Posts

Hard Landing vs. Soft Landing Scoreboard

What’s in Today’s Report:

  • Hard Landing vs. Soft Landing Scoreboard (Table Included)

Stock futures are tracking global equity markets lower while bonds rally thanks to disappointing bank earnings.

FRC, which has been in focus since the banking turmoil began in March, is trading lower by more than 20% in the premarket after reporting that deposits fell more than 40% in Q1 to just $104.5B vs. (E) $145B while the bank plans to cut as much as 25% of staff in Q2. The lower than expected deposit levels rekindled worries about the health of the banking system and financials are dragging the broader market lower this morning.

Today, there are a few economic releases to watch: Case-Shiller Home Price Index (E: -0.4%), Consumer Confidence (E: 104.2), and New Home Sales (E: 635K) but unless there are any material surprises, investors will remain focused on earnings as we will begin to get some of the big tech companies’ results after the close today.

On the earnings front we will hear from UPS ($2.19), VZ ($1.19), GM ($1.58), MCD ($2.30), GE ($0.13), PEP $1.37), and MMM ($1.60) before the open, and MSFT ($2.22), GOOGL ($1.07), V ($1.97), and TXN ($1.76) after the close. Investors will be looking for good top and bottom line results but potentially more importantly, solid guidance given the uncertain market backdrop right now.

Why Fed Rate Hike Expectations Are Still Rising

What’s in Today’s Report:

  • Why Fed Rate Hike Expectations Are Still Rising
  • Did Yesterday’s Economic Data Signal Stagflation?
  • EIA Analysis and Oil Market Update

Futures are extending Wednesday’s declines and are moderately lower as more global inflation data came in hotter than expected.

Euro Zone HICP rose 8.5% vs. (E) 8.2% y/y and joined French, Spanish and German CPIs as signaling a bounce back in inflation.  That’s pushing global yields higher and weighing on futures (just like it weighed on stocks on Wednesday).

Today focus will remain on economic data and the key report is Unit Labor Costs (E: 1.4%).  Wages are a major source of inflation the Fed is trying to bring down, so if Unit Labor Costs are lower than expected, that will likely cause a bounce in stocks and bonds.  Other notable events today include Jobless Claims (E: 200K) and two Fed speakers, Waller (4:00 p.m. ET) and Kashkari (6:00 p.m. ET), although they shouldn’t move markets.

Equity Risk Premium Hits 2007 Levels

What’s in Today’s Report:

  • Equity Risk Premium at 2007 Levels
  • February Composite PMI Flash Takeaways
  • Why Are Rising Rates Causing Stocks to Drop Now?
  • S&P 500 Chart: Trend Support From the October Lows In Focus

U.S. equity futures are little changed this morning following yesterday’s steep losses as Treasuries have stabilized ahead of today’s Fed meeting minutes release.

Economically, German CPI met estimates at 8.7% y/y but that remains a historically very high reading which continues to warrant aggressive policy from the ECB in the months ahead.

Looking into today’s session, there are no notable economic reports which will leave investors primarily focused on the FOMC meeting minutes release (2:00 p.m. ET). Before that release, the Treasury will hold a 5-Yr Note auction at 1:00 p.m. ET which could move bond markets, and if we see new highs in yields, expect additional pressure on stocks.

Finally, the Fed’s Williams speaks after the close at 5:30 p.m. ET and his comments could move markets in after-hours trading if he is materially hawkish.

Tom Essaye Quoted in MarketWatch on February 8th, 2023

The bond market is flashing a warning that U.S. stocks could be headed lower

“The spike in the 2-year yield tells us the market is now believing the Fed when it has been saying it’s going to raise rates close to or above 5%, notably, it wasn’t Powell’s commentary that got the market to believe that — it was the economic data from Friday, notably the jobs report and ISM Services PMI,” Essaye said, the founder of Sevens Report Research. Click here to read the full article.

Economic Breaker Panel: January Update

What’s in Today’s Report:

  • Economic Breaker Panel – January Update
  • January Composite PMI Data Takeaways

U.S. stock futures are lower this morning, led by mega-cap tech after MSFT earnings topped estimates but guidance disappointed which is weighing on sentiment broadly.

Economically, the Business Expectations component of the German Ifo Survey notably firmed to 86.4 vs. (E) 85.0 further supporting hopes that Europe will avoid a recession in 2023 but concerns about the global tech sector is offsetting the good economic data this morning.

There are no notable economic reports and no Fed officials are scheduled to speak today which will leave the focus on earnings.

Notable companies releasing quarterly results today include: BA ($0.30), T ($0.58), and FCX ($0.40) ahead of the bell, and TSLA ($1.15), IBM ($3.60), CSX ($0.47), and STX ($0.08) after the close.

Intraday, the Treasury will hold a 5-Yr Note auction at 1:00 p.m. ET, and as we saw with yesterday’s 2-Yr auction which sent stocks to new session highs, the outcome of the auction could move markets before focus returns to post-market earnings reports.

Three Keys to a Bottom Updated

What’s in Today’s Report:

  • Three Keys to a Bottom Updated – Some Progress
  • Economic Data Recap – Soft Landing Hopes Fade
  • Weekly Economic Cheat Sheet – Focus on PMI Data (Wednesday)

Stock futures are trading lower with global markets following negative Covid headlines out of China.

China reported a spike in Covid cases this weekend including the first Covid-related death in nearly six months which prompted new restrictions and lockdowns in cities that were previously in the process of reopening. That has triggered risk-off money flows this morning with equities declining globally and the dollar rising nearly 1% in early trade.

