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Jobs Report Preview, May 5, 2017

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For the first time in 2017, the risks to tomorrow’s jobs report are balanced, as a “Too Hot” number will increase the possibility of more than three rate hikes in 2017 while a “Too Cold” number will fan worries about the pace of economic growth, and the ability for better economic growth to push stocks materially higher.

Here’s The Sevens Report traditional “Goldilocks” breakdown:

“Too Hot” Scenario (Potential for More than Three Rate Hikes in 2017)

  • >250k Job Adds, < 4.6% Unemployment, > 2.9% YOY wage increase. A number this hot would likely reignite the debate over whether the Fed will hike more than three times this year.
  • Likely Market Reaction: Withheld for subscribers. Unlock with a free trial at 7sReport.com.

“Just Right” Scenario (A June Rate Hike Becomes More Expected, But the Total Number of Expected Hikes Stays at Three)

  • 125k–250k Job Adds, > 4.7% Unemployment Rate, 2.5%-2.8% YOY wage increase. This is the best-case scenario for stocks, as it would imply still-stable job growth, but not materially increase the chances for more than three rate hikes in 2017.
  • Likely Market Reaction: Withheld for subscribers. Unlock with a free trial at 7sReport.com.

“Too Cold” Scenario (A June Rate Hike Becomes in Doubt)

  • < 125k Job Adds. Given the recent unimpressive economic reports, a soft jobs number could cause a decent sell-off in equities. As the Washington policy outlook continues to dim, economic data needs to do more heavy lifting to support stocks. So, given the market’s focus on future growth, the bottom line is bad economic data still isn’t good for stocks.
  • Likely Market Reaction: Withheld for subscribers. Unlock with a free trial at 7sReport.com.

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Another Oil Plunge, Futures Down, May 3, 2017

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Oil rigThe Sevens Report is everything you need to know about the market, in your inbox by 7am, in seven minutes or less.

Oil futures sank 2.74% yesterday, with a large portion of the losses coming in the final hour. The catalyst for the decline was a collection of analysts’ estimates for this morning’s EIA report that started to come in showing more substantial builds in product inventories even though oil stocks are supposed to fall.

RBOB gasoline futures have been leading the way lower since they topped out on April 12. In fact, since that day, futures have only notched one single gain (that is three weeks with just one positive trading day). Gasoline futures now are within 3% of their 2017 lows, and if the downtrend continues that will be a headwind on the rest of the energy space.

Oil futures came within 1% of their 2017 lows yesterday and the momentum is clearly with the bears. Yesterday’s move was amplified by a “stop run” as futures broke through the March lows in the June contract. But in an encouraging sign of weakness, futures were unable to rebound.

On the charts, futures broke through a longstanding technical uptrend line that dated back to early August. That is another sign of technical weakness in the market.

In doing some cross-asset analysis yesterday, there was evidence that the inverse correlation between oil prices and long bond prices is resurfacing. As a reminder, for a period of time back in early 2016, long bond futures were trading almost exclusively off of the price of oil (specifically when WTI had a $20 handle). The reasons were twofold.

First, low oil prices are a drag on inflation readings, which would have dovish implications for Fed policy (long bond positive). Second, long bonds benefited from a safe-haven/fear bid as lower oil prices increased the risk of small producers defaulting on loans, many of which were issued by southern and central regional banks. Ultimately, contagion fears weighed on regional banks and the broader financial sector collectively. Now, it is not clear whether this is happening again as it was only one day of trading so far, but it is something to keep in mind going forward. If oil declines cause a sharp break lower in longer-term interest rates, that will weigh on stocks.

Bottom line, the fundamentals (rising US production and still-overflowing global stockpiles), technicals (new five-week lows), and market internals (bearish term structure) all continue to favor the oil bears right now, and the idea that we are in a “lower for longer” price environment still stands.

