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What the Fed Decision Means for Markets

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What’s in Today’s Report:

  • What the More Hawkish Than Expected Fed Decisions Means for Markets
  • EIA Analysis and Oil Market Update

Futures are modestly lower as markets digest yesterday’s more hawkish than expected FOMC meeting.

The U.S. dollar is surging this morning off the more hawkish than expected Fed and gold is getting hit hard as currency markets re-price for a less dovish Fed.

Economically the only notable number was the Australian Labour Force Survey, which handily beat expectations (115k job adds vs. (E) 30k), reflecting the global nature of the economic recovery.

Today there are two notable economic reports, Jobless Claims (E: 364K) and Philadelphia Fed manufacturing Index (E: 30.8) but unless either number is a substantial surprise, they shouldn’t move markets.  Instead, markets will be watching the dollar and Treasury yields for reaction to the Fed.  If both rally hard throughout the day, that will pressure stocks further as it erodes some of the “dovish Fed” support that’s helped the S&P 500 rally to recent highs.

Tom Essaye Quoted in Barron’s on May 27, 2021

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Stocks Edge Higher as Jobless Claims Continue to Decline

Inflation not being temporary is easily the biggest long-term risk to this market, because it will cause the Fed to get more…writes Tom Essaye, founder of Sevens Report Research. Click here to read the full article.

Key Summer Market Events (Inflation Today, Fed Tomorrow)

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What’s in Today’s Report:

  • Key Summer Market Events Part 1:  Inflation
  • EIA Analysis and Oil Market Update

Futures are slightly lower following a generally quiet night of news, although on the margin markets are seeing global central banks get less dovish.

On Wednesday, the Reserve Bank of New Zealand had hawkish commentary, while overnight the Bank of Korea hinted at a rate hike before year-end.  Neither the Reserve Bank of New Zealand nor the Bank of Korea will move markets, but the bottom line is we are seeing a global rising tide of “less dovish” central bank policy, and that’s likely to cause volatility as we move forward throughout the year.

There was no market moving economic data overnight.

Today we get several notable economic reports including (in order of importance): Jobless Claims (E: 450K), Durable Goods (E: 0.7%), Revised Q2 GDP (6.5%), and Pending Home Sales (E: 2.0%).  Bottom line, markets will want to see solid, but not “Too Hot” economic data, and if we get that result the data should help stocks rally today.

Was the Strong CPI Report A Bearish Gamechanger?

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What’s in Today’s Report:

  • Was the Strong CPI Report a Bearish Gamechanger?
  • Inflation Hedge Part 2:  Natural Resource Stock ETFs
  • EIA and Oil Market Update

Futures are modestly lower mostly on momentum from Wednesday’s drop following a generally quiet night.

There was no new inflation news overnight, but investors are cautious ahead of the PPI report this morning, which should be similarly strong to yesterday’s CPI report.

Bitcoin and the entire crypto-currency space is getting hit hard after Tesla (TSLA) announced it would no longer accept Bitcoin as a form of payment and that’s weighing on some of the momentum parts of the market.

Looking forward to today, the key number will be PPI.  Expectations for PPI are 0.3% m/m and 5.9% y/y but if the numbers come in much stronger expect that to send yields higher and to hit stocks, at least temporarily.

The other notable number this morning is Jobless Claims (E: 475K) although that will start to fade a bit in importance as the market views the issues in the labor market as supply based (people not choosing to work) rather than demand based (people not being able to work).

There are also three Fed speakers today Barkin (10:00 a.m. ET), Waller (1:00 p.m. ET), Bullard (4:00 p.m. ET), and any commentary on inflation will be closely watched.

Tom Essaye Interviewed with Yahoo Finance on May 6, 2021

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New jobless claims fall to fresh pandemic-era lows

Sevens Report Research Founder & President Tom Essaye joins Yahoo Finance Live to discuss the latest market action following better-than-expected jobless claims. Click here to watch the full interview.

Is Stimulus the New QE?

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What’s in Today’s Report:

  • Is Stimulus the New QE?
  • Economic Data:  Jobless Claims Hit a Low for the Recovery

Futures are moderately lower following a disappointing night of earnings.

Super cap tech earnings were fine in general but didn’t meet lofty expectations, and AAPL, AMZN, FB and TWTR all dropped after posting results after the close.  GOOGL was the only major tech stock to rally after earnings, and that tech weakness is why futures are lower this morning.

Politically, it was a quiet night and according to the polls the Blue Wave remains the likely election outcome.

Today there are a few notable economic reports, including Core PCE Price Index (E: 1.7%), which is the Fed’s preferred measure of inflation, as well as Employment Cost Index (E: 0.6%) and Consumer Sentiment (E: 81.2).  But, they shouldn’t move markets unless there’s a major surprise in the inflation data.

