Posts

What Drove Yesterday’s Rally? (It Wasn’t AI)

/in , /by

What’s in Today’s Report:

  • What Drove Yesterday’s Rally? (It Wasn’t AI)

Futures are higher and global markets rallied overnight on rising hopes for a rapid decline in inflation.

Inflation metrics on Thursday hinted at accelerating disinflation (ISM Prices Paid and Unit Labor Costs were yesterday’s bullish catalysts) and that was reinforced this morning by a decline in Korean CPI.

Chinese stocks surged overnight thanks to a Bloomberg article that raised hopes for more government stimulus.

Today focus will be on the jobs report and estimates are as follows: 180K job adds, 3.5% Unemployment Rate and 0.3% m/m & 4.4% y/y wage gains.  Given yesterday’s momentum, if the jobs report shows solid job gains and underwhelming wage growth, the rally should continue.  However, if the jobs report comes in “Too Hot” on the headline or wages, don’t be surprised if markets give back part of yesterday’s rally.

Hard Landing vs. Soft Landing Scoreboard

/in , /by

What’s in Today’s Report:

  • Hard Landing vs. Soft Landing Scoreboard (Table Included)

Stock futures are tracking global equity markets lower while bonds rally thanks to disappointing bank earnings.

FRC, which has been in focus since the banking turmoil began in March, is trading lower by more than 20% in the premarket after reporting that deposits fell more than 40% in Q1 to just $104.5B vs. (E) $145B while the bank plans to cut as much as 25% of staff in Q2. The lower than expected deposit levels rekindled worries about the health of the banking system and financials are dragging the broader market lower this morning.

Today, there are a few economic releases to watch: Case-Shiller Home Price Index (E: -0.4%), Consumer Confidence (E: 104.2), and New Home Sales (E: 635K) but unless there are any material surprises, investors will remain focused on earnings as we will begin to get some of the big tech companies’ results after the close today.

On the earnings front we will hear from UPS ($2.19), VZ ($1.19), GM ($1.58), MCD ($2.30), GE ($0.13), PEP $1.37), and MMM ($1.60) before the open, and MSFT ($2.22), GOOGL ($1.07), V ($1.97), and TXN ($1.76) after the close. Investors will be looking for good top and bottom line results but potentially more importantly, solid guidance given the uncertain market backdrop right now.

Three Catalysts in Focus

/in , /by

What’s in Today’s Report:

  • What Can Break the S&P 500 Out of the Current Trading Range? Three Candidates
  • ISM Manufacturing Index Takeaways (Fairly “Goldilocks”)
  • OPEC+, Oil Prices, Inflation, the Economy, and Fed Policy – They’re All Tied Together

U.S. stock futures are tracking European markets higher this morning thanks to a cooler-than-expected inflation print in Europe while news flow was otherwise mostly quiet overnight.

Economically, Eurozone PPI for February came in at -0.5% vs. (E) -0.3% m/m but a still lofty 13.2% vs. (E) 13.5% y/y. Despite the still elevated annual figure, the lower than expected print is bolstering risk assets this morning.

Today, there are three economic reports to watch in the U.S. including: Motor Vehicle Sales (E: 14.9 million), Factory Orders (E: -0.4%), and JOLTS (E: 10.4 million). Investors will want to see more evidence of slowing growth and a weakening labor market to reinforce hopes for both a less-hawkish Fed and soft landing in order for the recent stock market resilience to continue.

Finally, there is one Fed speaker to watch late in the day: Mester (6:45 p.m. ET).

Why Fed Rate Hike Expectations Are Still Rising

/in , /by

What’s in Today’s Report:

  • Why Fed Rate Hike Expectations Are Still Rising
  • Did Yesterday’s Economic Data Signal Stagflation?
  • EIA Analysis and Oil Market Update

Futures are extending Wednesday’s declines and are moderately lower as more global inflation data came in hotter than expected.

Euro Zone HICP rose 8.5% vs. (E) 8.2% y/y and joined French, Spanish and German CPIs as signaling a bounce back in inflation.  That’s pushing global yields higher and weighing on futures (just like it weighed on stocks on Wednesday).

Today focus will remain on economic data and the key report is Unit Labor Costs (E: 1.4%).  Wages are a major source of inflation the Fed is trying to bring down, so if Unit Labor Costs are lower than expected, that will likely cause a bounce in stocks and bonds.  Other notable events today include Jobless Claims (E: 200K) and two Fed speakers, Waller (4:00 p.m. ET) and Kashkari (6:00 p.m. ET), although they shouldn’t move markets.

Tom Essaye Quoted in MarketWatch on February 8th, 2023

/in , /by

The bond market is flashing a warning that U.S. stocks could be headed lower

“The spike in the 2-year yield tells us the market is now believing the Fed when it has been saying it’s going to raise rates close to or above 5%, notably, it wasn’t Powell’s commentary that got the market to believe that — it was the economic data from Friday, notably the jobs report and ISM Services PMI,” Essaye said, the founder of Sevens Report Research. Click here to read the full article.

Market Multiple Table: December Update

/in , /by

What’s in Today’s Report:

  • Market Multiple Table December Update: Macro Improvement But It’s More Than Priced In
  • November ISM Services Index Takeaways

Futures are little changed this morning despite a stabilizing bond market and mostly positive global news flow overnight as yesterday’s hawkish money flows are digested.

Economically, German Manufacturer’s Orders rose 0.8% vs. (E) -0.2% in October suggesting that factory demand may be stabilizing.

In China, new Covid cases have declined for 8 consecutive days and the government is reducing testing requirements, bolstering optimism about a move away from the crippling Zero Covid policies.

