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The Latest on AI Bubble Discussions

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What’s in Today’s Report:

  • The Latest on AI Bubble Discussions

Futures are little changed following a generally quiet night of news as there was no progress on resolving the shutdown and as investor attention turns to earnings.

Economically, the only notable report was German exports which declined modestly (down –3.9%).

Today there are no notable economic reports but there are several Fed speakers including, most importantly, Powell (8:30 a.m. ET).  Other Fed speakers today include Bowman (8:35 a.m. & 3:45 p.m. ET), Barr (12:45 p.m. ET), Daly (6:40 p.m. ET).  The key for markets here is clear:  If Powell (and others) reiterate their concern about the labor market and hint at more rate cuts, that should help support stocks amidst this absence of economic data.

Earnings season also kicks off this week, although next week is when results begin in earnest.  Some reports to watch today include: DAL ($1.52), PEP ($2.27), HELE ($0.34), LEVI ($0.31).

October MMT Chart and a Caution Signal From the VIX

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What’s in Today’s Report:

  • October MMT Levels – S&P 500 Chart
  • Technical Observation: VIX vs. SPX Caution Signal

Futures turned higher with Treasuries overnight after the Bank of New Zealand cut policy rates by -50 bp to 2.50% vs. (E) -25 bp, a dovish surprise aimed at spurring growth.

Economically, Taiwan’s CPI remained low at 1.25% y/y while German Industrial Production plunged -4.3% vs. (E) -1.0% but the downbeat data is bolstering dovish central bank policy bets and buoying both bond and equity markets this morning.

Looking ahead to today’s session, the void of government economic data continues and there are no notable private sector releases today which will leave markets continuing to focus on Treasury auctions and Fed speak.

Regarding the first of those two topics, the Treasury will hold a 4-Month Bill auction at 11:30 a.m. ET and a (more important) 10-Yr Note auction at 1:00 p.m. ET.

Regarding the second topic, the Fed’s Musalem (9:20 a.m. ET), Barr (9:30 a.m. & 5:45 p.m. ET), Kashkari (3:15 p.m. & 4:30 p.m. ET), and Goolsbee (7:15 p.m. ET) are all scheduled to speak today.

And finally, the September FOMC meeting minutes will be released at 2:00 p.m. ET, and any evidence that pushes back on the thesis that the Fed will cut two more times in 2025 could send the dollar and yields (potentially sharply) higher and weigh meaningfully on equities.

 

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Will Today’s CPI Report Extend the Pullback?

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What’s in Today’s Report:

  • Market Multiple Table Chart (August Update)
  • CPI Preview
  • EIA Analysis and Oil Market Update

Futures are modestly higher as markets bounce back ahead of this morning’s CPI report and following some positive U.S./China geopolitical headlines.

The U.S. unveiled Chinese investment restriction rules that were less intense than feared, while China removed restrictions on group travel to the U.S. (providing small steps towards a more normal U.S./China relationship).

Today focus will be on CPI and estimates are as follows: E: 0.2% m/m, 3.3% y/y, Core CPI E: 0.2% m/m, 4.8% y/y.  As we state in the CPI Preview, the risk for markets is that CPI is more resilient than expected, because at these levels investors are already assuming continued disinflation.

The other notable economic report is Jobless Claims (E: 230K) and markets will want to see that number gradually move higher to reduce the likelihood of one more rate hike. Finally, there’s one Fed speaker today, Harker (4:15 p.m. ET), but he shouldn’t move markets.

Market Multiple Table: August Update

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What’s in Today’s Report:

  • Market Multiple Table – August Update
  • Oil Tests 2023 Highs – Chart

U.S. futures are modestly higher as deflationary Chinese price data is being offset by risk-on money flows in Europe fueled by a rebound in bank stocks.

The Italian government clarified that a windfall tax on bank profits would be capped, sparking a relief rally in European financials and general risk-on trade in global markets.

Economically, Chinese CPI fell -0.3% vs. (E) -0.5% and PPI fell -4.4% vs. (E) -4.0% revealing the emergence of deflationary price trends as the world’s second largest economy struggles to generate any meaningful growth momentum.

There are no notable economic reports and no Fed officials are scheduled to speak today which is setting the session up to be fairly quiet as traders await tomorrow’s CPI release.

There is a 10-Yr Treasury Note auction at 1:00 p.m. ET, however, and after yesterday’s strong 3-Yr Note auction, bond investors will be looking to see solid demand for longer duration Treasuries given the recent rise in yields, otherwise a further rise in longer-term rates will likely weigh on stocks (especially high valuation corners of the market).

Finally, earnings season is winding down but we will hear from DIS ($0.99) and WYNN ($$0.59) after the close and their quarterly results could shed some new light on the health of the consumer.