Instead, focus today will remain on the latest polls (does the race tighten?  If so that will weigh on stocks modestly) and coronavirus response (do we get more lockdowns?).

What the Fed Decision Means for Markets (Positive but not a Silver Bullet)

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What’s in Today’s Report:

  • What the Fed Decision Means for Markets (Positive, But Not a Silver Bullet)

Futures are lower following disappointing headlines on U.S. stimulus progress, combined with profit taking ahead of multiple important market catalysts coming today.

U.S. stimulus bill talks were said to be at an “impasse” late Wednesday, and that’s weighing on sentiment (although this drama is to be expected, as we cautioned last week, and a deal is still very much expected by mid- August).

Economically, German Q2 GDP missed estimates (-10.1% vs. (E) -9.4%), which is a reminder just how much damage was inflicted on the global economy in Q2.

As mentioned, one of the reasons futures are weaker this morning is book squaring ahead of several important economic and earnings events today.

First, the most important economic report of the day is Jobless Claims (E: 1.38M).  We address this more in the Report, but there are growing signs the U.S. economic recovery is pausing or stalling, and that’s not priced into stocks above 3200 in the S&P 500.  If we see another notable increase in weekly claims (say through 1.5M) that will amplify fears the recovery is stalling and likely weigh on stocks.

Then, on the earnings front, we get four of the most important stocks in the market announcing results after the close: AMZN (E: $1.75), AAPL (E: $1.99), FB (E: $1.44), GOOGL (E: $8.43).  The earnings results will be “fine” but these stocks have had huge runs, and if they disappoint vs. elevated expectations, just due to these stocks weights in the S&P 500, it could pressure markets after hours.

Finally, today we will get the initial look at Q2 GDP, and it will be historic as it’s estimated to be -35% seasonally adjusted annual rate (remember GDP is usually around 2% saar).  I never in my life thought we’d see such a number, and I hope we don’t ever see it again.  But, today history will be made as the worst GDP print ever.

Stimulus Update (Progress Is Being Made)

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What’s in Today’s Report:

  • Stimulus Update
  • Weekly EIA/Oil Market Update (Can the Rally Continue?)

Futures are modestly higher thanks to stronger than expected earnings and progress on the stimulus front.

TSLA earnings beat lofty expectations and the stock rallied after hours, while the rest of the major earnings reports (MSFT/CMG) were generally in-line (i.e. no disasters).

Republicans apparently reached a consensus on their version of next stimulus bill, so progress continues and a new stimulus bill is expected in the next few weeks.

Today the key number will be weekly jobless claims.  There are rising fears that the U.S. economy is plateauing after the recovery in May/June, and if weekly claims move back towards, or through 1.5M, that will likely spook markets and imply that the recovery is stalling.  Regarding earnings, the two reports we’re watching are T ($0.78), AAL (-$6.40), but earnings shouldn’t move markets toda

Reopened vs. Normal

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What’s in Today’s Report:

  • What’s Next for the Economy:  Reopened vs. Normal
  • Oil Inventory Analysis

Futures are slightly lower as markets digest Wednesday’s rally and, so far, ignore very soft economic data.

April global flash PMIs were horrible and worse than feared.  The EU composite PMI collapsed to 13.5 vs. (E) 26, the British composite PMI imploded to 12.9 vs. (E) 32, and the Japanese composite dropped to 27.8 vs. the prior 36.2.

The weak PMIs show the scope of the economic damage, and it’s bad, but hope remains for a rebound in the coming months given trend in the virus data, and that’s why these historically bad numbers aren’t causing a deeper sell off this morning.

Focus today will be on economic data, via Jobless Claims (E: 4.000MM) and the U.S. April Composite Flash PMIs (E: 37.5).  If both numbers are not as bad as feared, and combined with the chatter of economic “reopening,” then stocks can extend yesterday’s rally. We also get New Home Sales (E: 632K), although that shouldn’t move markets.

Is Inflation The Next Big Thing? (How to be Positioned)

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What’s in Today’s Report:

  • Is Inflation The Next Big Thing? (How to be Positioned)
  • OPEC Meeting Preview:  Bullish If/Bearish If

Futures are modestly lower following a generally quiet night as markets digest this weeks’ gains ahead of jobless claims and the Powell speech.

On the coronavirus front, news was again positive as Austria and Denmark became the first European countries to begin to lift coronavirus restrictions.

Economic data overnight was better than feared as German exports and British IP both beat estimates.

Today focus will be on Jobless Claims (E: 5 MM) and the Powell speech  (10:00 a.m. ET).  For claims, it’d be a positive surprise if they declined from last week’s number and that’d add to the good news from this week, while a spike towards 10MM would be a modest negative vs. expectations.

For the Powell speech, markets just want reassurance that the Fed is committed to doing whatever it takes to ensure orderly operation of markets, which is what we should get.