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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.

Earnings Disappointments Rekindle Economic Worries

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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.

Fed Decision Takeaways

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What’s in Today’s Report:

  • What the Fed Decision Means for Markets
  • FOMC Decision Takeaways
  • Oil Update – Resilient Demand Offset By Fed Policy Worries

U.S. equity futures are lower as the Fed decision continues to be digested while global economic data largely missed expectations overnight.

Economically, Chinese data was universally disappointing with Industrial Production and Retail Sales both missing estimates while EU trade data showed that imports and exports both declined by more than anticipated. China’s central bank cut rates further overnight, however, which saw risk assets in Asia recover to end with gains.

Looking into today’s session, the ECB decision will be in focus this morning (E: +25bp hike) followed by President Lagarde’s press conference. If the ECB is seen as hawkish, it will likely weigh on stocks and other risk assets as it will show central bankers are not yet satisfied with the trends in inflation and more aggressive policy is likely in the months ahead.

In the U.S., there is a slew of economic data due to be released including: Jobless Claims (E: 250K), Retail Sales (E: 0.0%), Philadelphia Fed Manufacturing Index (E: -13.2), Empire State Manufacturing Index (E: -15.1), Import & Export Prices (E: -0.6%, -0.5%), and Industrial Production (E: 0.1%).

And with the Fed leaving future policy plans largely “open” and dependent on economic data, the market will want to see more “Goldilocks” trends with slowing growth and a more rapid decline in price readings.

 

Sevens Report Alpha: Artificial Intelligence Issue

This week’s Alpha issue focused on a very popular market topic:  Artificial Intelligence.

This issue was an update to a March 7th Alpha issue on AI, and the three ETFs we profiled in that report have risen 20%, 17%, and 14%, respectively in just three months! 

This week’s AI issue updated and expanded that research as we:

  • Reviewed and updated the research on our previous AI ETF picks.
  • Introduced two new AI-focused ETFs that are both up more than 30% YTD.
  • Included a proprietary spreadsheet of 30 AI stocks and categorized them by: Sector, Market Cap, Price/Earnings ratio, Price/Sales ratio, Revenue, and Performance.

If you’d like to start a risk-free trial subscription to Sevens Report Alpha and access the latest AI issue, and all previous Alpha issues and webinars since 2017, please email info@sevensreport.com.

We do ask that you pay the $330 quarterly subscription fee, but there is a 30 day money back guarantee, so you risk nothing to try the product.  

To learn more about Sevens Report Alpha, click this link. 

FOMC Preview (Watch the Dots)

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What’s in Today’s Report:

  • FOMC Preview (Watch the Dots)
  • Why Yesterday’s CPI Boosted the “Growth On” Trade
  • Gold Update:  Are the 2023 Highs Already In?

Futures are modestly higher following a quiet night of news as markets look ahead to the FOMC decision and expected pause in rate hikes.

Economic data was mixed overnight as UK Industrial Production missed estimates (-0.3% vs. (E) -0.1% in manufacturing) while Euro Zone IP slightly beat (1.0% vs. (E) 0.9%), but neither number is moving markets.

Today focus will be on the FOMC Decision and the consensus expectation is that the Fed will pause.  But, it’s not clear how many additional 2023 rate hikes the “dots” will show, and that will determine if the Fed decision is hawkish or dovish (more on that inside).

Away from the Fed we also get the May PPI (E: -0.1% m/m, 1.6% y/y) and Core PPI (E: 0.2% m/m, 2.9% y/y) and if this metric comes in under expectations that’ll boost the “Immaculate Disinflation” expectation and should help cyclical sectors extend the rally.

Tom Essaye Discusses The Market Outlook on Yahoo Finance on June 5th, 2023

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Morgan Stanley expects 16% earnings drop for S&P 500 companies

The S&P 500 is nearing a bull market. But Morgan Stanley analysts are predicting a 16% earnings drop for S&P 500 companies. Ben Laidler, Global Markets Strategist at eToro, and Tom Essaye, Sevens Report Research Founder and President, give their takes on what lies ahead for the market. Click here to watch the full interview.

A “Make or Break” Week for the Rally

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What’s in Today’s Report:

  • A “Make or Break” Week for the Rally
  • Where the Opportunity is in Stocks Right Now
  • Weekly Market Preview:  Will Data Confirm “Goldilocks” Optimism?
  • Weekly Economic Cheat Sheet:  CPI Tuesday, Fed Wednesday, Key Growth Data Thursday

Futures are slightly higher on momentum from last week’s rally, as it was a very quiet weekend of actual news and investors are looking ahead to multiple important market catalysts this week.

Economically, the only notable number was Japanese PPI which rose 5.1% y/y vs. (E) 5.7% y/y in what is the latest sign of global disinflation.

Oil declined more than 2% overnight on over supply concerns as Russia is largely ignoring its production quota.

Today there are no notable economic reports nor any Fed speakers, so barring any major surprises markets should be relatively calm ahead of tomorrow’s CPI report, Wednesday’s FOMC decision and Thursday’s important economic data.

A Tale of Two Trades

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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.

Tom Essaye Quoted in Yahoo Finance on May 31st, 2023

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Stock Rally Loses Steam After AI-Fueled Euphoria: Markets Wrap

Yes, AI does have great potential and it does appear to be the ‘next big thing’. But I don’t see how that promise can offset the reality of higher interest rates and more pressure on the economy, at least not for a sustainable period…wrote Tom Essaye, a former Merrill Lynch trader who founded The Sevens Report newsletter. Click here to read the full article.

Tom Essaye Quoted in Barron’s on May 31st, 2023

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Stocks Open Lower as Traders Fret About China Manufacturing, Debt Bill

“Republican Representatives have said this morning that they have the votes to pass it. If that comes to fruition, that should remove a headwind from risk assets and open the door to a continued move higher in equity markets,” writes Tom Essaye, the founder of Sevens Report Research. Click here to read the full article.

Jobs Report Preview

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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).