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Focus Turns to Earnings and Yields

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What’s in Today’s Report:

  • Focus Turns to Earnings and Yields (And Away from Washington, For Now)
  • Weekly Market Preview:  Will Earnings Results Ease Market Anxiety?
  • Weekly Economic Cheat Sheet:  Key Inflation and Growth Data this Week

Futures are modestly lower on a resumption of the commodity rally following an otherwise quiet weekend.

Energy prices (oil, natural gas, coal) are all rallying again (up 2% – 3%) and that’s increasing global inflation anxiety, which is weighing moderately on futures.

Global bond yields are also rising as two hawkish Bank of England members warned of a possible rate hike this year, although that is not the consensus expectation (although a rate hike from the BOE in early 2022 is looking more likely).

Today is Columbus Day and the U.S. bond markets are closed and there are no economic reports today, although there is one Fed speaker: Evans (6:00 p.m. ET).  So, commodity prices are Treasury yields should drive trading today.  The more they rise, the stronger the headwind on stocks will become.

As Tech Goes, So Goes the SPY (And Tech Is Facing Headwinds)

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What’s in Today’s Report:

  • As Tech Goes, So Goes the SPY (And Tech Is Facing Headwinds)

Futures are enjoying a modest bounce following yesterdays’ declines after a generally quiet night of news.

Economic data was solid overnight as both EU (56.2 vs. (E) 56.1) and UK (54.9 vs. (E) 54.1) September Composite PMIs beat estimates, reflecting stability in the global economic recovery.

On inflation, Euro Zone PPI rose 1.1% vs. (E) 1.3%, implying inflation pressures could be starting to ease.

Today focus will be on economic data and specifically the ISM Services PMI (E: 60.0).  Markets will want to see stability in this number to further confirm the COVID spike in July/August didn’t have a lasting impact on the recovery.  We also get two Fed speakers today, Barkin (10:30 a.m. ET) and Quarles (1:15 p.m. ET), and markets will continue to be on the lookout for any signs of a compromise on the reconciliation/debt ceiling bill (although nothing material is expected today).

Politics and Markets

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What’s in Today’s Report:

  • Politics and Markets (An Important Week)
  • Weekly Market Preview:  Can the Rebound Continue?
  • Weekly Economic Cheat Sheet:  Important Growth and Inflation Data on Friday

Futures are slightly higher following a quiet weekend as the market’s focus turns to politics this week.

Democrats must pass a “Continuing Resolution” by Thursday to avoid a government shutdown, and while markets expect it will pass, there was little actual progress on that front over the past several days.

Economic data was sparse overnight and isn’t moving markets.

Today we get Durable Goods (E: 0.6%) and there are two Fed speakers, Evans at 8:00 a.m. ET and Williams at 9:00 a.m. ET & 12:00 p.m. ET, but really the market’s focus will be on Washington.  Despite the lack of progress from Democrats so far on passing a “Continuing Resolution” to fund the government before the deadline on Thursday night, markets fully expect that “CR” will pass by then.  But, if it becomes apparent it not might not pass by then, that will cause more stock market volatility.

Inflation Expectations

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What’s in Today’s Report:

  • Inflation Expectations

Stock futures are trading cautiously higher this morning while international markets were mixed overnight ahead of key U.S. inflation data.

Economically, the NFIB Small Business Optimism Index for August rose to 100.1 vs. (E) 99.0 which is helping U.S. equity markets edge higher in pre-market trade.

Today, there are no Treasury auctions or Fed officials scheduled to speak which will leave markets focused on the one major economic report today: CPI (E: 0.4%, 5.3%).

If the CPI report supports the transitory inflation narrative and suggests that price pressures have already peaked, stocks are likely going to be able to further stabilize after yesterday’s bounce. However, a “hot” print could easily trigger a wave of hawkish money flows and pressure the major indexes back down to fresh multi-week lows today.

The Current Risks to the Rally

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What’s in Today’s Report:

  • The Current Risks to the Rally
  • Weekly Market Preview:  Increasing Headline Volatility?
  • Weekly Economic Cheat Sheet:  How Hot is Inflation and How Much Damage Has COVID Done to the Recovery?

Futures are modestly higher as global markets bounced from Friday’s declines, following a quiet weekend of news.

Tax hike chatter continued to rise over the weekend as Democrats proposed a 26.5% corporate tax (up from the current 21%) and a “top-tier” capital gains tax rate of 28.8% (up from the current 23.8%).

These changes aren’t likely or imminent, but it underscores the market will face tax hike headlines over the coming weeks and months.

There was no notable global economic data overnight.

Today there are no economic reports and no notable Fed speakers, so the focus will be on any more tax hike headlines and on short-term technicals.  Last week stocks were able to rally early in the day and faded in the afternoon.  If that happens again this morning look for downside momentum to pick up a bit and for more moderate declines.