Oil and the rest of the energy complex is, however, near-term oversold, and we could see a volatile short covering rally given the right catalyst. Such a move would likely be short-lived, and if we were to see a continued move into the low $40s or even high $30s that would have serious implications for all asset classes (as in early 2016).

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Political Update for Investors, April 27, 2017

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Political Update for Investors

Trading yesterday was driven by multiple political-related headlines. Politics reasserted itself on the market narrative on Wednesday, helping stocks initially rally following renewed hopes for an Obamacare repeal/replace bill, and after the Trump Administration unveiled a significant (though expected) tax cut plan.

Yet despite the media focus on those two events, any actual progress with healthcare or taxes remains unlikely (and didn’t get better yesterday). The third piece of political news, an investigation into aluminum imports by the Commerce Department, was the most important (yet underfollowed) political development for markets yesterday.

I cover each issue below, cut through the noise, and get to any likely market influence. The bottom line is that despite generally favorable headlines, all the political news yesterday was a mild net negative for stocks.

Trump Administration Tax Cut Plan.

What Happened: The Trump Administration unveiled a sweeping tax cut proposal that included a 15% corporate rate, just three individual tax brackets, doubling the standard deduction, and repatriating overseas profits.

Why It Matters: Corporate tax cuts remain the easiest catalyst for a stock breakout, but unfortunately the tax plan revealed yesterday is very unlikely to pass Congress, and the reason is simple: There is no offset to the reduced revenue from lower taxes. As such, this plan will increase the deficit, and that likely means Democrats can filibuster the bill. Going forward, unless a tax plan contains some material offsets to reduced taxes (like border adjustments) then passage of any big tax cuts remains unlikely in 2017, and that’s stock negative.

How Markets Reacted: Tax-related headlines can still cause a pop in markets, but only a credible plan that can pass Congress will be a bullish gamechanger. (For more market insights in your inbox by 7am each morning, sign up for a free 2-week trial at 7sReport.com.)

Healthcare Bill (Obamacare repeal/replace).

What Happened: The details were fast and furious on this yesterday, but as of this writing it appears the House will vote on the bill potentially this weekend, and odds of passing are decent.

Why It Matters: Passage of an Obamacare repeal/replace increases the chances of tax cuts also passing, as it will increase Trump’s political capital and provide more revenue to offset tax cuts. However, even if this bill passes the House, the chances of passage in the Senate in the current form remain slim. So, while a potential moral victory, it won’t significantly increase the chance of healthcare reform, and as such I don’t see it as a bearish gamechanger for healthcare ETFs (XLV, IHF, IBB).

How Markets Reacted: Stocks (including health care names) largely ignored this news, as again the likelihood of any Obamacare repeal/replace becoming law remains slim. (For more market insights in your inbox by 7am each morning, sign up for a free 2-week trial at 7sReport.com.)

Tariffs and Trade.

What Happened: Yesterday the Commerce Department announced an investigation into aluminum imports. No tariffs were announced, but it certainly looks to be moving in that direction. This announcement comes one day after Commerce levied taxes on Canadian soft lumber imports. Additionally, a Politico story hit midmorning that President Trump was close to signing a document notifying Mexico and Canada that the US intends to withdraw from NAFTA within six months. The document does not guarantee a US exit (they can change course), but it is a necessary legal step to begin the process. Since yesterday the White House has said it’s not preparing this document yet but didn’t squash the idea all together.

Why It Matters: These trade events yesterday (and this week) are actually the most important political events of the week, not because of their immediate impact (Canadian lumber and aluminum tariffs don’t mean a trade war, and the NAFTA announcement is likely for negotiating leverage), but it does remind markets of Trump’s potentially disruptive trade policies. That matters, because right now markets have not priced in any trade-related headwinds, so this does represent at least a modest risk to the bullish narrative.

How Markets Reacted: All the trade headlines weighed slightly on stocks during the late afternoon, but the current headlines simply aren’t bad enough to warrant an outright reversal in stocks. (For more market insights in your inbox by 7am each morning, sign up for a free 2-week trial at 7sReport.com.)

