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What Happens If There’s No Debt Ceiling Deal?

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What’s in Today’s Report:

  • What Happens If There’s No Debt Ceiling Deal?
  • Why CPI Was Positive for Stocks and Bonds Yesterday
  • EIA Analysis and Oil Market Update

Futures are modestly higher mostly on momentum from Wednesday’s rally and following a quiet night of news.

China’s CPI rose 0.1% vs. (E) 0.3% and that’s combining with recently underwhelming Chinese economic data to raise doubts about the economic recovery.

There was no notable news on the debt ceiling, although another round of high level meetings will occur tomorrow.

Today focus will first be on the Bank of England Rate Decision (E: 25 bps hike) and then on economic data, specifically Jobless Claims (E: 245K) and PPI (E: 0.3% m/m, 2.5% y/y).  Stocks have benefitted from mostly “goldilocks” data over the past week, and if we get more of the same via in-line claims and PPI, stocks should be able to extend the rally.  Finally, there’s one Fed speaker, Waller (10:15 a.m. ET), but he shouldn’t move markets.

The Fed Pivoted, So Now What?

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What’s in Today’s Report:

  • Sevens Report Technicals First Issue Today (Delivered to subscribers later this morning)
  • The Fed Pivoted, So Now What?
  • Weekly Market Preview:  Will there be any debt ceiling progress, and does disinflation resume?
  • Weekly Economic Cheat Sheet:  CPI on Wednesday is the key report this week.

Futures are slightly higher following a mostly quiet weekend of news as markets look ahead to Wednesday’s CPI.

News was slightly positive on the debt ceiling over the weekend, as reports indicate the White House will try to negotiate a short term debt ceiling extension (to the end of September).  However, it remains uncertain if even this short-term deal can get done before the “X” date.

Economically, German Industrial Production missed estimates (-3.4% vs. (E) -1.5%) but that’s not moving markets.

Today there are no notable economic reports but there is a potentially important release at 2:00 p.m. via the Bank Senior Loan Office Survey.  Markets (and the Fed) are nervous the regional bank stress will curtail lending and put a bigger headwind on the economy.  If the loan officer survey reflects that reality (a drop in bank lending) it could cause volatility as that would increase the chances of a potential hard landing.

 

Sevens Report Technicals – First Issue Being Delivered To Trial Period Subscribers This Morning!

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  • A “Top-Down” Technical View
  • Dow Theory Update
  • Key Levels to Watch Across Asset Classes
  • A Dynamic Equity Sector “Dashboard”
  • A Deep Dive Into Treasury Market Trends
  • Market Volatility Observations and Takeaways

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Hard Landing vs. Soft Landing Scoreboard

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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.

Tom Essaye Quoted in Forbes on April 7th, 2023

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Labor Market Adds 236,000 Jobs In March—Lowest Since 2020—As Economists Worry Recession May Be ‘Underway Now’

The revisions fueled recession concerns that intensified this week, with “every major data point”—including jobless claims, manufacturing activity and construction spending—signaling the economy is slowing down and pushing some experts to worry it may be slowing down too quickly, says Sevens Report founder Tom Essaye. Click here to read the full article.

Current Market Assumptions (Why Stocks Remain Resilient)

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What’s in Today’s Report:

  • Current Market Assumptions (Why Stocks Remain Resilient)
  • Why Jobless Claims Jumped Last Week
  • Weekly Economic Cheat Sheet:  Inflation is the Key This Week (CPI on Wed, PPI on Thurs)
  • Weekly Market Preview:  Do Stagflation Risks Rise?

Futures are little changed following a mostly quiet weekend of news as investors digest the “Just Right” jobs report and look ahead to CPI on Wednesday and the start of earnings season on Friday.

Friday’s jobs report was “Just Right” with job adds rising 238k vs. (E) 230k and wages gaining 4.2% vs. (E) 4.3% y/y. The report is helping to slightly ease the hard landing worries from last week.

Today should be a mostly quiet day of trading as European markets are closed for the Easter holiday and there are no notable economic reports and just one Fed speaker, Williams at 4:15 p.m. ET, as investors will look ahead to Wednesday’s critical CPI report and the start of bank earnings on Friday.

 

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Why Have RSP and SPY Diverged?

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What’s in Today’s Report:

  • Why Have RSP and SPY Diverged?

Futures are little changed following a mostly quiet night as markets digest the actions by large banks to shore up FRC.

Positively, banks borrowed $165 billion from the Fed via the discount window and the new BTFP this week and that importantly shows banks are using the Fed’s programs to shore up liquidity.

On inflation, core EU HICP met expectations at 5.6% y/y, although that’s an increase from the previous 5.3% gain.

