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Why Inflation is the Key Variable Going Forward

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What’s in Today’s Report:

  • Why Inflation Is the Key Variable Going Forward
  • Weekly Market Preview:  More Clarity on Fed Rate Hikes This Week?
  • Weekly Economic Cheat Sheet:  CPI Thursday, Inflation Expectations Friday.

Futures are slightly lower following a quiet weekend as investors digested the strong jobs report and last weeks’ hawkish surprises from the ECB and BOE.

ECB officials downplayed the idea of a summer rate hike over the weekend but didn’t rule out a hike in 2022 (largely confirming the hawkish commentary from Lagarde).

Economic data remained mixed as China’s Caixin services PMI beat estimates (51.4 vs. (E) 50.5) but German Industrial Production missed expectations (-0.3% vs. (E) 0.4%) although the data isn’t moving markets.

Today should be a generally quiet day, as from a market influence standpoint all the really important companies have released earnings, so earnings season is “over” for all intents and purposes.  Additionally, there’s only one notable economic report, Consumer Credit ($21.0 bln), but given the strength of personal balance sheets that shouldn’t move markets today.  On the geo-political front, French President Macron travels to Moscow to meet with Putin about Ukraine, and any positive headlines could produce a mild tailwind on stocks.

Market Multiple Table: February Update

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What’s in Today’s Report:

  • Market Multiple Table: February Update

Stock futures swung between gains and losses overnight as the sizeable two-day rally to end January is being digested while most global equity markets rallied to start the month of February.

Economically, the EU unemployment rate fell to 7.0% vs. (E) 7.2% but final Manufacturing PMIs were disappointing. None of the data is materially impacting markets this morning, however.

Looking into the U.S. session, there are a few economic reports to watch today: ISM Manufacturing Index (E: 57.5), Construction Spending (E: 0.7%), and JOLTS (10.5 million) while no Fed officials are scheduled to speak.

We are getting into the heart of earnings season and there are some notable companies releasing Q4 results today including: UPS ($3.11), and XOM ($1.96) before the open and then PYPL ($1.13), AMD ($0.76), GOOGL ($26.69), GM ($1.15) and SBUX ($0.80) after the close.

Bottom line, near-term momentum continues to favor the bulls right now and this relief rally can continue if economic data is inline or slightly better than estimates (not too hot), earnings remain positive, and Fed policy expectations continue to get less hawkish.

What the Fed Decision Means for Markets

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What’s in Today’s Report:

  • What The Fed Decision Means for Markets (50 bps in March and/or five hikes in ’22)
  • EIA Analysis and Oil Market Update

Futures are little changed and recouped modest losses earlier this morning, as global markets digest yesterday’s Fed decision and mixed earnings.

Economic data was sparse as German Gfk Consumer Climate and UK Distributive Trades both slightly beat estimates.

Today will be a busy day of data and earnings and generally speaking markets need solid data and good earnings/guidance to help this market continue to stabilize.  Some reports we’re watching include: Jobless Claims (E: 265K), Durable Goods (E: -0.5%), Initial Q4 ‘21 GDP (5.7%) and Pending Home Sales (E :0.6%).

On the earnings front, the key report today is AAPL ($1.89) after the close, but other reports we’re watching include: MA ($2.19), MCD ($2.31), JBLU (-$0.40), LUV ($0.05), VLO ($1.69), SHW ($1.35), V ($1.69).

Tom Essaye Interview by Yahoo Finance Live on January 24, 2022

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Market rout leading to ‘a much more balanced risk-reward outlook’

I wouldn’t go into treasuries. I think that inflation is here to stay. We don’t know exactly how high it will be, but it’s here to stay, and that’s negative for bonds…said Tom Essaye. Click here to watch the full interview.

Tom Essaye Quoted in Courthouse News Service on January 24, 2022

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Markets claw back losses after worries spurred by Fed, Ukraine

The problem is that unlike 2013, the economy has an inflation problem, and the Fed is under enormous political pressure to rein in inflation…Tom Essaye of the Sevens Report noted. Click here to read the full article.

Fed Meeting Preview

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What’s in Today’s Report:

  • What to Make of Yesterday’s Selloff and Reversal
  • FOMC Preview
  • Chart: S&P 500 Measured Move Reached

Futures are trading off of the overnight lows but still down roughly 1% as yesterday’s volatile session is digested ahead of the Fed while IBM posted strong Q4 earnings yesterday and economic data largely met estimates overnight.

The FOMC meeting begins today which will increasingly capture trader focus ahead of tomorrow’s announcement and press conference.

Economically, we get two reports on the housing market this morning: the Case-Shiller Home Price Index (E: 1.0%) and the FHFA House Price Index (E: 1.0%) but Consumer Confidence (E: 111.9) will be the more important number to watch given the growing uncertainty about the state of the economic recovery. Another bad print like we saw with yesterday’s Composite PMI Flash could send stocks lower.

There is a 5-Yr Treasury Note auction at 1:00 p.m. ET and investors will be looking for strong demand (which would reflect dovish shifting Fed expectations) as we saw with yesterday’s 2-Yr auction which helped stocks bottom and reversed so sharply in intraday trade.

