Explaining Current Market Risks to Clients (And Prospects)

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

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?)

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

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?

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

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.

Tom Essaye Quoted in Barron’s on June 22nd, 2023

Weekly Jobless Claims Flat at 264,000

A further rise in claims could bring into question whether or not the labor market is suddenly beginning to deteriorate meaningfully, wrote Tom Essaye, president of Sevens Report Research, prior to the economic data release. Click here to read the full article.

Hawkish Central Bank Surprises Bolster Recession Fears

What’s in Today’s Report:

  • Hawkish Central Bank Surprises Bolster Recession Fears
  • Jobless Claims Remain Elevated – Indicate Deteriorating Labor Market
  • EIA Data Takeaways – Consumer Demand Remains Healthy But Recession Fears Grip Futures Market

Stock futures are tracking global equity markets lower this morning while longer duration bonds are rallying after soft PMI data in Europe bolstered recession fears overnight.

Economically, the Eurozone Composite PMI Flash fell to 50.3 vs. (E) 52.5 indicating the EU economy is on the brink contracting.

The Manufacturing PMI was better than feared but the Services PMI dropped to 52.4 vs. (E) 54.7 pointing to a sudden slowdown in the service sector which accounts for the bulk of developed economic growth around the globe.

Looking into today’s session, focus will be on the U.S. PMI Flash data due out shortly after the bell with the Manufacturing PMI Flash expected to come in at 48.5 while the Services PMI Flash is expected at 53.5. If the data meaningfully disappoints, especially in the service sector, expect more risk off money flows amid growing recession worries today.

Finally, there are two Fed officials speaking today: Bostic (7:30 a.m. ET) and Mester (1:40 p.m. ET) but it is unlikely that either materially deviates from the Fed’s narrative from the last week which is continued commitment to reigning in inflation with further policy tightening in H2’23.

Earnings Disappointments Rekindle Economic Worries

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.

A Tale of Two Trades

What’s in Today’s Report:

  • A Tale of Two Trades

Futures are slightly lower as markets digest Thursday’s rally following a very quiet night of news.

Economically, the only notable report overnight was Chinese PPI, which feel –4.6% vs. (E) -4.2% and provided the latest sign that global disinflation is potentially accelerating.

Politically, former President Trump was federally indicted for illegally retaining classified documents, although that shouldn’t impact markets.

Today there are no economic reports and no Fed speakers, so near term technicals should drive trading with all eyes focused in whether the S&P 500 can break above 4,300 for the first time in over a year.