Bottom Line on the Political Update for Investors:

Material “gaps” remain that must be filled if the S&P 500 can sustain a meaningful breakout above 2400, including 1) The gap between political expectations and political reality, 2) The gap between too-low Treasury yields and very high stock prices (although that’s narrowed some-what this week, but not enough), and 3) The gap between soft economic surveys and hard economic data.

In the very short term, investor sentiment seems skeptical, and the market acts as though investors are more afraid of missing a breakout than they are a break down (similar to what we saw when the S&P 500 broke through 2300). So, the “pain trade” looks higher short term and that’s helping stocks.

But given valuations (the S&P 500 trading nearly 18X 2018 earnings), I don’t think sentiment alone is enough to push us decidedly through 2400 without positive resolution on some of these gaps. That means we need 1) Actual progress on tax cuts (which didn’t happen yesterday), 2) A rally in the 10 year above 2.40%, or 3) Better economic data starting today.

I am therefore sticking with my call that the 2300-2400 broad trading range in the S&P 500 should hold, and I would not be chasing stocks at these levels.

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The Case for Investing in Europe (Updated), April 25, 2017

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The Case for Europe, Updated

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European indices and ETFs exploded to new 52-week highs yesterday following the expected French election results. The likely removal of that French political risk overhang reinforces our bullish thesis on Europe, especially given some wobbling in US economic data recently.

On March 21 we presented “The Case for Europe,” which was our bullish thesis on Europe as a tactical investment idea. Since we presented that piece, the three Europe ETFs we recommended have rallied an average of 4.2% vs. the S&P 500 just being flat over the same period. We think that outperformance from Europe can continue for the coming months, so we are presenting an updated “Case for Europe,” and reiterating our bullish stance on three Europe ETFs.

Bullish Factor #1: Compelling Relative Valuation. The reasoning here is simple. The S&P 500 is trading at the top end of historical valuations: 18.25X 2017 EPS, and 17.75X 2018 EPS. There’s not much room for those multiples to go higher, and if we get policy disappointment or the economic data loses momentum, markets could hit a nasty air pocket.

(Specific data and ETFs withheld for subscribers – unlock with free trial: 7sReport.com) 

So, while it’s true Europe should trade at a lower multiple vs. the US given the still-slow growth and political issues, those discounts are pretty compelling. In a world where most equity indices and sectors are fully valued, Europe offers value.

Update: The valuation gap still remains and European indices trade at a still steep discount to the S&P 500. We continue to think we can see multiple expansion in Europe that can help European stocks outperform their US counterparts.

Bullish Factor #2: Ongoing Central Bank Support. This one also is pretty simple… the ECB is still doing QE. The ECB is still planning to buy 60 billion euros worth of bonds through December of this year. That will support the economy, help earnings and push inflation higher, all of which are positive for stocks.

Update: The ECB reacted dovishly to perceptions that it might prematurely end QE or raise rates, and with inflation metrics still uncomfortably low, the chances of a hawkish surprise from the ECB anytime soon are low.

Bullish Factor #3: Overblown political risk. We’ve been talking about this for a while, but the fact is that political risks in Europe are overblown, and just like people underappreciated risks in 2016, I believe they are now overreacting to Brexit and Trump by extrapolating those results too far.

Going forward, there are really two important elections this year: France and Germany.

Update: Macron beat Le Pen in the first round of voting, and according to both the Harris and Ipsos polls taken right after voting on Sunday, Macron holds a large 64% to 36% ad-vantage ahead of the May 7 election.

Turning to Germany, they will have elections in September, and Social Democrat leader Martin Schulz will challenge Merkel for the Prime Minster position. Schultz is a former President of the European Parliament, and he’s not anti EU at all. So, if he wins, from an EU outlook standpoint, it isn’t a negative. Now, I’m not going to get into the details of his politics, because they aren’t yet important for this investment. The bigger point is that it’s not really a problem for the European economy if Schultz wins.