Economically, the German PPI for October was actually favorable as it fell a steep -4.2% vs. (E) +0.9%. However, in year-over-year terms, PPI remains up more than 30% which is a major headwind for the German economy.

Looking into today’s session, there are no economic reports and just one Fed speaker: Daly (1:00 p.m. ET) which will likely leave the focus on China and any new Covid-related headlines.

In the fixed income space, the Treasury will hold a 2-Yr Note auction at 11:30 a.m. ET and a 5-Yr Note auction at 1:00 p.m. ET. And if demand is soft and rates begin to move to meaningful new highs, expect selling pressure on the equity market to pick up moderately.

The Market Impact of Global Political Developments

What’s in Today’s Report:

  • What the Political News from the U.K. and China Mean for Markets
  • October Flash Composite PMI Takeaways

Futures are modestly lower as the Chinese yuan fell to a 14-year low overnight while traders look ahead to big tech earnings.

Economically, the German Ifo Survey was better than feared with Business Expectations up to 75.6 vs. (E) 74.8.

Looking into today’s session, there are several economic reports due to be released: Case-Shiller Home Price Index (E: -0.8%), FHFA House Price Index (E: -0.7%), and Consumer Confidence (E: 106.0). Since Friday’s renewed hopes for peak-hawkishness, the bad news is good news for markets so further softening in the data could keep downward pressure on yields and support a continued rebound in equities today.

There is also a 2-Yr Treasury Note auction at 1:00 p.m. ET that could shed some light on bond traders’ outlook for the terminal rate as a weak outcome could send yields higher and ultimately see the stock market give back some of the Friday/Monday gains.

Finally, earnings season is becoming the market’s primary focus and there are a lot of big names reporting today including: UPS ($2.84), KO ($0.64), GM ($1.89), MMM ($2.61), JBLU ($0.24), and SYF ($1.42) before the bell, while GOOGL ($1.25), MSFT ($2.30), and V ($1.86) are due to report after the close.

Market Setup into the Fed Decision

What’s in Today’s Report:

  • Market Setup into the Fed Decision
  • Weekly Market Preview:  All About the Terminal Rate
  • Weekly Economic Cheat Sheet:  Flash PMIs Friday

Futures are moderately lower mostly on momentum from last week’s declines and following a generally quiet weekend of news.

Geo-politically, Russian President Putin and Ukrainian President Zelensky gave interviews over the weekend and neither implied the war would end anytime soon, which is a mild disappointment for markets.

Chinese authorities ended the lockdowns in Chengdu, but gave no indication the “Zero COVID” policy will change.

Today the calendar is sparse given there’s only one economic report, Housing Market Index (E: 48), and the UK and Japanese markets are closed.  So, positioning ahead of Wednesday’s FOMC decision should drive markets, and unless we get some positive corporate commentary to offset the FDX guidance, the path of least resistance into the Fed is lower.

Market Multiple Table: Fork in the Road?

What’s in Today’s Report:

  • Market Multiple Table: Fork in the Road?
  • S&P 500 Chart: 50-50 Chance of New Lows
  • ISM Service Sector PMI
  • OPEC+ Policy Meeting Takeaways

U.S. stock futures have rebounded from overnight losses amid a steadying bond market and mostly upbeat economic data out of Europe.

Economically, German Industrial Production and Italian Retail Sales were both notably better than feared while the Final Q2 Eurozone GDP came in at 0.8% vs. (E) 0.6%, all of which is helping ease concerns about an imminent recession in Europe.

Today, there is one economic report to watch in the morning: International Trade in Goods (E: -$70.5B) and the Fed will release their Beige Book in the afternoon (2:00 p.m. ET) that could shed some light on the Fed’s current view of the economy and inflation trends ahead of this month’s FOMC meeting.

Additionally, there are a few Fed speakers over the course of the day: Mester (10:00 a.m. ET), Brainard (11:55 a.m. ET), and Barr (2:00 p.m. ET). Investors will be most closely focused on commentary from Vice Chair Brainard with the September meeting coming into view.

Bottom line, if data is generally good, rhetoric from the Fed is not more hawkish than it has been lately, and the bond market continues to stabilize, the S&P 500 should be able to hold the critical 3,900 area. However, a break below would be notable and greatly increase the odds of a retest of the June lows.

Economic Breaker Panel: August Update

What’s in Today’s Report:

  • Sevens Report Economic Breaker Panel: August Update
  • S&P 500 Reaches Key Technical Support: Chart

Stock futures are steady this morning as this week’s rise in both the dollar and bond yields has paused while economic data in Europe was better than feared

Economically, the Eurozone Manufacturing PMI was 49.7 vs. (E) 49.0 and the Services PMI came in at 50.2 vs. (E) 49.0 which is helping ease some stagflation concerns after last week’s soft growth numbers yet stubbornly high inflation across Europe.

Looking into today’s session, the focus will be on economic data early, specifically, the PMI Composite Flash (E: 49.2) as investors will want to continue to see steady moderation and evidence of slowing growth but not an all-out crash in the data either. New Home Sales (E: 575K) will also be released shortly after the open.

Outside of the data, there is one Fed speaker on the calendar: Kashkari, but not until after the close (7:00 p.m. ET) while there is a 2-Yr Treasury Note auction at 1:00 p.m. ET that could move yields.

Bottom line, news flow has not been decidedly negative over the last few sessions and the pullback in stocks has been largely driven by the rally in the dollar and rising bond yields. So if we can see those two markets stabilize, equities should be able to stabilize today as well, especially with the S&P into solid technical support, however, if the dollar and yields both grind higher, expect further volatility in the stock market ahead of Jackson Hole.