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May MMT Update: Less Bad News Is Not Good

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May MMT Update: Less Bad News Is Not Good: Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • May Market Multiple Table Update: Don’t Confuse Less-Bad News for Actual Good News

Futures are little changed this morning as favorable EU economic data and strong bank earnings from UBS and UniCredit offset escalating geopolitical tensions in Gaza.

Geopolitically, Israeli tank units seized a critical Rafah border crossing with Egypt as ceasefire talks reportedly continue, however the market impact is limited this morning with oil futures slightly lower.

Economically, UK’s Construction PMI topped estimates (53.0 vs. E: 51.1) and EU Retail Sales rose 0.8% vs. (E) 0.7% helping ease worries about fading economic growth in Europe.

Looking into today’s session, focus will be on the Fed’s Kashkari who speaks mid-morning (11:30 a.m. ET). The market is looking for more confirmation of sooner-than-later rate hikes in 2024.

Then this afternoon, there is a 3-Yr Treasury Note auction at 1:00 p.m. ET which will be closely watched by bond traders to see how well the larger than expected Q2 bond issuance will be absorbed by the market. A tailing auction that sends yields higher will be negative for stocks.

Finally, there is just one economic report this afternoon: Consumer Credit ($15.5B) and two earnings reports to watch: DIS ($1.11), LYFT ($0.02).

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Current Market Glossary (For Clients & Prospects)

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What’s in Today’s Report:

  • Current Market Glossary (For Clients & Prospects)

Futures are slightly lower following a night of disappointing tech earnings.

NFLX, TSLA and TSM all posted disappointing earnings results (stocks down 3% – 6% pre-market) and that’s weighing on Nasdaq and S&P 500 futures.

There was no notable economic data overnight.

Today will be another busy day of data and earnings results.  On the economic front, the two key reports are Weekly Jobless Claims (E: 250k) and Philly Fed (E: -10.0), and as you can guess (and especially at these stretched valuations) markets will want to see more Goldilocks data (so stable claims and Philly and falling prices).  We also get Existing Home Sales (E: 4.23M) but, barring a big miss, that shouldn’t move markets.

Turning to earnings, focus today is on industrials and consumer/healthcare names, and some important results to watch include:  AAL ($1.58), TSM ($1.07), JNJ ($2.61), PM ($1.48), COF ($3.31), CSX ($0.49), and PPG ($2.14).

What Pushes Stocks Higher from Here?

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What’s in Today’s Report:

  • What Pushes Stocks Higher from Here?
  • Weekly Market Preview:  Earnings Take Center Stage
  • Weekly Economic Cheat Sheet:  Growth Data in Focus this Week

Futures are slightly lower following mixed Chinese economic data and a potential further escalation of the Russia/Ukraine war.

Chinese economic data was mixed as GDP and Retail Sales both missed estimates, while Industrial Production beat, and the data will keep markets  wanting more stimulus.

Possibility of further escalation of the Russia/Ukraine war increased after Ukraine claimed responsibility for the destruction of a bridge linking Crimea and Russia.

Today focus will be on the first data point for July, the Empire Manufacturing Index (E: -4.3).  Markets will want to see this number be stronger than expectations and ideally turn positive, furthering the “Golidlocks” market narrative of falling inflation but stable growth.

PPI and Jobless Claims Strengthen the “Goldilocks” Narrative

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What’s in Today’s Report:

  • PPI and Jobless Claims Strengthen the “Goldilocks” Narrative

Futures are little changed following a quiet night of news as markets digest the Wed/Thurs rally and focus turns to the start of the Q2 earnings season.

Economically, there was more evidence of global disinflation (or deflation) as German Wholesale Prices (think their PPI) declined –2.9% y/y vs. (-1.2%) y/y.

Today focus will be on earnings, as we get several major bank earnings results:  JPM ($5.92), C ($1.31), WFC ($1.15), and BLK ($8.47) as well as UNH ($5.92).  These large cap companies usually don’t provide too many surprises in their earnings reports, but markets will want to hear positive commentary on the overall environment to further support this latest rally in stocks.

There are also two notable inflation linked economic reports today, Import & Export Prices (E: -0.2%, -0.4%), Consumer Sentiment (E: 65.0), but barring any major surprises they shouldn’t move markets.

CPI Preview: Good, Bad, and Ugly

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What’s in Today’s Report:

  • CPI Preview – Good, Bad, & Ugly
  • Chart: Is Disinflation Accelerating?

U.S. stock futures are extending this week’s gains ahead of the all-important CPI report this morning following a mostly quiet night of news.

There were no economic reports overnight but the Reserve Bank of New Zealand did notably pause their rate hiking cycle leaving their policy rate unchanged at 5.50% (however this was expected and did not meaningfully move markets).

Looking into today’s session the big catalyst is the CPI report due out before the open. On the headline, CPI is expected to come in at 0.3% m/m and 3.1% y/y while the Core figure is seen rising 0.3% m/m and 5.0% y/y.