Bottom line, we’ve done well in international investments in the past (Japan during Abenomics, Europe when they started QE), and we believe this is another opportunity to outperform.

How to Play It: (Specific data and ETFs withheld for subscribers – unlock with free trial: 7sReport.com) 

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Are British Elections a Bullish Gamechanger for the Pound? April 19, 2017

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The Sevens Report is the daily market cheat sheet our subscribers use to keep up on markets, seize opportunities, avoid risks and get more assets. 

The pound was the big mover on Tuesday as it surged 2.2% following PM May’s call for elections in June. (As a bit of background, May calling for snap elections means that in the next few days Parliament will be dissolved, and then there will be national elections for all Parliamentary seats over the next six weeks).

The news took markets by surprise, but it is a politically savvy move by Ms. May. Right now, in part because a swell in national pride following the official start of Brexit, PM May is very popular. Calling for elections now will capitalize on that popularity, and help her Tories (Conservatives) increase their majority in Parliament.

From an economic standpoint, however, this isn’t likely to have much of an actual effect. Like the Republicans in the US, the Tories are viewed as the “pro-business” par-ty, so there was a knee-jerk positive reaction. However, Brexit will be the major influence on the value of the pound and the British economy over the next few years, not internal politics. Besides, as we’ve seen with Republicans here in the US, just because a party has power doesn’t mean it can actually get anything done!

Bottom line, the pound has surged to multi-month highs and clearly broken resistance at 1.25, and there’s more short covering to come. But, I do not view Tuesday’s events as a bullish gamechanger for the pound or British stocks, and if anything I’d be inclined to sell the pound if it approached 1.30 vs. the dollar.

For now, though, standing on the sidelines is warranted.

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Did Trump Just Kill The Reflation Trade? April 13, 2017

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Did Trump Just Kill The Reflation Trade? An excerpt from today’s Sevens Report.

Trump - YellenPresident Trump, in an interview with the WSJ yesterday, appeared to change his policy on the Fed and interest rates. Specifically, Trump said he thought the dollar was getting too strong, that he favored a low interest rate policy, and he was open to keeping Yellen as Fed Chair. It was the second two comments that caught markets attention and caused a “dovish” response in the dollar and bond yields (both of which fell).

The reason these comments were a surprise was because it was generally expected Trump wouldn’t keep Yellen and was in favor of a more hawkish Fed Chair and appointing more hawkish Fed governors (there are currently three vacancies on the Fed President Trump can fill).

So, the market was expecting Trump to be a hawkish influence over the coming years, but yesterday’s comments contradict that expectation.

Going forward, from a currency and bond standpoint (the short term reaction aside) I do not see Trump’s comments as a dovish gamechanger for the dollar or rates. Yes, near term it appears the trend for the dollar is sideways between 99.50ish and 102 while the 10-year yield has broken below support at 2.30%.

But, I don’t see Trump’s comments sending the dollar back into the mid 90’s, nor do I see them sending the 10 year yield below 2%.

I also don’t expect this dovish reaction to be a material boost for stocks, because dovish isn’t positive for stocks any more (in fact the comments are causing the stock sell off this morning—more on that in minute).

Bigger picture, the longer-term path of the dollar and bond yields will be driven by growth, inflation and still ultra-accommodative foreign central banks.

Better economic growth (either by itself or with policy help) is the key to the longer-term direction of the dollar and rates (and we think that longer-term trend remains higher).

However, in the near term, his comments sent the 10 year yield decidedly through support at 2.30%, and that is causing stocks to drop as Treasury yields continue to signal that slower growth and lower inflation are on the horizon. And, since the market has rallied since the election on the hopes of better growth and higher inflation (i.e. the reflation trade) this drop in yields is hitting stocks.

