disconnect between Fed intentions and market expectations for rates, that will further pressure stocks today.

FOMC Minutes: Not as Dovish as the Market Reaction

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What’s in Today’s Report:

  • FOMC Minutes:  Not as Dovish as the Market Reaction
  • Retail Earnings Takeaways
  • EIA and Oil Market Analysis

Futures are slightly higher on better-than-expected earnings, following an otherwise quiet night of news.

Cisco (CSCO) posted strong earnings and gave positive commentary on tech demand going forward.

Economically, EU HICP (their CPI) met expectations at 8.9% yoy and that reading means a 50 bps rate hike from the ECB is still likely in September.

Today’s focus will be on economic data, specifically the Philadelphia Fed Manufacturing Survey (E: -5.0).  If Philly Fed echoes the weak Empire Manufacturing reading and the price indices don’t decline, we’ll see stagflation concerns rise.  Other reports today include Jobless Claims (E: 265K) and Existing Home Sales (E: 4.85M) but neither should move markets.

We also get two Fed speakers, George (1:20 p.m. ET) and Kashkari (1:45 p.m. ET), and the market will be looking for any insight on a 50 bps vs. 75 bps hike in September (markets are expecting 50 bps).

What Currencies and Bonds Are Saying About the Fed

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What’s in Today’s Report:

  • Better-Than-Feared WMT and HD Earnings Drive Trading
  • Why Currency and Bond Markets Are Not Signaling a “Less Hawkish” Fed
  • Chart: S&P 500 Quietly Closes at Fresh Highs
  • Economic Takeaways: Housing Starts and Industrial Production

U.S. futures are tracking European shares lower following disappointing economic data out of the EU ahead of today’s release of the July FOMC meeting minutes.

U.K. CPI jumped to a new multi-decade high of 10.1% vs. (E) 9.8% in July while the Q2 Eurozone GDP Flash dipped to 3.9% vs. (E) 4.0%, rekindling concerns about stagflation.

Looking into today’s session, focus will be on economic data early with Retail Sales (E: 0.1%) due out before the bell as well as more retailer earnings including: TGT ($0.71), LOW ($4.63), and TJX ($0.68).

Then there is one Fed speaker, Bowman, at the open (9:30 a.m. ET) before focus will shift to the July FOMC meeting minutes which will be released at 2:00 p.m. ET.

Bottom line, the market will want to see more good earnings and guidance out of the remaining major retailers due to report quarterly results today as well as a not-as-hawkish-as-feared set of Fed minutes released this afternoon, if this latest leg higher in stocks is going to continue. Otherwise, we could be set up for a pullback into the back half of the week as stocks have become near-term overbought without any new meaningfully positive catalysts.

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

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The S&P 500 Had Its Fourth Straight Winning Week—and What Else Happened in the Stock Market Today

Data released this week suggests that inflation may have peaked, allowing the Federal Reserve to be less aggressive when boosting interest rates…Tom Essaye, founder of Sevens Report Research said Friday that the S&P 500’s current level reflects that growing sentiment. Click here to read the full article.