What Would A Recession Mean for Markets?

What’s in Today’s Report:

  • What Would A Recession Mean for Markets?

Futures are moderately higher thanks mostly to momentum from Thursday’s close and despite more underwhelming economic data.

Economically, UK Retail Sales met expectations but fell sharply (–4.7% yoy) while the German Ifo Business Expectations Index missed estimates (85.8 vs. (E) 87.3).

Geo-politically, Russia continues to advance in the Donbas as Ukraine has withdrawn from the city of Severodonetsk.

Today focus will be on the inflation expectations in the University of Michigan Consumer Sentiment Index, and if we see a decline below 3.3% that could further the idea that inflation is peaking (and extend the rally in stocks).  Other data today includes New Home Sales (E: 587K) and one Fed speaker, Daly at 4:00 p.m. ET, but they shouldn’t move markets.

Is the Yield Curve Signaling an Imminent Recession?

What’s in Today’s Report:

  • Is the Yield Curve Clearly Signaling an Imminent Recession?
  • Chart: Oil Testing Critical Support

Stock futures are sharply lower with global shares as much of yesterday’s rally is being given back amid a resurgence in growth concerns ahead of Powell’s testimony today.

U.K. CPI met estimates at 9.1% but Input PPI jumped 22.1% vs. (E) 19.4% stoking fears that central banks will have to be even more aggressive to get inflation under control in the months ahead.

There are no notable economic reports today but there are multiple Fed speakers: Barkin (9:00 a.m. & 12:00 p.m. ET), Powell (9:30 a.m. ET), Evans (12:55 p.m. ET), and Harker (1:30 p.m. ET).

Then in the afternoon, there is a 20-Yr Treasury Bond auction at 1:00 p.m. ET that could move yields and impact equity markets.

Bottom line, the focus will be on Powell’s testimony before the House this morning as there has been a resurgence in concerns about global growth in the face of the latest broad shift to more aggressive central bank policy in response to sticky and elevated inflation pressures globally. And if Powell is seen as getting more hawkish, or the market shows signs of losing confidence in the Fed’s policy plans, we could potentially see stocks test the 2022 lows.

When Could the Selling Stop?

What’s in Today’s Report:

  • When Could the Selling Stop?
  • Weekly Economic Cheat Sheet

Stock futures are solidly higher this morning, rebounding from last week’s more than 5% selloff while global markets stabilized following a mostly quiet weekend.

President Biden and St. Louis Fed President, Jim Bullard, both downplayed the threat of a severe recession on Monday which is helping drive risk-on money flows this morning while there were no market-moving economic reports overnight.

From a catalyst standpoint, there is just one economic report today: Existing Home Sales (E: 5.40M) and two Fed officials are scheduled to speak: Mester (12:00 p.m. ET) and Barkin (3:30 p.m. ET).

Bottom line, for this morning’s relief rally to continue today the market will need to see stable price action in bond markets, economic data meet or beat expectations and Fed officials to maintain an optimistic tone as that could see the S&P 500 test near term resistance between 3,780 and 3,840.

Updated Fed Preview (75 bp Hike Today)

What’s in Today’s Report:

  • Updated FOMC Preview – The Fed Will Hike 75 bp Today (And That May Not Be Bad for Markets)
  • A Look at the TIPS Market Reveals Increased Confidence in the Fed

Futures are modestly higher as bond yields and the dollar pulls back ahead of the Fed and an emergency ECB meeting that will address fragmentation and the bank’s bond-buying programs sparking risk-on money flows this morning.

Economically, Chinese Fixed Asset Investment, Industrial Output, and Retail Sales were all better than feared overnight which is easing concerns about the health of global growth trends.

Looking into today’s session, there is a slew of economic data due out in the U.S. including: Retail Sales (E: 0.1%), Empire State Manufacturing Index (E: 5.5), Import & Export Prices (E: 1.2%, 1.3%), and the Housing Market Index (68). At this point, the Fed is expected to hike aggressively in the months ahead to tame inflation regardless of the state of economic growth, so the stronger the data, the better for risk assets.

After the flurry of data in the morning, the market focus will shift to the Fed with the FOMC Announcement at 2:00 p.m. ET and the Fed Chair Press Conference 2:30 p.m. ET. As discussed in more detail in today’s report, a 75 basis point hike may not cause further losses in equities as long as investors gain confidence in the Fed’s ability to get inflation under control. That will be the key to how stocks and other markets react to today’s decision.

Jobs Day

What’s in Today’s Report:

  • Jobs Day
  • Why the ADP Report Helped Stocks Rally

Futures are slightly lower following a generally quiet night of news as markets look ahead to today’s jobs report.

Economic data from Europe underwhelmed as Euro Zone Services PMI declined to 56.1 vs. (E) 56.3 while Euro-Zone Retail Sales missed estimates, falling –1.3% vs. (E) 0.4%.

Elon Musk made cautious comments saying he had a “super bad” feeling about the economy in a Reuters interview.

Today’s focus will be on the Jobs Report and expectations are as follows: Job Adds (E: 325k), UE Rate (E: 3.5%), Wages (E: 0.4% m/m & 5.3% y/y).  As long as data shows “moderation” in the labor market (so a positive number but in the lower part of the range) then stocks can extend Thursday’s rally.  Other data today includes  ISM Services PMI: 56.3, and we get one Fed speaker:  Brainard (10:30 a.m. ET).

Are Bonds a Buy?

What’s in Today’s Report:

  • If a Recession Is Imminent, Are Bonds a Buy?

Stock futures are down more than 1% this morning following more negative earnings news in the tech sector.

SNAP is down 30% this morning after issuing a profit warning late yesterday, citing a quickly deteriorating macroeconomic environment that is weighing on tech broadly.

