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.

Jobs Report Preview

What’s in Today’s Report:

  • Jobs Report Preview

Futures are modestly higher after the House of Representatives passed the debt ceiling extension.

The House passed the debt ceiling extension 314-117, effectively ending this drama (passage in the Senate is all but guaranteed).

Economically, EU Core HICP (their core CPI) rose 5.3% vs. (E) 5.5%, hinting at the re-start of disinflation.

Today focus will be on economic data and there are numerous potentially important reports, starting with the ISM Manufacturing PMI (E: 47.0), where markets will want to see stability in the data (so not dramatically above or below the expectation).  On employment, we get two important reports via the ADP Employment Report (E: 160K) and Jobless Claims (E: 235K), and moderation in both reports (so a drop in ADP and rise in claims) will be welcomed by markets.  Finally, on inflation, Unit Labor Costs (E: 6.3%) will give us the latest insight into wages (the lower this number, the better).  Finally, there is also one Fed speaker: Harker (1:00 p.m. ET).


Why A Soft Landing Is Still Good for Stocks

What’s in Today’s Report:

  • Why A Soft Landing Is Still Good for Stocks
  • EIA Analysis and Oil Market Update

S&P 500 futures are solidly higher while Nasdaq futures surge 2% thanks to blow out NVDA earnings.

NVDA beat on revenue and EPS and raised guidance on strong AI chip demand, and the stock surged more than 20% after hours.

Fitch put the U.S. on “credit watch negative” as the potential “X” date for the debt ceiling is less than a week away.

Today focus will be on any debt ceiling progress (although none is expected with the looming holiday weekend) and on economic data, and the most important report is Jobless Claims (E: 248K) and markets will want to see that number flat or just slightly higher (another big jump would increase hard landing worries).

Other data today includes Revised Q1 GDP (E: 1.1%) and Pending Home Sales (E: 1.1%), but neither number should move markets.  On the Fed, we have two speakers today, Barkin (9:50 a.m. ET) and Collins (10:30 a.m. ET), but neither should move markets.

Why Is Consumer Spending Holding Up So Well?

What’s in Today’s Report:

  • Why Is Consumer Spending Holding Up So Well?
  • Unemployment Rate Chart Indicates Full Employment
  • May Flash PMI Takeaways
  • Chart: S&P 500 Trend Remains Higher But Signs of Weakness Are Emerging

Equity futures are lower with global markets this morning as there has been no further progress in debt ceiling negotiations while data overnight pointed to stagflation.

Economically, U.K. CPI was 8.7% vs. (E) 8.3% y/y while the German Ifo Survey was weak across the board with Business Expectations notably falling to 88.6 vs. (E) 91.7. And sticky high inflation and fading growth prospects are a very negative scenario for global risk assets.

There are no market moving economic reports on the calendar for today which will leave traders primarily focused on the ongoing debt ceiling negotiations.

There is one Fed speaker: Waller at 12:10 p.m. ET and the May FOMC meeting minutes will be released at 2:00 p.m. ET which could shed some light on the Fed’s expected “pause.” Any indication that hikes may continue this summer would trigger volatility as current market odds of a June hike are less than 1 in 3.

Finally, there is a 5-Yr Treasury Note auction at 1:00 p.m. ET that could move yields and have an influence on equity market trading in the afternoon.

Why Have Stocks Hit Multi-Month Highs?

What’s in Today’s Report:

  • Why Have Stocks Hit Multi-Month Highs?
  • Weekly Market Preview:  Real Debt Ceiling Progress is Needed This Week
  • Weekly Economic Cheat Sheet:  Flash PMIs and Core PCE the Key Reports This Week

Futures are little changed despite a lack of progress on the debt ceiling and an increase in trade tensions between the U.S. and China over the weekend.

There was no progress on the debt ceiling over the weekend although Biden and McCarthy will meet again today to resume negotiations.

China banned the use of Micron (MU) chips in what is yet another escalation in U.S./China trade tensions.

Today focus will be on the debt ceiling and markets will want to hear positive and optimistic commentary from Biden and McCarthy, as the potential “X” date of June 1st is now less than 10 days away.

There are also multiple Fed speakers today, including Bullard (8:30 a.m. ET), Logan (9:00 a.m. ET), Barking & Bostic (10:50 a.m. ET) and Daly (11:05 a.m. ET), but given Powell on Friday reiterated the Fed has likely paused, their comments shouldn’t move markets.

What the Stronger Dollar Means for Markets

What’s in Today’s Report:

  • What the Stronger Dollar Means for Markets

Futures are little changed following a quiet night of news as markets digest Thursday’s extension of the rally and as markets await comments from Fed Chair Powell later this morning.

Economically, the only notable numbers were Japanese CPI (met expectations at 3.5%) and German PPI (slightly hot at 4.1% vs. (E) 4.0%) but neither number changed the outlook for global inflation and, as such, aren’t moving markets.

Today there are no notable economic reports, but there are several important Fed speakers including Chair Powell (11:00 a.m. ET).  So far this week, markets have looked past hawkish commentary from regional Fed Presidents but if Powell hints that the Fed may hike rates in June, we could see some of this week’s rally given back.  Other Fed speakers today include Williams (8:45 a.m. ET) and Bowman (9:00 a.m. ET).

Why Are Regional Banks Still Causing Market Declines? (It’s Not Contagion)

What’s in Today’s Report:

  • Why Are Regional Banks Still Causing Market Declines (It’s Not Contagion)
  • What the 1.5 Year High in Jobless Claims Means for the Economy

Futures are modestly higher following some potentially small progress on debt ceiling negotiations.

The debt ceiling meeting today was postponed to early next week as staffers needed more time to work on potential areas of compromise, and that’s being taken as a mild sign of progress.

Economically, UK manufacturing was stronger than expected (0.7% vs. (E) -0.1%) but that’s not moving markets.

Today focus will be on the University of Michigan Inflation Expectations Survey, and specifically the five-year inflation expectations.  The farther they fall from 3.0%, the better for markets as it reinforces inflation is not yet a longer-term problem.  There are also three Fed speakers today: Daly (2:20 p.m. ET), Bullard & Jefferson (7:45 p.m. ET), but even if they’re hawkish they shouldn’t move markets.

The Fed Pivoted, So Now What?

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.


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Jobs Report Preview

What’s in Today’s Report:

  • Jobs Report Preview

Futures are moderately higher ahead of the jobs report thanks to solid earnings overnight.

Earnings overnight were good, highlighted by AAPL and SQ, which both rallied after hours and are helping lift futures.

Economic data underwhelmed as both the Chinese Composite PMI and German Manufacturers’ Orders missed expectations, but the numbers aren’t moving markets.

Today focus will be on the jobs report and expectations are as follows:  178K Job Adds, 3.6% Unemployment Rate and 0.3% m/m,4.2% y/y wages.  As we cover in the Report, risks to this jobs number are two sided, as a “Too Hot” number could reverse the Fed pause expectations, while a “Too Cold” number will spike hard landing fears.  So, the market needs a number at or modestly below the expectation, and if it gets that “Just Right” number, stocks can rally today.

We also get two Fed speakers today, Cook (1:00 p.m. ET) and Bullard (1:00 p.m. ET), but neither should move markets.

Tom Essaye Quoted in BNN Bloomberg on April 6th, 2023

U.S. stocks rise amid hopes for ‘just right’ jobs print

As investors have aggressively priced in rate cuts this year, a “too hot” payrolls number would undermine those expectations, while a “too cold” report would add to concerns about a hard landing, according to Tom Essaye, a former Merrill Lynch trader who founded The Sevens Report newsletter. Click here to read the full article.
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