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Market Setup into the Fed Decision

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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?

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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

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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.

Why the Transmission Protection Instrument Matters to Markets

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What’s in Today’s Report:

  • Why the Transmission Protection Instrument Matters to Markets
  • ECB Decision Takeaways (Not Hawkish Enough)
  • Another Sign Inflation Has Peaked?

Stocks are resilient this morning as futures are only slightly lower despite disappointing overnight earnings and ugly economic reports from Europe.

Earnings overnight were bad with several ugly reports including SNAP (-30%), COF (-3.5%), and STX (-13%).

Economically, July flash PMIs from the EU were also ugly as the composite PMI fell into contraction territory at 49.6 vs. (E) 51.0.

Hope that inflation has peaked is the reason stocks are resilient lately, so today’s focus will be on the July Flash Manufacturing PMI (E: 51.8) and the July Flash Services PMI (E: 52.3).  If these reports show meaningful drops in the price indices (like we’ve seen in the Empire and Philly Fed surveys) then that will further the idea that inflation is peaking and support stocks (as long as the headline readings aren’t huge misses).

On the earnings front, results to watch today include TWTR (-$0.06), VZ $1.34), and AXP ($2.37).

Market Multiple Levels: S&P 500 Chart

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What’s in Today’s Report:

  • Market Multiple Levels Chart: S&P 500

U.S. futures are tracking European shares lower this morning amid hawkish money flows ahead of tomorrow’s ECB meeting announcement.

Economically, Eurozone Q1 GDP was revised up to 0.6% vs. (E) 0.3%, bolstering bets that the ECB could raise rates by 50 bp in July which is driving bond yields higher and pressuring equities this morning.

There are no notable economic reports and no Fed officials are scheduled to speak today but there is a 10-Yr Treasury Note auction at 1:00 p.m. ET.

Bottom line, investors remain focused on high inflation and uncertain economic growth right now and if we see rates begin to meaningfully move higher again today, especially in the wake of the 10-year auction, then the S&P 500 test and potentially break down through key near term support at 4,080 today.

Tom Essaye Quoted in CNBC on June 2, 2022

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Dow falls 300 points, Nasdaq drops 2%, as major indexes notch weekly losses

Numbers this strong would likely reverse any hopes the Fed would consider a pause in rate hikes after the June/July increases, because it would signal the labor market remains very tight…Tom Essaye of the Sevens Report said. Click here to read the full article.

Are Semiconductors A Buy?

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What’s in Today’s Report:

  • Are Semiconductors A Buy?

Futures are little changed following a quiet night of news.

Economic data was mixed as final May manufacturing PMIs were in-line with expectations for the EU and UK, although German Retail Sales missed estimates (–5.4% vs. (E) -0.1%).

On the Fed front, Bostic said his comments about a “pause” on rate hikes shouldn’t be interpreted that the Fed will help rescue volatile markets.

Today focus will be on economic data and Fed speak via the ISM Manufacturing PMI (E: 54.5), JOLTS (E: 11.40M) and comments by Williams (11:30 a.m. ET) and Bullard (1:00 p.m. ET).  Bottom line, the ideas of slowly moderating (but not collapsing) growth and the possibility for a Fed “pause” in rate hikes in late summer/early fall have helped stocks rally, and as long as today’s data and Fed speak don’t refute those possibilities, stocks can extend the recent rally.

Bad Things Happen Fast (Part II)

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What’s in Today’s Report:

  • Bad Things Happen Fast, Part II
  • Composite PMI Flash Data Takeaways
  • New Home Sales Plunge – Chart
  • 10-Year Yield Breaking a 15 Year Downtrend – Chart

Stock futures are little changed this morning, well off the overnight highs after a mostly quiet night of news as investors look ahead to the release of the latest Fed meeting minutes.

Economically, the German GfK Consumer Climate Index met expectations of -26.0 while German GDP came in at 3.8% vs. (E) 3.7% but today’s data is not materially impacting markets.

Looking into today’s session, there is one economic report to watch early: Durable Goods Orders (E: 0.5%) and the Treasury will hold an auction for 5-Year Notes at 1:00 p.m. ET. Markets will want to see data that shows healthy demand and steady trade in fixed income markets if stocks are to stabilize further.

As far as the Fed goes, Vice-Chair Brainard is scheduled to speak at 12:15 p.m. ET before the day’s main event, the release of the FOMC Meeting Minutes will hit at 2:00 p.m. ET. If Brainard and the minutes are less hawkish that could support a continuation of the latest attempt at a relief rally. At the same time, any more-hawkish leaning rhetoric or verbiage could lead to a resurgence in volatility as news flow has been decidedly negative over the last week.

Tom Essaye Quoted in Barron’s on May 5th, 2022

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The Dow Lost More Than 1,000 Points as Wednesday Gain Vanishes

China’s PMI this morning was horrific, that underscores that the Chinese economy is a huge drag on global growth right now. It’s a risk to keep inflation high…said Tom Essaye, founder of Sevens Report Research. Click here to read the full article.

Can the Rally Keep Going?

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What’s in Today’s Report:

  • Weekly Market Preview:  Can the Rally Keep Going?
  • Weekly Economic Cheat Sheet:  Flash PMIs Are the Key Number This Week

Futures are slightly lower following a generally quiet weekend as investors digest last week’s gains.

The Russia/Ukraine war continued with no notable progress towards a cease-fire over the weekend and hope for a near-term peace is fading.

Economically, the only notable report was German PPI, which encouragingly missed expectations, rising 1.4% m/m vs. (E) 1.7% m/m.

Today there are no economic reports and just one Fed speaker, Bostic at 8:00 a.m. ET, and he shouldn’t move markets.  So, focus will remain on Russia/Ukraine, and any hints of progress towards a ceasefire will help extend the rally, while any additional escalation will be a headwind on stocks.