Inflation Update (Post CPI/PPI)

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What’s in Today’s Report:

  • Inflation Update (Post CPI/PPI)

Futures are again little changed following another generally quiet night of news.

Economic data was minimal as the only notable report was EU exports, which missed expectations falling –0.7% vs. (E) 0.6%, but that’s not moving markets.

On the COVID front, there were mixed headlines.  ABNB said it has seen a small slowdown in bookings because of Delta (a negative), but COVID cases have potentially peaked in China (a positive).  In sum, the headlines were mixed enough that they aren’t moving markets, but we will continue to watch for more evidence that the Delta variant is altering consumer behavior.

Today the key report will be the inflation expectations in Consumer Sentiment (E: 81.4) but as long as that doesn’t spike higher, it shouldn’t move markets.  Instead, COVID headlines will continue to move markets and if there is more evidence the Delta variant is impacting travel/leisure, that will be a headwind on stocks.

The Bullish Recipe (Why Stocks Are So Resilient)

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What’s in Today’s Report:

  • The Bullish Recipe (Why Stocks Are So Resilient)
  • Weekly Market Preview:  Will COVID Weigh on the Recovery?
  • Weekly Economic Cheat Sheet:  Key Inflation Data This Week

Futures are slightly lower following a mostly quiet weekend of news as there were no major changes to the COVID outlook or the economic recovery.

Economic data was solid as German and Chinese exports for July both beat estimates.

Chinese CPI rose 1% vs. (E) 0.8% and that may reduce the amount of stimulus officials unleash on the economy (so potentially negative for global growth).

Today focus will be on JOLTS (E: 9825M) and on Fed commentary following the jobs report (Bostic at 10:10 a.m. ET and Barkin at 11:20 a.m. ET).  But, unless JOLTS are a major surprise or Fed officials are shockingly hawkish, these events shouldn’t move markets.  As such, the tenor of COVID headlines (and whether we are seeing behavior changes) will continue to drive markets in the near term.

All About Demand

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What’s in Today’s Report:

  • All About Demand
  • Weekly Market Preview:  The Fed and Inflation
  • Weekly Economic Cheat Sheet:  Fed Meeting, Core PCE Price Index and GDP.

Futures are marginally lower as increased concerns about regulation in China caused a sharp drop in Chinese shares, and that’s weighing on global equities.

The Hang Seng dropped more than 4% on Monday on fears of increased regulation from the Chinese government, following reports China was going to make the education business sector “not for profit.”

COVID headlines remained generally unchanged over the weekend as cases continued to rise in the U.S, although governments continue to resist restrictions and lockdowns.

Today there’s only one notable economic report, New Home Sales (E: 800k), and that shouldn’t move markets.  On the earnings front, the key report today comes after the close (TSLA $0.96), so focus will be on COVID headlines and if there are any reports of increased restrictions or lockdowns here in the U.S., that will hit stocks.

Why Economic Data is Stronger Than it Appears

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What’s in Today’s Report:

  • Why Economic Data Is Stronger Than It Appears

Futures are drifting slightly higher following a mostly quiet night of news.

COVID headlines were mixed as Los Angeles reimposed an indoor mask mandate (negative) while President Biden said the U.S. could ease travel restrictions from Europe soon (positive).  Bottom line, concerns about the Delta variant are a market influence (mild headwind) but at this point, it’s not enough to cause a material pullback.

Economic data was minimal as EU HICP met expectations (0.3% m/m and 1.9% y/y).

Today, focus will be on economic data, specifically Retail Sales (E: -0.4%) and the inflation expectations component in Consumer Sentiment (E: 87.0).  As has been the case, markets will want “Goldilocks” results for both retail sales and inflation expectations (so strong, but not too strong).  There is also one Fed speaker, Williams (9:00 a.m. ET), but he shouldn’t move markets.

An Important Few Weeks for Bonds

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What’s in Today’s Report:

  • Why The Next Few Weeks Are Critical for the Bond Market
  • Weekly Market Preview:  Earnings Season Starts
  • Weekly Economic Cheat Sheet:  Inflation This Week

Futures are slightly lower following a very quiet weekend of news as markets wait for the start of earnings this week along with updated inflation data.

G-20 finance ministers agreed to move forward with a plan for a global minimum tax, but this remains a very, very long way from actual implementation.

China’s reserve requirement ratio cut remained top of the news but it’s unlikely to provide major stimulus and as such it’s not a material bullish catalyst for global stocks.

Today there are no economic reports and just two Fed speakers: Williams (9:30 a.m. ET) and Kashkari (12:00 p.m. ET).  As was the case last week, we expect yields to dictate trading in stocks, so if Treasury yields continue to bounce, stocks should extend Friday’s rally.