The violation of support in the 10 year yield at 2.30% is important and a potentially near term bearish catalyst for stocks. If the ten year yield doesn’t stabilize and make some effort to rally over the next few days, a test of 2300 or 2275 in the S&P 500 would not shock me.

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Fed Balance Sheet Primer, April 11, 2016

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Fed Balance Sheet Primer

An excerpt below from today’s subscriber edition of Sevens Report.

Fed Balance Sheet Primer

Markets remain consumed by politics and geopolitics, but really the biggest macro surprise so far for 2017 came from the Fed last week, with the realization that they could begin to shrink their balance sheet in 2017. That event has potentially hawkish implications for bonds (bonds lower, yields higher), the dollar (higher) and stocks (increased headwind).

We initially warned about this possibility back in mid-March in our FOMC Preview. And, as we said back then, you’re going to be reading a lot more about this in the coming weeks, so I want to cover this topic more fully so that everyone has proper context.

Why Is The Fed Balance Sheet Important? The Fed balance sheet has ballooned over the past eight years given all the bonds it has purchased through the various QE programs. Unwinding that balance sheet without up-setting asset markets is quickly becoming the Fed’s highest priority.

To get specific, right now the Fed reinvests all the proceeds from a matured bond on its balance sheet—but that’s going to change. If the Fed gets $100 million in short-term Treasuries redeemed, right now it simply buys $100 million worth of new Treasuries. But when the Fed stops that reinvestment, that $100 million wouldn’t go back into the bond market, removing a source of demand.

The point is that when the Fed stops reinvesting principal, that will be potentially bond negative/yield positive, and that process needs to be managed very carefully considering the size of the balance sheet ($2.4 trillion in Treasuries, $1.7 trillion in mortgage backed securities).

When Will the Fed Stop Reinvesting All Bond Proceeds? Until last Wednesday, the unanimous answer would have been “2018.” But, following the Minutes, it’s looking more likely that the Fed could begin to end reinvestment of proceeds in December 2017.

Very Hawkish If:… Hawkish If:… Neutral If:… Dovish If:…

The above section is withheld for subscribers—sign up for a free trial to unlock.

What Will the Fed Stop Buying? Right now, the Fed rein-vests proceeds from both Treasuries and Mortgage-Backed Securities (MBS), so the question facing markets is whether the Fed will stop reinvestments in just one of these two securities, or whether it will stop reinvestments in both. Until the Minutes, it was assumed the Fed would only begin halting reinvestments in MBS (that way they could further support Treasuries, the more critically important market).

Hawkish If: … Neutral If: …

The above section is withheld for subscribers—sign up for a free trial to unlock.

How Will the Fed Stop Reinvesting Proceeds? The major question here is whether the Fed will slowly reduce the amount of reinvestment gradually, or whether it will just halt reinvestments all together. To illustrate the point, if one week the Fed has $100 million in bonds paying off, will they reinvest $50 of the $100 and reduce that number gradually over time, or will they just not reinvest any of the $100?

Given Fed history, a gradual reduction is what everyone expects; however, in the Minutes they talked about zero reinvestment, and it seems like the Fed is getting a bit antsy to get policy closer to normal.

Hawkish If:… Neutral If:…

The above section is withheld for subscribers—sign up for a free trial to unlock.

Bottom Line

This topic isn’t exactly exciting, and it won’t grab the headlines, but it is shaping up to be one of the bigger market influences in 2017. The reason why is simple: No one knows what’s going to happen to the bond market once the Fed begins to remove itself. On a percentage basis, it’s not like the Fed dominates the daily trading in Treasury markets. Yet sentiment is a funny thing, and the Fed needs to manage the unwind of a $4.1 trillion balance sheet successfully, because the potential for some sort of a market dislocation (especially in the age of algorithms and HFTs) isn’t insignificant. So, please keep this primer as a reference point, because I would be shocked if the Fed balance sheet doesn’t cause some sort of volatility in 2017 (beyond just the Wednesday reversal the news caused last week).