Today is lining up to be a fairly slow day of news with just one lesser followed economic release: International Trade in Goods and Services (E: -$80.0B) and no Fed speakers as they remain in their pre-meeting blackout period. That said, equity markets will likely queue off of Treasuries and if we see a further rise in shorter-duration yields due to rising terminal rate expectations, yesterday’s declines could very well continue.

 

Annual Discounts on Sevens Report, Alpha, and Quarterly Letter

We’ve recently been contacted by advisor subscribers who wanted to use the remainder of their 2022 pre-tax research budgets to extend their current subscriptions, upgrade to an annual (and get a month free) or add a new product (Alpha or Quarterly Letter).

If you have unused pre-tax research dollars, we offer month-free discounts on all our products when billed on an annual basis.

If you want to extend current subscriptions or save money by upgrading to an annual subscription (across any Sevens Report product), please email info@sevensreport.com.

Fed Wildcard to Watch: Dual Risks

/in , /by

What’s in Today’s Report:

  • Fed Wildcard to Watch: Dual Risks
  • Economic Data Takeaways: A Hot JOLTS Report Offsets a Favorable ISM Release
  • Chart – The Fed Could Make or Break the Gold Market Today

Futures are higher ahead of today’s Fed announcement amid continued China reopening hopes and good earnings.

AMD is up more than 4% after good earnings yesterday evening which is bolstering tech shares this morning.

Today, the focus will be on economic data early with the ADP Employment Report (E: 200K) due out ahead of the bell. The market will want to see some headline weakness to help offset yesterday’s JOLTS data in order for stocks to rebound into the Fed. Motor Vehicle Sales (E: 14.2M) will also be released over the course of the morning.

Then focus will turn to the Fed with the FOMC Announcement at 2:00 p.m. ET followed by Powell’s Press Conference at 2:30 p.m. ET. A dovish release could trigger a sharp and squeezy rally while a hawkish decision would almost certainly result in investor pain.

Earnings will be on the backburner today but there are still a few notable releases to watch: CVS ($1.99), PGR ($1.48), CHRW ($2.15), QCOM ($3.14), EBAY ($0.93).

FOMC Meeting Preview

/in , /by

What’s in Today’s Report:

  • FOMC Preview
  • Chart: 3,900 Is a Key Level For the S&P 500

U.S. futures and global stocks are rallying today amid reports that China is forming a “reopening committee” as part of a new push to ease Covid restrictions (however China’s foreign ministry has denied the rumors).

The RBA raised rates by 25 bp overnight, meeting estimates while the U.K.’s Manufacturing PMI was slightly better than feared at 46.2 vs. (E) 45.8.

Today, the focus will be on economic data early with the ISM Manufacturing Index (E: 50.0) and JOLTS (E: 9.875M) both due out shortly after the opening bell. But market reactions to the data are likely to be limited as the November FOMC meeting gets underway.

Earnings will remain in focus today with UBER (-$0.17), PFE ($1.47), BP ($1.94), and SYY ($0.99) reporting ahead of the bell, while AMD ($0.55) and ABNB ($1.46) will release results after the bell.

Bottom line, the combination of mostly favorable market news flow this morning, the calendar, and trader positioning into the Fed are all contributing to this morning’s pre-market gains, however, “Fed paralysis” is likely to set in today and into tomorrow’s morning session as investors await the latest Fed decision.

Market Multiple Table: Fork in the Road?

/in , /by

What’s in Today’s Report:

  • Market Multiple Table: Fork in the Road?
  • S&P 500 Chart: 50-50 Chance of New Lows
  • ISM Service Sector PMI
  • OPEC+ Policy Meeting Takeaways

U.S. stock futures have rebounded from overnight losses amid a steadying bond market and mostly upbeat economic data out of Europe.

Economically, German Industrial Production and Italian Retail Sales were both notably better than feared while the Final Q2 Eurozone GDP came in at 0.8% vs. (E) 0.6%, all of which is helping ease concerns about an imminent recession in Europe.

Today, there is one economic report to watch in the morning: International Trade in Goods (E: -$70.5B) and the Fed will release their Beige Book in the afternoon (2:00 p.m. ET) that could shed some light on the Fed’s current view of the economy and inflation trends ahead of this month’s FOMC meeting.

Additionally, there are a few Fed speakers over the course of the day: Mester (10:00 a.m. ET), Brainard (11:55 a.m. ET), and Barr (2:00 p.m. ET). Investors will be most closely focused on commentary from Vice Chair Brainard with the September meeting coming into view.

Bottom line, if data is generally good, rhetoric from the Fed is not more hawkish than it has been lately, and the bond market continues to stabilize, the S&P 500 should be able to hold the critical 3,900 area. However, a break below would be notable and greatly increase the odds of a retest of the June lows.

A Historical Reason to be Optimistic for the Second Half

/in , /by

What’s in Today’s Report:

  • A Historical Reason to Be Optimistic for the Second Half

Futures are slightly lower following another high-profile guidance cut and more mixed economic and inflation data.

Micron (MU) materially cut forward guidance, sighting a steep drop in demand at the end of the second quarter and becoming the latest company to warn of deteriorating business conditions.

Economic and inflation data was mixed as EU headline HICP (their CPI) was hotter than expected but Core HICP underwhelmed, while the EU and UK final manufacturing PMIs reflected the slowing growth sweeping the globe.

Today’s focus will be on the ISM Manufacturing Index (E: 55.0) and the key here is moderation – markets need to see a slowing of growth but not a dramatic collapse.  If we see moderation, stocks can rally to start the second half.