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Was Powell’s Speech That Bullish? No. Here’s Why.

What’s in Today’s Report:

  • Was Powell’s Speech That Bullish?  No.  Here’s Why
  • Jobs Report Preview
  • EIA Update and Oil Market Analysis

Futures are slightly lower as markets digest yesterday’s post-Powell speech rally and focus on key economic data today (manufacturing PMI) and tomorrow (jobs report).

Global economic data underwhelmed overnight, as the Euro Zone manufacturing PMI missed estimates (47.1 vs. (E) 47.3) while the UK manufacturing PMI remained firmly in contraction territory (46.5 vs. (E) 46.2).

Looking forward to today, there are three important economic reports including (in order of importance):  ISM Manufacturing Index (E: 49.9), Core PCE Price Index (E: 0.3% m/m, 5.0% y/y), and Jobless Claims (E: 235K).  Markets will want to see 1) More evidence of easing price pressures in the ISM Manufacturing PMI and Core PCE Price Index and 2) Further labor market deterioration in jobless claims if the data is to help extend yesterday’s rally.

We also get three Fed speakers today, Logan (9:25 a.m. ET), Bowman (9:30 a.m. ET), and Barr (3:00 p.m. ET), but their commentary should be largely overshadowed by Powell’s less hawkish-than-feared remarks yesterday and I don’t expect them to move markets.

Powell Speech Cheat Sheet

What’s in Today’s Report:

  • Three Topics to Watch During Powell’s Speech Today
  • More Signs of Disinflation
  • Chart – Has the Dollar Bottomed?

Stock futures are cautiously higher as traders look ahead to Powell’s speech today while international markets were mixed following some key economic data overnight.

The Eurozone HICP Flash (their CPI equivalent) fell to 10.0% in November from 10.7% in October (E: 10.6%), offering fresh evidence that inflation may have finally peaked in Europe while China’s Composite PMI was worse than expected. The soft data in China however was shrugged off thanks to continued optimism about easing Covid restrictions by the government.

Today is lining up to be a busy day with markets focusing on economic data early with the ADP Employment Report (E: 200K), GDP (E: 2.7%), International Trade in Goods (E: -$90.6B), JOLTS (E: 10.4M), and Pending Home Sales (E: -5.0%) all due out this morning.

Additionally, there are two Fed speakers through midday: Bowman (8:50 a.m. ET) and Cook (12:35 p.m. ET) before focus will turn to Powell’s speech in the early afternoon (1:30 p.m. ET) which will be the primary potential market catalyst today.

What Falls First, Treasury Yields or Earnings?

What’s in Today’s Report:

  • Key Market Question:  What Falls First, Treasury Yields or Earnings?
  • Weekly Market Preview:  All About Inflation
  • Weekly Economic Cheat Sheet:  CPI on Thursday is the Key Report

Futures are modestly higher mostly on momentum from Friday’s rally and despite negative COVID news from China and an APPL warning on I-Phone production.

Reports over the weekend pushed back on Chinese authorities abandoning the “Zero COVID” policy, although markets still expect some relaxing of restrictions.

APPL warned that COVID restrictions in China will impact IPhone production, although demand remains strong (so the news isn’t materially impacting the stock).

Today there are no notable economic reports but there are three Fed speakers: Mester (3:40 p.m. ET), Collins (3:40 p.m. ET) and Barkin (6:00 p.m. ET).  If they even slightly push back on the idea that “Terminal” Fed Funds will be higher than expected in September, as Evans did on Friday, then stocks can extend this rebound.

What the Fed Decision Means for Markets (Not a Bearish Gamechanger)

What’s in Today’s Report:

  • What the Fed Decision Means for Markets (Not a Bearish Gamechanger)
  • EIA Analysis and Oil Update

Futures are lower on underwhelming earnings and further digestions of Powell’s hawkish press conference.

Earnings results have turned more negative this week and that included last night as ATUS and CF both posted disappointing results (among others).

Today’s focus will be on the Bank of England Rate Decision (E: 75 bps hike) and economic data, as we get Jobless Claims (E: 222K), Unit Labor Costs (E: 4.0%) and the ISM Services Index (E: 55.4).  Especially in light of Powell’s comments, markets will want to see data that shows resilient economic activity and falling inflation/deteriorating labor markets.

On the earnings front, the season largely wraps up at the end of the week but there are still some important reports to watch today including:  COP ($3.41), RCL ($0.23), MAR ($1.69), PYPL ($0.96) and SBUX ($0.73).

Tom Essaye Quoted in Barron’s on September 20th, 2022

Stocks Tumbled as Market Continues to Fear the Fed Ahead of Wednesday Meeting

Tomorrow’s FOMC decision will likely either further pressure stocks… or offer some relief to markets that the Fed isn’t going to raise rates as much as feared, and in doing so allow markets to bounce,” wrote Sevens Report’s Tom Essaye. Click here to read the full article.