Economically, Composite Flash PMI data slightly missed estimates in Europe overnight, but notably remained comfortably in expansion territory, easing some concerns about a looming recession.

Looking into today’s session, focus will be on economic data early with the PMI Composite Flash (E: 55.5) and New Home Sales (E: 748K) due to be released and the market will be looking for fresh signs that the economy is in good shape and not significantly losing momentum right now. There is also a 2-Yr Treasury Note auction at 1:00 p.m. ET today which could move yields on the short end of the curve, and in turn, impact equity trading.

Focus will turn to monetary policy midday with Fed Chair Powell scheduled to speak at 12:20 p.m. ET. Any hints at a less aggressive approach to policy tightening in the months ahead will be welcomed by investors and could help the latest attempt at a relief rally regain its footing. However, the combination of soft data in the morning and a hawkish-leaning Powell could send stocks lower.

What to Make of Yesterday’s Drop & Jobs Report Preview

What’s in Today’s Report:

  • What to Make of Yesterday’s Drop
  • Jobs Report Preview
  • Natural Gas Update

Futures are slightly lower as markets digest the whiplash of the past two trading days following a mostly quiet night.

German economic data again badly missed estimates as German Industrial Production fell –3.9% vs. (E) -1.0% and fears of outright stagflation in the EU are rising quickly.

Today focus will be on the Jobs Report and estimates are as follows:  Job Adds: 400K, UE Rate: 3.6%, Wages: 0.4% m/m, 5.5% y/y.  This market needs a “Goldilocks” report that’s subdued on wages and with job adds modestly below the estimate of 400k.  If markets get that Goldilocks jobs report it should help stocks stabilize.  If the report ends up “Too Hot” though, especially on wages, brace for more selling.

There are also numerous Fed speakers today including: Williams (9:15 a.m. ET), Kashkari (11:00 a.m. ET), Bostic (3:20 p.m. ET), Waller and Bullard (7:15 p.m. ET) and Daly (8:00 p.m. ET).  Don’t be surprised if they all sound more hawkish than Powell did on Wednesday.  Remember, it appears the Fed’s tactic is to “Talk Tough” on looming rate hikes and inflation, yet be more measured on actual rate hikes than rhetoric would suggest.  Regardless, if there’s a consistent chorus of hawkish commentary, that will likely weigh on stocks, at least partially.

Is the Fed’s Bark Worse than Its Bite?

What’s in Today’s Report:

  • What the FOMC Decision Means for Markets (Is the Fed’s Bark Worse than Its Bite?)
  • EIA Analysis and Oil Outlook Update

Futures are moderately lower as markets digest Wednesday’s big post-Fed rally following a night of underwhelming economic data.

The April Chinese services PMI plunged to 36.2 vs. (E) 41.1, reflecting the economic damage from lockdowns.  In Europe, data was mixed as German Manufacturers’ Orders missed estimates while UK Services PMI beat expectations.

There are multiple Fed speakers today on financial media outlets (there are no official speeches scheduled) and don’t be surprised if they sound hawkish and push back on the post FOMC rally yesterday (this is especially true for Bullard, whose doing interviews today).

Today’s focus will be on the aforementioned Fed speakers, and again don’t be shocked if they sound “hawkish” and that causes some giveback from yesterday’s rally (but a hawkish tone won’t undo the positives from Powell’s press conference, either).

Economically, there is a BOE Rate decision and they are expected to hike 25 bps.  Domestically, the key report today is Unit Labor Costs (E: 6.8%) as that will give us a good look at total wage inflation (and if it’s higher than estimates that will be a negative).  We also get Jobless Claims (E: 178K) but that shouldn’t move markets.

Fed Meeting Preview

What’s in Today’s Report:

  • FOMC Preview
  • Q&A: Technical Resistance and Downside Targets for the S&P
  • ISM Manufacturing Index Takeaways

Stock futures are little changed as yesterday’s late-session rally is being digested following more hot inflation data and a slightly hawkish RBA hike (25 bp vs. E: 15 bp) overnight.

Economic data on growth was better than feared overnight but Eurozone PPI was hotter than expected with a staggering annual rise of 36.8% vs. (E) 36.2% in March.

Looking into today’s session, there are a few economic reports to watch including March JOLTS (E: 11.27M) and Factory Orders (E: 1.1%), however, with the May FOMC Meeting beginning this morning, a sense of Fed paralysis is likely to begin to grip markets ahead of tomorrow’s announcement.

Finally, earnings season does continue with a few notables reporting today: PFE ($1.66), BP ($1.41), HLT ($0.59), AMD ($0.90), and SBUX ($0.60) which could have an impact on sector trading but is not likely to move the broader markets given the focus-shift to the Fed.

Powell Speech Takeaways

What’s in Today’s Report:

  • Powell’s Comments Takeaway: It’s Not About 50 Basis Points, It’s About Certainty
  • Chart: 2-Year Yield surges beyond 2%

Stock futures are cautiously higher this morning after a mostly quiet night of news as traders continue to digest Powell’s more hawkish tone from yesterday and monitor a lack of progress towards a ceasefire in Ukraine.

Bond yields are continuing to rise today with the 2-year up another 4 basis points which is pressuring the yield curve. The 10s-2s is down to just 16 basis points this morning.

There was no market-moving economic data overnight and no notable reports are due out today. There is one Fed speaker: Williams (10:30 a.m. ET) and the Treasury will hold a 52-Week Bill auction at 1:00 p.m. ET.

Bottom line, equities have shown resilience in the face of the surge in yields since last week’s Fed meeting, however, if we see yields accelerate higher again today like we did yesterday, it will be increasingly difficult for stocks to extend their recent rally. Any concrete, positive news out of Ukraine could help stocks overcome higher yields in the near term and move higher though.