Today focus will remain on any banking headlines and economic data, but as long as there are no surprises from either (meaning KRE is stable) then stocks can digest this week’s volatility and hold yesterday’s gains.

Economically, notable reports today include Industrial Production (E: 0.4%), Consumer Sentiment (E: 67.0) and Leading Indicators (E: -0.2%), but again it’ll take a substantial surprise from them to move markets.

Economic Breaker Panel: February Update

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What’s in Today’s Report:

  • Sevens Report Economic Breaker Panel – February Update
  • January Durable Goods Orders Takeaways
  • Breakout in Natural Gas Futures

Stocks futures are trading with modest gains this morning while Treasury yields are tracking European bond yields higher following stubbornly high inflation data overnight.

Economically, both Spanish and French CPI headlines were hotter than expected, above 6%, which saw European rates markets price in a 4% terminal ECB rate for the first time. Government bond yields across the Eurozone notably rose to multi-year highs.

Looking into today’s session, there are several economic reports to watch including: International Trade (E: -$91.0B), Case-Shiller Home Price Index (-0.5%), FHFA House Price Index (E: -0.3%), and Consumer Confidence (E: 108.5).

Traders will be looking for less signs of stagflation in the data as elevated inflation figures and weakening growth metrics were a headwind for equities last week.

Finally, the Chicago Fed’s Goolsbee (who just succeeded Evans) has his first speaking engagement since taking over the role at 2:30 p.m. ET, and as a voting member of the FOMC, his comments will be closely watched for any new clues about Fed policy plans in the months ahead. A notably hawkish tone, could easily cause another bout of volatility in risk assets this afternoon.

Technical Update: Is This Another Bull Trap?

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What’s in Today’s Report:

  • Technical Update:  Is This Another Bull Trap?
  • EIA Analysis and Oil Market Update

Futures are flat following a quiet night and as solid CSCO earnings are helping stocks hold yesterdays’ gains.

CSCO beat estimates and raised guidance and the stock is up 4% pre-market and that’s helping broader sentiment.

Economically, the only notable number was the Chinese Home Price Index (in-line at –1.5%).

Today focus will remain on economic data and the key reports are (in order of importance):  Philly Fed (E: -7.2), PPI (E: 0.4%m/m, 5.5% y/y), Jobless Claims (E: 200K) and Housing Starts (E: 1.365M).  As has been the case, solid data that implies a “No Landing’ scenario should support stocks, as long as yields don’t spike too much.

We also have several Fed speakers today including Mester (8:45 a.m. ET), Bullard (1:30 p.m. ET) and Cook (4:00 p.m. ET) although they shouldn’t move markets.

Jobs Report Preview

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What’s in Today’s Report:

  • Jobs Report Preview

Futures are moderately lower following a disappointing night of tech earnings and more hot inflation data.

AAPL, AMZN, and GOOGL all reported earnings overnight and the results underwhelmed.  Each stock is down between 2% and 5% pre-market.

Economically, EU PPI rose 1.1% vs. (E) -0.7% and became the third inflation number this week to hint at a rebound.

Focus today will be on the Employment Situation Report and expectations are as follows: Job Adds 185K, UE Rate 3.6%, Wages 0.3% m/m, 4.5% y/y).  Financial media focus will be on the headline job adds number but thanks to Powell’s less hawkish speech it’ll take a big number (300k or more) to be “Too Hot.”  Instead, focus on wages as they are directly related to services inflation, which remains sticky.  If wages are strong, that’ll be a negative.  The other notable economic report today is the ISM Services Index (E: 49.6) and markets will want to see stability in the data (no not worse than expectations).

Did Yesterday’s Data Imply a Soft Landing is More Likely?

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What’s in Today’s Report:

  • Did Yesterday’s Data Imply a Soft Landing is More Likely?

Futures are slightly lower as markets digest Thursday’s rally following a mostly disappointing night of earnings.

Intel (INTC) posted very disappointing results and the stock dropped –9% overnight while other earnings reports were mostly mixed.

Economic data was sparse as Euro Zone Money supply was the only notable indicator and it rose 4.7% vs. (E) 4.8%.

Today focus will turn to inflation via the Core PCE Price Index (E: 0.3%, 4.4%) and five-year inflation expectations in U-Michigan Consumer Sentiment (E: 64.6).  The lower those inflation numbers, the better, and if we get soft inflation data that likely will help extend this week’s rally as it’ll increase expectations for a Fed pause in the next month or two.  We also get Pending Home Sales (E: -1.0%) but that shouldn’t move markets.

On the earnings front, important reports today include: CVX ($4.16), AXP ($2.18), and CL ($0.76).