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Bond Market Problems (That May Become Stock Market Problems), April 5, 2017

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This is an excerpt from today’s Sevens Report—everything you need to know about the markets in your inbox by 7am, in 7 minutes or less.

One of the reasons I watch all asset classes so closely is because I’ve learned that other sectors often will confirm (or not confirm) a move in the stock market. Right now we are getting a pretty notable non-confirmation from the bond market.

Bond market problemsSpecifically, when stocks rally I like to see: 1) Bond yields rising, which reflects investors expecting greater economic growth and inflation (two stock positive events). 2) A steepening yield curve, which also reflects rising inflation expectations and increased demand for money via loans (something that has been sorely missing from this recovery). 3) I like to see “riskier” parts of the bond market, specifically junk bonds, rising (or at least holding flat) as investors show confidence in corporate America by lending money to riskier companies in search of greater yield (it’s an anecdotal risk-on signal).

Throughout Q4 2016, that’s exactly what we got. First, the yield on the 10-year Treasury rose from 1.54% in late September, to 2.40% at year end. Second, the yield curve steepened as the 10’s-2’s spread rose from 0.81% on Sept. 29 to 1.25% on Dec. 30. Finally, junk bonds were broadly flat during that period (although with notable volatility).

Since the start of 2017, the opposite has occurred. The 10 year started at 2.44% but now is sitting at 2.35%. The 10’s-2’s spread has decreased from 1.23% on Jan. 1 to 1.11% on Monday (the low for the year). Finally, junk bonds rallied through March with stocks, but have since given back some of those gains. If JNK (the junk bond ETF) breaks $36.19 that will be the first “lower low” of 2017, and a negative technical signal.

Point being, the bond market is reflecting an outlook that is comprised of slower growth, less inflation, and more general concern—which is almost the exact opposite of what we’re seeing in stocks right now.

To be clear, this non-confirmation isn’t a guaranteed death sentence for a stock rally. Bond markets gave non-confirmation signals consistently in 2015 when Europe was on the verge of deflation because of the flood of European money into Treasuries, which sent bonds higher and yields lower despite a stock rally. But, that’s not happening now.

So, the “gaps” in this environment are growing in size and number. The gap between political expectations and likely reality regarding tax cuts is as wide as it’s even been. The gap between hard and soft economic data continues to widen as sentiment indicators continue to surge. Now, the gap between bond market direction and stock market direction is widening.

Bottom line, the trend in stocks remains higher, but there are cracks appearing in the proverbial ledge stocks are standing on, and we better get some positive catalysts soon, otherwise we are in danger of a real pullback.

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Why Are Stocks Falling? Blame Auto Sales (seriously). April 4, 2017

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Below is an excerpt from today’s Sevens Report. Cut through the noise and understand what’s truly driving markets, as this new political and economic reality evolves—start your free two-week trial today. 

Economic data was the major influence on markets yesterday, and while most of the focus was on the ISM Manufacturing PMI and the Markit manufacturing PMI, (both of which were in line with expectations), the real market mover was the disappointing auto sales report.

Auto Sales Responsible Auto sales fell to 17.0M saar vs. (E) 17.2M saar, and that number joins a growing chorus of caution signs on the auto industry, including fears about used car pricing and used car debt.

Bottom line, auto sales aren’t as popular as the ISM Manufacturing PMI, but the auto industry in the US is massive and very cyclical, and if we are starting to see the beginnings of a pullback in the auto industry that’s not a good sign for the broader economy. That’s why the disappointing auto sales number hit stocks so hard yesterday, even in the face of in-line manufacturing PMIs.

Bigger picture, the “gap” between soft and hard economic data continued to widen yesterday, as the soft PMI survey data was strong while the hard March auto sales data was disappointing. That gap between sentiment/survey data and actual hard economic numbers must be closed sooner rather than later, and it’s a growing risk to stocks.

