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Is the Yield Curve Already Forecasting a Fed Rate Cut?

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What’s in Today’s Report:

  • Is the Yield Curve Already Forecasting a Fed Rate Cut?

Futures are slightly higher following a quiet night of news as investors digest Thursday’s declines and look ahead to the long weekend.

Economically the only notable report was Japanese CPI and it came in slightly lower than expectations at 3.7% y/y vs. (E) 3.8% y/y. but it didn’t move markets.

Today focus will be on economic data and the key reports are, in order of importance: Core PCE Price Index (E: 0.2% m/m, 4.6% y/y), University of Michigan Consumer Sentiment (E: 59.1), Durable Goods (E: -0.8%) and New Home Sales (E: 600k).   Markets will want to see further confirmation of dis-inflation in the Core PCE Price Index and the Five Year Inflation Expectations in the University of Michigan report, and if that happens it could spur a mild rally following yesterday’s declines.

What the Fed Decision Means for Markets

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What’s in Today’s Report:

  • What the Fed Decision Means for Markets
  • Why Stocks Didn’t Fall More Yesterday Despite the Hawkish Fed (Important)
  • EIA Analysis and Oil Market Update

Futures are sharply lower as markets digest yesterday’s Fed decision and a deluge of global central bank rate hikes.

By the time stocks open today, seven separate global central banks (including the Fed, ECB, BOE and Swiss National Bank) will have hiked rates over the last 24 hours and while it was all expected, it’s still weighing on sentiment.

Today will be a very busy day of central bank decisions and economic data.  First, we get the BOE Rate Decision (E: 50 bps hike) and ECB Rate Decision (E: 50 bps hike) and the keys there will be the commentary (do either central bank hint that they’re close to the end of tightening).

On the economic front, the key reports today are (in order of importance): Philly Fed Manufacturing Index (E: -9.9), Empire State Manufacturing Index (E: -0.4), Jobless Claims (E: 230K), Retail Sales (E: -0.2%) and Industrial Production (E: 0.1%).  If the data can show moderation and easing price pressures (especially in Empire and Philly) that’ll be a positive for stocks.

If Inflation Drops and Growth Slows, What Benefits?

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What’s in Today’s Report:

  • If Inflation Drops and Growth Slows, What Benefits? (Answer Inside)
  • Why the Manheim Used Vehicle Value Index Was Important yesterday
  • EIA and Oil Market Analysis

Futures are marginally higher on additional China reopening headlines, although China embarking on a re-opening process is now well known and mostly priced into stocks.

The South China Morning Post reported that Hong Kong will ease isolation rules for COVID-positive residents and travelers, in what is the latest step towards reopening.

Economic data was sparse overnight and the only notable report was Japanese GDP which slightly beat estimates (-0.2% vs. (E) -0.3%).

Today’s focus will be on weekly Jobless Claims (E: 228K) as markets need to see further deterioration in the labor market to move the Fed closer to an ultimate “pivot.”  Any move towards 250k in should be welcomed by markets.

Understanding What’s Happening in the UK and with the BOE (This Matters to U.S. Stocks and Bonds)

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What’s in Today’s Report:

  • Understanding What’s Happening in the UK and with the BOE (This Matters to U.S. Stocks and Bonds)
  • What the Nordstream Pipeline Sabotage Means for Energy Markets

Futures are down close to 1% on digestion of Monday’s bounce and as UK PM Truss defended her spending plan.

UK Prime Minister Truss doubled down on her tax cut and spending package, calling it the “right plan.”  The market still disagrees, however, and the Pound is down –0.5% and 10-year GILT yields are up 14 bps on the comments.

Economically the only notable report was EU Economic Sentiment which missed estimates (93.7 vs. (E) 96.0).

Today the key economic report will be weekly Jobless Claims (E: 218K) and as we’ve consistently said, the sooner this number moves towards 300k, the better for markets.  We also get the final Q2 GDP (E: -0.6%) and there are two Fed speakers, Mester (1:00 p.m. ET) and Daly (4:45 p.m. ET) but they shouldn’t move markets.

Like the past several days, the British Pound and 10-year GILT yields will drive global markets.  If the Pound drops and GILT yields rise further, stocks will fall and could give back most, if not all, of yesterday’s gains.

Why the Decline in Core Inflation Could Be Slower than Expected

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What’s in Today’s Report:

  • Why the Decline in Core Inflation Could Be Slower than Expected
  • EIA Analysis and Oil Market Update

Futures are slightly lower following a mostly quiet night of news as markets await a deluge of economic data later this morning.

The most notable headline overnight was that negotiators have reached a tentative deal to avoid a U.S. rail strike, although this was never a major concern for markets so the headline isn’t causing a rally.

There were no notable economic reports overnight.

Today the market will be focused on economic data and the key reports will be Jobless Claims (E: 227K), Philadelphia Fed Manufacturing Index (E: 3.5), and the Empire State Manufacturing Index (E: -14.5) as they give us the latest insights into growth and inflation.  If the price indices in Empire and Philly drop notably, that’ll help offset some of the concerns on inflation from the CPI report.

Other data today includes Retail Sales (E: 0.0%) and Industrial Production (E: 0.2%) but they’ll have to be material surprises to move markets.