From there, focus will turn to Fed speakers with Kashkari speaking shortly after the open (9:45 a.m. ET) and Mester at the close (4:00 p.m. ET).

Finally, there is a 10-Yr Treasury Note auction at 1:00 p.m. ET and the outcome could shed light on the bond market’s outlook for the economy and Fed policy expectations in the wake of the CPI data release, so there is potential this auction moves markets in the early afternoon.

Explaining Current Market Risks to Clients (And Prospects)

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What’s in Today’s Report:

  • How to Explain Risks in This Market to Clients/Prospects
  • Mannheim Used Vehicle Value Index Takeaways (Chart)

Futures are slightly higher while most international markets rallied overnight thanks to news of more Chinese government support for the property sector and steady EU inflation data.

German CPI met estimates of 0.3% m/m and 6.4% y/y in June, both unchanged from May, while the ZEW Survey was inline with expectations on the headline but Economic Sentiment deteriorated to -14.7 vs. (E) -10.2.

Domestically, the NFIB Small Business Optimism Index came in at 91.0 vs. (E) 89.8 in June which is helping bolster investor sentiment in the premarket.

There are no additional economic reports today and just one Fed speaker on the calendar: Bullard (9:00 a.m. ET) which will leave investors looking ahead to tomorrow’s critical CPI report.

Tom Essaye Quote in Barron’s on June 30th, 2023

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U.S. Stock Futures Rise Ahead of Key PCE Inflation Data

Futures are moderately higher mostly on momentum and end of quarter/half positioning, as economic data overnight was mixed but not bad enough to interrupt the rally, said Tom Essaye, founder at Sevens Report Research. Click here to read the full article.

Tom Essaye Quoted in Barron’s on June 30th, 2023

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Bank Stocks Are Higher After Passing Fed’s Stress Test

The 23 largest banks in the U.S. passed the Fed’s annual stress tests, and while none were expected to fail, the fact that there were no negative surprises is a general positive for the banking sector and financials, Tom Essaye, founder of research firm Sevens Reports, wrote Thursday. Click here to read the full article.

Why Economic Data Will Decide if the Rally Continues in 2H ’23

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What’s in Today’s Report:

  • Why Economic Data Will Decide if the Rally Continues in 2H ‘23
  • Weekly Market Preview:  Does Economic Data This Week Reinforce “No Landing” Expectations?
  • Weekly Economic Cheat Sheet:  Jobs Report Friday, ISM PMIs Monday and Thursday.

Futures are flat to start the second half of 2023 following a quiet weekend of news.

Economic data was mixed overnight as the EU Manufacturing PMI slightly missed estimates (43.4 vs. (E) 43.6) while the UK reading slightly beat expectations (46.5 vs. (E) 46.2), but neither number is moving markets.

Saudi Arabia and Russia made separate announcements about further reducing oil supply in the coming months, although they aren’t causing a material rally.

Today focus will be on the ISM Manufacturing PMI (E: 47.2) and at this point, and with yields this high, markets need to see solid data and that means the ISM Manufacturing PMI moving closer towards 50 and beating expectations.

As a reminder, the stock market will close at 1:00 p.m. today ahead of the July 4th holiday.

 

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Our Q2 ’23 Quarterly Letter will be released today.

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Earnings Disappointments Rekindle Economic Worries

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What’s in Today’s Report:

  • Earnings Disappointments From FDX and WGO Rekindle Economic Worries
  • What the Strong Housing Starts Mean for Markets
  • Bear Flattening Trend in Treasuries Underscores Hawkish Fed Expectations

Stock futures are falling with global markets and yields are rising this morning after more hawkish central bank decisions overnight as focus turns to the BOE.

In Europe, monetary policy decisions were net hawkish as Norway’s central bank raised rates 50 bp vs. (E) 25 bp to 3.75% while the Swiss National Bank met estimates with a 25 bp hike to 1.75%. The rate hikes are pressuring global bond markets (yields higher) and weighing on sentiment, dragging equity markets lower.

Looking into today’s session, early focus will be on the Bank of England as a 25 bp hike to 4.75% in the benchmark policy rate is expected but there is risk of a 50 bp hike to 5.00% which would be another hawkish surprise for markets and likely result in rising yields and more pressure on overbought equity markets.

In the U.S. there are two economic reports to watch: Jobless Claims (E: 261K) and Existing Home Sales (E: 4.250M). A further rise in claims could bring into question whether or not the labor market is suddenly beginning to deteriorate meaningfully while strong housing data would warrant a hawkish reaction after the much better than expected Housing Starts print earlier this week.

From there, focus will turn to the Fed as Chair Powell continues his semi-annual Congressional testimony at 10:00 a.m. ET while Mester will speak around the same time (10:00 a.m. ET).

Finally, there is a 5-Yr TIPS auction at 1:00 p.m. ET that could offer insight to inflation expectations and move yields, but most of the market-moving news will likely hit before the lunch hour today.