ISM Manufacturing Index

• The Index fell to 57.2 vs. (E) 57.1

Takeaway

The trend in the manufacturing sector of the economy remains healthy according to the latest release from the ISM. The March ISM Manufacturing Index did edge back for the first time since August, slipping from 57.7 to 57.2 month over month, but the headline was still narrowly ahead of estimates (57.1).

The details of the report were solid as New Orders remained notably strong at 64.5. That was a slight pullback from February’s reading of 65.1; however, it was the second-largest reading in more than three years (after February). New export orders also were at a three-year-plus high of 59.0 while Employment jumped 4.7 points to 58.0, the highest level in almost six years. Rounding out the report’s internals, Prices Paid rose to 70.5, the highest reading since May 2011, underscoring a potential uptick in inflation in the US.

Bottom line, the ISM release showed some slight moderation month over month, but the general trend remains strong which is a positive (although again, this surging survey data needs to start being confirmed by hard economic numbers).

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Last Week and This Week in Economics, April 3, 2017

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“Last Week and This Week in Economics”—an excerpt from today’s Sevens Report: everything you need to know about the markets in your inbox by 7am, in 7 minutes or less.

Last Week

Sevens Report - April 3, 2017 - This Week and Last WeekEconomic data was sparse again last week, but what data did come beat expectations (although it didn’t do a lot to bridge the gap between survey-based indicators and hard economic data). Still, the numbers did continue to be enough to offset growing Washington noise.

Consumer confidence was the highlight of the week, and it blew away expectations. The number rose to the highest level since summer 2001, coming in at 125.6 vs. (E) 113.8. While a strong number, that is another sentiment survey, and these soaring sentiment surveys need to start reflecting in the hard data starting in Q2 (remember, Q1 GDP is still expected to be around 1%).

The other notable number last week was Pending Home Sales, which also beat estimates, rising 5.5% vs. (E) 2.5%. The biggest takeaway from the March housing data is that it appears higher mortgage rates are not hurting the residential housing market, and that’s an important but underappreciated tailwind on the economy, generally speaking. Going forward, a stable housing market remains critical if there’s any hope to seeing a material economic acceleration.

Bottom line, the last two weeks have been light on economic data, but what numbers we’ve got have generally been good, and as a broad statement the economic data has continued to offset lack of progress in Washington… but that trend will be put to the test this week.

This Week

After two quiet weeks of economic releases, we more than make up for it this week, as the three most-important economic releases of the month all come over the next five days. From a broader context standpoint, with Washington stuck in neutral and hopes of big tax reform fading, economic data needs to stay firm to support stocks. If the data disappoints this week, don’t be surprised if we test last week’s lows.

The most important release this week is Friday’s jobs report. We will do our typical “Jobs Report Preview” later this week, but again it’s important this number is Goldilocks, in that it’s strong enough to support the market, but not so strong that it makes a May rate hike more likely.

The next most-important release this week is the global manufacturing PMIs (out today). The European and Asian numbers have already been released, and focus now turns to the March ISM Manufacturing PMI at 10 a.m. today. This number is taking on a bit more significance due to the disappointment of the flash manufacturing PMI of two weeks ago. It hit a surprise six-month low, so markets will want to see the ISM Manufacturing PMI refute that reading.

The manufacturing PMI is followed by the global manufacturing PMIs out Tuesday night/Wednesday morning. Those reports will again potentially confirm the uptick in global growth, and especially in Europe, where numbers have been strong lately. Domestically, it’s the same story. Economic data needs to support this market in the face of disappointment from Washington. Failure to do that puts this rally at risk.

The only other notable event this week will be the ECB minutes. If the minutes read hawkish, that could put a temporary headwind on HEDJ and long Europe positions. But a dip will likely be a buying opportunity in HEDJ.

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