Another Hawkish Surprise: What the Fed Decision Means for Markets

What’s in Today’s Report:

  • Another Hawkish Surprise: What the Fed Decision Means for Markets

Futures are little changed as markets digested yet another hawkish Fed decision amidst more global rate hikes.

The overnight session was mostly quiet as investors digested the Fed rate hike while other global central banks raised rates (five separate central banks hiked rates overnight, as expected).

The Bank of Japan intervened in the currency markets for the first time since 1998, causing a 1% rally in the yen.

Today focus will be on the Bank of England Rate Decision (E: 50 bps hike) and on weekly Jobless Claims (E: 220K).  Fed Chair Powell again highlighted that the labor market is still much too tight, so markets need these jobless claims to start to rise towards 300k to prevent even further Fed tightening in the future.  The sooner the labor market returns to better balance, the sooner we get to “peak hawkishness.”

Fed Day Technical Take

What’s in Today’s Report:

  • Pre-Fed Technical Take: a Make-or-Break Tipping Point for Equities

Stock futures are trading with cautious gains this morning as traders shrug off escalating tension between Russia and Ukraine while the BOJ initiated new stimulus overnight as focus turns to today’s Fed meeting.

Geopolitically, Russia is mobilizing 300,000 reservists to bolster military operations in Ukraine and indirectly threatened nuclear options in the latest escalation in the conflict which is driving gains in safe havens ahead of the Fed this morning.

Today, there is one economic report to watch in the morning: Existing Home Sales (E: 4.70M) but the primary market focus will clearly be on the Fed with the FOMC Announcement at 2:00 p.m. ET followed by Fed Chair Powell’s press conference at 2:30 p.m. ET.

Regarding the Fed, a 75 basis point hike and terminal Fed Funds rate near 4.25% is the consensus expectation so anything more hawkish than that will likely spark volatility and potentially even result in a test of the June lows in the S&P while anything more dovish than expectations has the potential to unleash a sizeable relief rally.

What the Latest Fed Speak Means for Markets (Updated)

What’s in Today’s Report:

  • What the Latest Fed Speak Means for Markets (Updated for Powell, the ECB, and RBA).

Futures are sharply higher on encouraging Chinese inflation data and a drop in the U.S. Dollar.

Chinese PPI (2.3% vs. (E) 2.8% y/y) and CPI (2.3% vs. (E) 3.2% y/y) both declined from last month and came in under expectations, providing more evidence that the global economy has hit “peak inflation.”

The encouraging Chinese inflation data combined with yesterday’s hawkish ECB is pushing the dollar 1% lower.

Today there are no notable economic reports but there are several Fed speakers, including Evans (10:00 a.m. ET), Waller (12:00 p.m. ET) and George (12:00 p.m. ET).  If they sound optimistic on inflation, that will help extend this morning’s rally.

What Should Clients Do in This Environment?

What’s in Today’s Report:

  • What Should Clients Do in This Environment?
  • S&P 500 Approaching Key Support: Chart
  • JOLTS Data Takeaways – Labor Market Remains Tight

Stock futures pulled back from overnight gains and are now trading flat as most international markets are lower following mixed economic data.

Japanese Retail Sales and Industrial Production figures both handily topped estimates but the August HICP Flash in Europe (their CPI equivalent) showed core inflation jumped 4.3% vs. (E) 4.0%, reiterating inflation risks.

Today, the early focus will be on the ADP Employment Report (E: 200K) which will be the first one since they updated the methodology of the report so be prepared for a potentially surprising print.

From a market standpoint, traders will want to see a moderation in the labor market (especially after yesterday’s JOLTS report) to show the Fed’s tightening actions are beginning to cool the labor market which is one of the key steps towards reaching “peak hawkishness.”

There are also a few Fed speakers to watch today: Mester (8:00 a.m. ET), Logan (6:00 p.m. ET), and Bostic (6:30 p.m. ET) and the market would welcome any degree of less hawkish commentary as the more hawkish tone of the last week has been largely responsible for the equity market losses into the end of the month.

Sevens Report Analysts Quoted in ETF Trends on August 25th, 2022

Gold ETFs Could Still Find a Place in a Diversified Portfolio

If the market responds to Powell in a dovish manner that should send inflation expectations even higher, while the dollar and yields should pull back, which would all result in tailwinds on gold. However, a hawkish and ‘growth-insensitive’ Powell would likely send gold back down towards $1,700, potentially by Friday’s close…analysts at Sevens Report Research said in a note. Click here to read the full article.