Jobs Report Preview

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What’s in Today’s Report:

  • Jobs Report Preview (First of Two Key Economic Reports)
  • EIA and OPEC Meeting Analysis

Futures are slightly higher on momentum from Wednesday’s rally and as the market again ignored soft economic data.

Economic data from Europe was again disappointing as German Manufacturers’ Orders slightly missed estimates (-9.0% vs. (E) -8.9%) as did the UK Construction PMI (48.9 vs. (E) 52.0).

Geo-politically, China began massive military drills around Taiwan, although they were previously announced.

Today focus will be on the Bank of England rate decision (E: 50 bps hike) and on weekly Jobless Claims (E: 260K).  Specifically, markets will want to see if the BOE implies more 50 bps hikes are ahead (if so that’s a mild negative for the region).  On jobless claims, will they continue to move methodically towards 300k? (That would be a mild positive as it implies slowing in the labor market, which the Fed needs to get to peak hawkishness).

From a Fed speak standpoint, Mester speaks at 12:00 p.m. ET.

What The Hot CPI Report Means for Markets

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What’s in Today’s Report:

  • What the Hot CPI Report Means for Markets
  • EIA Analysis and Update (Demand Falling)

Futures are sharply lower as markets digest the hot CPI amidst numerous hawkish central bank decisions.

Global central banks are aggressively tightening policy and that was displayed yesterday and overnight as the Bank of Canada and the central banks of Singapore, Philippines, and, Chile all hiked more than expected.

Meanwhile, U.S. Fed Fund Futures are now pricing in a 100-bps hike in July.

Today we get two notable economic reports via Jobless Claims (E: 234K) and PPI (0.8% m/m, 10.4% y/y).  Starting with PPI, if we see a big drop (which isn’t expected but possible) that will be a mild positive as PPI is sometimes a leading indicator for broader inflation.  Jobless claims, meanwhile, should continue to tick higher towards 250k.

On the earnings front, Q2 earnings season unofficially kicks off today with results from JPM ($2.85) and MS ($1.55) and in addition to wanting to see earnings beats, markets will be looking for commentary from management on the state of the economy, and if that commentary is cautious it’ll be a headwind on stocks.

Jobs Report Preview

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What’s in Today’s Report:

  • Jobs Report Preview

Futures are slightly higher despite negative COVID news from China and after British Prime Minister Boris Johnson announced he intends to resign.

COVID cases rose in Shanghai to the highest level since late May, prompting mass testing and increasing concerns of another lockdown.

Politically, British Prime Minister Boris Johnson will announce his resignation, but this shouldn’t impact stocks.

Today’s focus will be on Jobless Claims (E: 230K) and a continued slow drift higher will imply the jobs market is softening, which is needed if the Fed is going to get to “Peak Hawkishness” sooner than later.  We also have two Fed speakers, Bullard (1:00 p.m. ET) and Waller (1:00 p.m. ET) and we should expect their commentary to be hawkish (they’re two of the louder hawks on the Fed).

Looking Ahead to 2022

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What’s in Today’s Report:

  • Looking Ahead to 2022 (The Omicron Threat May be Fading But the Coast Isn’t Clear)
  • Weekly Market Preview (Clear for a Santa Rally but Depends on Omicron Headlines)
  • Weekly Economic Cheat Sheet (Housing Data and Jobless Claims This Week)

Futures are slightly higher on continued momentum from last week’s rally following a quiet holiday weekend.

Omicron optimism continued to help push risk assets higher as markets continued to adopt the idea that while COVID cases will soar, hospitalizations will remain low and as such there won’t be any major lockdowns.

There were no economic reports overnight and the global economic calendar for the week is pretty empty (as is usually the case for this week).

Today there are no notable economic reports and no Fed speakers, so we’d expect generally quiet trading that will be driven by Omicron headlines and year-end positioning (that’s likely to be the case all week).  Any stories that further confirm Omicron COVID is not as severe as the previous COVID will help stocks extend the rally into year-end, while any headlines about lockdowns will be a headwind.

 

Annual Discounts on Sevens Report, Alpha and Quarterly Letter

We’ve continued to be contacted by advisor subscribers who want to use the remainder of their 2021 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. 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.

Are Policy Mistake Fears Rising?

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What’s in Today’s Report:

  • Bottom Line: Are Central Banks Tightening Policy into an Economic Slowdown?
  • Philly Fed and Flash PMI Takeaways (Both Missed Expectations)
  • Chart: Jobless Claims Remain Low

U.S. stock futures are trading lower along with most global equity markets today as investors digest the hawkish shift by most global central banks this week while concerns about the health of the economy rebound continue.

Economically, Eurozone HICP (their CPI equivalent) rose 0.4% vs. (E) 0.5% in November, easing some of the recent inflation concerns while the latest German Ifo Survey missed estimates on both current and future business expectations metrics which weighed on the regional growth outlook.

Today, there are no economic reports due out in the U.S. however there are two Fed speakers to watch: Daly (1:00 p.m. ET) and Waller (1:00 p.m. ET). The market will want to see Fed chatter echo Powell’s mostly dovish tone from the press conference on Wednesday and any hints at a more aggressive or sooner rate hiking cycle will cause more volatility today.

Finally, today is quadruple witching options expiration so expect very high trading volumes along with the threat of amplified moves as traders continue to digest this week’s hawkish pivot amid year-end rebalancing.