Finally, on the earnings front, we will hear from: JNJ ($2.12), VZ ($1.28), GE ($0.83), MMM ($2.03), and AXP ($1.78) before the open, and then MSFT ($2.29), TXN ($1.95), and COF ($5.14) after the close.

Early Earnings Season Takeaways

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What’s in Today’s Report:

  • Early Earnings Season Takeaways

Futures are modestly higher as China made two surprise interest rate cuts overnight, helping stocks bounce from Wednesday’s late-day declines.

China’s central bank made two small surprise interest rate cuts overnight which helped Asian stocks rally (Hang Seng up 3%) and that’s pushing U.S. futures higher.

Today focus will be on economic data and earnings, and for stocks to extend the early morning rebound we need to see stable data and solid earnings (meaning no extreme cost pressures).  Economically, the key report today is the  Philly Fed Manufacturing Index (E: 19.1).  If it suddenly plunges as Empire did on Tuesday, that will slightly increase anxiety about the economy.  We’ll also be watching Jobless Claims (E: 207K) and Existing Home Sales (E: 6.40M).

On the earnings front, the key report today is NFLX ($0.82) after the close, but we’ll also be watching:  AAL (-$1.54), TRV ($3.86), UNP ($2.60), CSX ($0.41) and PPG ($1.19).  If margins are much weaker than expected, look for more earnings-related volatility.

Sectors: Expensive, Cheap, and In Line With the S&P 500

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What’s in Today’s Report:

  • Sectors: Expensive, Cheap, and In-Line With the S&P 500
  • Chart: 10-Year German Bund Yield Turns Positive

U.S. stock futures are bouncing modestly after yesterday’s steep selloff as the surge in bond yields is showing signs of pausing after some mixed inflation data overnight.

German CPI met estimates of 0.5% in December, while U.K. PPI was 0.3% vs. (E) 0.6%, which is helping to ease some inflation concerns today.

Looking into today’s session, there is one economic report to watch: Housing Starts and Permits (E: 1.65M, 1.710M) while no Fed officials are scheduled to speak today.

There is a 20-Yr Treasury Bond auction at 1:00 p.m. ET that could spark another move in yields (a further rise in rates will continue to weigh on high valuation/growth tech stocks and the broader market while a pullback will open the door to a relief rally).

Finally, earnings season is continuing to pick up with BAC ($0.76), MS ($2.00), UNH ($4.30), PG ($1.65), and CFG ($1.61) all reporting ahead of the bell while UAL ($2.23), AA ($2.04), and DFS ($3.61) will release results after the close.

Bottom line, rising yields have been the biggest influence on stocks in recent sessions so it will take a stabilizing bond market and likely an additional positive catalyst or two (such as good earnings/good economic data) to see equity markets find their footing and rally today.

Pace Matters

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What’s in Today’s Report:

  • The Fed Rate Hike Rhetoric Needs to Calm Down

Futures are slightly higher as markets bounce following Thursday’s declines after a generally quiet night of news.

Economic data was better than expected overnight as UK Industrial Production (1.0% vs. (E) 0.3%) and monthly GDP (0.9% vs. (E) 0.3%) both beat estimates.

Today focus will be on earnings, some economic data and more Fed speak.  Economically, the key releases today are Retail Sales (E: 0.0%), Industrial Production (E: 0.3%) and Consumer Sentiment (E: 70.4). From the Fed, we have Harker (10:00 a.m. ET) and Williams (11:00 a.m. ET).  The bottom line is that to help markets stabilize, the data and Fed speak need to give the “March rate hike” mantra a rest, so that means in-line economic data and a slightly more relaxed tone from Fed officials.

Finally, today marks the start of earnings season and there are multiple key reports to watch today:  JPM ($ 2.98), WFC ($1.09), BLK ($10.23) and C ($1.89).  Put simply, earnings need to be solid given the recent volatility, otherwise we can expect the declines to accelerate over the coming weeks.

Why the 7% CPI Print Wasn’t Incrementally Hawkish

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What’s in Today’s Report:

  • What the 7% CPI Print Wasn’t Incrementally Hawkish
  • EIA Analysis and Energy Market Update

Futures are little changed following a generally quiet night of news.

Vice-Chair Brainard’s prepared remarks for today’s testimony were released after the close and she said fighting inflation was the Fed’s “most important task” largely echoing Powell’s commentary from Tuesday.

Senator Manchin called the 7% CPI print “very troubling,” further reducing the chances of Build Back Better passing.

Today focus will be on Brainard’s testimony, but as long as she doesn’t imply sooner than expected balance sheet reduction, the market shouldn’t take her comments too hawkishly.  Other potential market events today include, in order of importance:  PPI (E: 0.4%, 9.8%), Jobless Claims (E: 205K) and three Fed speakers:  Harker (8:00 a.m. ET), Barkin (12:00 p.m. ET) and Evans (1:00 p.m. ET).

With stocks not too far from recent highs, they will again be sensitive to more hawkish rhetoric, so if Brainard and her Fed officials are hawkish, and we get a stronger than expected PPI report, don’t be surprised if that puts a mild headwind on stocks today.