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Headline and Core CPI – The Important Difference

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Difference Between Headline and Core CPI: Strengthen your market knowledge with a free trial of The Sevens Report.

What’s in Today’s Report:

  • The Important Difference Between Headline and Core CPI
  • NFIB Small Business Optimism Index Contradicts the “No-Landing” Scenario

U.S. stock futures are tracking global shares lower this morning following more disappointing economic data in the Eurozone and continued pressure on the tech sector.

AAPL shares are extending yesterday’s post-product launch declines this morning, therefore, weighing on the tech sector broadly in pre-market trading.

Economically, U.K. GDP dropped to -0.5% vs. (E) -0.2% in July after hot wage data yesterday, bolstering stagflation fears while EU Industrial Production fell -1.1% vs. (E) -0.7%. Despite the recently soft data, rates markets continue to price in a 75% chance of an ECB rate hike this week.

Today, focus will primarily be on inflation data and how Treasuries react to the release: CPI (0.6% m/m, 3.6% y/y), Core CPI (E: 0.2% m/m, 4.4% y/y).

There are no Fed speakers or Treasury auctions today so a “hot” CPI report will likely spark cross-asset volatility while a Goldilocks release will setup a possible extension of the early September relief rally.

Headline and Core CPI

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Market Multiple Table: January Update

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What’s in Today’s Report:

  • Market Multiple Table – January Update: Still More Optimistic Than Fundamentals Warrant

S&P 500 futures are trading with modest losses this morning as investors digest positive economic news out of Europe ahead of Powell’s speech today.

In Europe, French Industrial Production rose 2.0% vs. (E) 0.8% in November while GS dropped their Euro-area recession call for 2023 bolstering market hopes for a soft landing.

Domestically, the NFIB Small Business Optimism Index fell to 89.8 vs. (E) 91.3 which is weighing modestly on sentiment in pre-market trading.

There are no additional economic reports in the U.S. today which will leave investors focused on any insight Fed Chair Powell offers on either the economy or monetary policy plans when he speaks in Sweden at a Riksbank symposium beginning at 9:00 a.m. ET.

Hawkish Fed speak out of Daly and Bostic is what caused stocks to reverse early gains and close lower yesterday, so if Powell strikes a hawkish tone and pushes back against the market’s latest optimism for a lower terminal rate (below 5%), that could see stocks extend yesterday’s afternoon selloff and the market give back some or all of Friday’s post-jobs report gains.

Finally, The Treasury will hold a 3-Yr Note auction at 1:00 p.m. ET that could signal the bond markets response to Powell (if he even says anything notable). A weak outcome to the auction and rising yields could amplify any hawkish money flows and result in more broad market volatility.

Market Multiple Levels: S&P 500 Chart

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What’s in Today’s Report:

  • Market Multiple Levels: S&P 500 Chart
  • NFIB Small Business Optimism Index: Labor Market Issues Remain a Headwind

Futures are slightly lower while global shares extended recent gains overnight ahead of key inflation data and more progress on U.S. infrastructure and spending plans.

After passing the bipartisan $1.2T infrastructure bill yesterday, the Senate narrowly passed a $3.5T spending plan aimed at fighting climate change and poverty overnight however neither of the bills is likely to be taken up in the House until after the summer recess in September.

Economically, German CPI met estimates of 0.9% in July which did not have a material impact on markets.

Today, the focus will be on economic data early with the July CPI report due out ahead of the bell (E: 0.5% m/m, 5.5%y/y).

Then after the open, there are a couple of Fed speakers to watch: Bostic (10:30 a.m. ET) and George (12:00 p.m. ET). The narrative has been shifting slightly more hawkish recently so look for a continuation of that trend in the speeches which may cause a further rise in Treasury yields today.

Finally, in the early afternoon, there is a 10-Yr Treasury Note auction at 1:00 p.m. ET. If the outcome is weak (tails) expect a continued move higher in longer maturity yields that will have some degree of hawkish impact across asset classes while a strong auction would likely see yields pull back from their recent gains which would likely offer a boost to growth/tech stocks.

Powell Preview

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What’s in Today’s Report:

  • Powell Testimony Preview
  • “This Week’s Sign the Apocalypse is Upon Us”
  • NFIB Small Business Optimism Index Analysis

Futures are lower with most international markets as investors look ahead to Powell’s testimony while another EU company, PageGroup, issued a profit warning overnight.

Economically, Chinese June CPI was inline but PPI dropped from 0.6% to 0.0% vs. (E) 0.2% which rekindled deflationary concerns and underscored pressures on the Chinese manufacturing sector.

Today, there are no economic reports but even if there were, focus would be primarily on the Fed anyway.

Powell’s Testimony before Congress is clearly the main event as investors look for further clues on the future of monetary policy. His written comments are due out at 8:30 a.m. ET before he begins to speak at 10:00 a.m. ET.

Bullard also speaks at 1:30 p.m. ET today and the June FOMC Meeting Minutes will hit the wires at 2:00 p.m. ET.

Lastly, there is a 10 Year T-Note Auction at 1:00 p.m. ET and depending on the results (demand metrics and yields) a reactive move in the bond market could influence stock trading in the midst of all the Fed events.

Rotation to Value

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What’s in Today’s Report:

  • More Evidence of the Rotation to Value

US futures are lower again this morning and most overseas markets declined overnight thanks to a continued rise in bond yields and concerns about global economic growth.

The IMF reduced global growth expectations for 2018 from 3.9% to 3.7% citing the escalating trade tensions between the US and China as a potentially significant headwind.

The NFIB Small Business Optimism Index eased to 107.9 vs. (E) 108.0 last month, but remains near a record high.

With the NFIB already out, there are no additional economic reports in the US today but there are two Fed speakers to watch, one shortly after the open: Evans (10:00 a.m. ET) and one later this evening: Williams (9:15 p.m.ET).

That will leave investor focus on the pace of rising bond yields and tech weakness. And unless we see some moderation in the bond rout and some stabilization in tech, it will be hard for stocks to move meaningfully higher today.