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How to Explain Inflation Base Effects to Clients and Prospects

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What’s in Today’s Report:

  • How to Explain Inflation to Clients and Prospects
  • JOLTS Return to Pre-Covid Trend Path, But Is That Enough for the Fed?
  • ISM Manufacturing Index Takeaways – Another “Goldilocks” Report
  • The Yield Curve Will Return to Zero, How It Gets There is What Matters Most (Chart)

Stock futures are trading lower with global risk assets after a U.S. credit downgrade late yesterday.

Fitch Ratings downgraded the U.S. from its top rating AAA to AA+ yesterday, citing the massive fiscal deficit, but the downgrade should not result in any forced selling of Treasuries and therefore should have a limited near-term impact on yields and markets more broadly.

Looking into today’s session, focus will be on the U.S. credit downgrade as investors digest the potential implications on fixed income markets and re-assess valuations of risk assets, but we also get the first look at July jobs data in the form of the ADP Employment Report (E: 185K) ahead of the bell. If the data comes in “too hot” or “too cold” market volatility may pick up this morning. Motor Vehicle Sales will also be released (E: 15.6 million) but that data should not move markets.

There are no Fed speakers or notable Treasury auctions today, so beyond the early jobs data investors will continue to focus on Q2 earnings season with CVS ($2.12), KHC ($0.74), and PSX ($3.54) releasing results before the open while PYPL ($1.16), QCOM ($1.63) and MET ($1.85) will report after the close.

 

Sevens Report Technicals – Five Recessionary Bear Market Signals to Watch

The biggest risk to equity markets right now is a hard economic landing developing in H2’23 or sometime in 2024. Using modern market history as a guide, stock market rallies following yield curve inversions are typically reversed entirely during subsequent recessions (so all of the 2023 gains are at risk, and then some).

So, in this week’s edition of Sevens Report Technicals we included a list of Five Recessionary Bear Market Signals to Watch, which includes specific levels to monitor in various asset classes that will help us realize the onset of a looming recession in real time.

The feedback on Sevens Report Technicals has been overwhelmingly positive since its launch in May. One subscriber recently wrote in: “Having been in the business for 36 years and retired for 16, I truly believe this is the best report I have ever seen. The way you organize it and the info I glean from it helps my trading. I really look forward to each Monday’s report.”

To access this week’s edition of Sevens Report Technicals, please send an email to info@sevensreport.com to start a risk-free subscription. We offer a 30-day money back guarantee, so you risk nothing to see for yourself how Sevens Report Technicals can help you and your business.

Could A Recession Just Be Delayed (And Not Avoided?)

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What’s in Today’s Report:

  • Could A Recession Just Be Delayed? (And Not Avoided)
  • Weekly Market Preview:  Fed/ECB/BOE Decisions This Week and Key Earnings Reports
  • Weekly Economic Cheat Sheet:  Fed Decisions and Inflation Readings In Focus This Week

Futures are modestly higher despite underwhelming economic data as markets look ahead to a busy week of central bank decisions, earnings and economic data.

Economically, data was not Goldilocks as the Euro Zone and UK flash PMIs missed estimates, falling to 48.9 vs. (E) 49.6 and 50.7 vs. (E) 52.2 respectively, and they reminded investors rate hikes can still slow growth.

Today focus will be on the July Flash Composite PMI (E: 53.1), as this is the first “big” number of July, and markets will want to see stability in the data to keep the Goldilocks rally going.

The major earnings reports occur later in the week but results we’ll be watching today include:  DPZ ($3.04), NXPI ($3.29), WHT ($3.80), LOGI ($0.45) and we’ll be looking for any signs of margin compression due to on going disinflation.

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).

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.

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.

Jobs Day

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What’s in Today’s Report:

  • How the Two-Year Yield Caused Yesterday’s Drop in Stocks
  • EIA Analysis and Oil Market Update

Futures are slightly lower following a mostly quiet night of news as investors wait for this morning’s jobs report.

Economic data underwhelmed as Japanese Household Spending (-1.1% vs. (E) 0.5%) and German Industrial Production (-0.2% vs. (E) -0.1%) both missed expectations.

Taiwan exports also fell more than expected, down 23.4%, and that’s adding to general anxiety about future global growth.

Today the only major event is the June jobs report and expectations are as follows:  213K job adds, 3.7% UE Rate, 0.3% wage increase m/m and 4.2% y/y.  As we saw from yesterday’s ADP report, a “Too Hot” number will spike yields and further pressure stocks, as the rise in yields is now getting high enough to be a headwind on the market.  Conversely, a “Too Cold” number will increase stagflation worries.

A job adds number in the 100k range coupled with an increase in the unemployment rate and a drop in wages remains the best outcome for stocks, and if we get that number don’t be surprised if the S&P 500 recoups all of yesterday’s losses.

Jobs Report Preview (Will It Reinforce the No Landing Expectation?)

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What’s in Today’s Report:

  • Jobs Report Preview (Will It Reinforce the No Landing Expectation?)
  • FOMC Minutes:  Why They Reinforced the Fed’s Hawkish Tone

Futures are moderately lower on falling expectations for Chinese economic stimulus.

A Nikkei article stated Chinese economic stimulus could be much smaller than expected, and that hit the Hang Seng hard (down 3%) and is weighing on global indices.

Economically, German Manufacturers’ Orders were much stronger than expected, rising 6.4% vs. (E) 2.0%.

Today focus will be on economic data and the key reports, in order of importance, are:  JOLTS (E: 9.9M), Jobless Claims (E: 245K), ISM Services Index (E: 50.8) and ADP Employment Report (E: 235K).  Hopes for a “No Landing” are the reason stocks rallied in late June, so markets will want to see better than expected data across these reports to help support those recent gains.  Also, there is one Fed speaker today, Logan (8:45 a.m. ET), but she shouldn’t move markets.

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.

Is “No Landing” Back?

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What’s in Today’s Report:

  • Is “No Landing” Back?
  • Why Thursday’s Data Was Positive for the “Growth On” Basket

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.

European inflation (HICP) fell to 5.5% vs. (E) 5.7% y/y, although the more important core reading rose to 5.4% y/y from 5.3%, as expected.  So, there was some progress on headline inflation, but core inflation remains a problem.

In China, the June Manufacturing PMI rose to 49.0 vs. (E) 49.1, which is increasing expectations for more stimulus.

Today focus will be on inflation via the Core PCE Price Index (E: 0.4% m/m, 4.7% y/y).  The idea of “No Landing” requires inflation to, at a minimum, stay flat, so any hotter than expected inflation metric will push yields higher and that likely would weigh on stocks today.

Tom Essaye Quoted in MarketWatch on June 28th, 2023

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The Fed’s been hawkish even as CPI recedes. A Bernanke research paper helps explains why.

If the current Fed is listening to Bernanke (and I imagine they are), then the Fed may be more focused on unemployment than anyone appreciates, that’s why there is 50 more basis points of hiking in store, probably regardless if CPI declines further, says Essaye. Click here to read the full article.