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Sevens Report Co-Editor Tyler Richey Quoted in MorningStar via MarketWatch on January 18th, 2023

Gold ends lower as investors weigh Fed rate-hike talk, even as U.S. wholesale inflation and retail sales fall

Gold came into the week in overbought territory as the precious metals have enjoyed solid gains since the early November lows, thanks to the dual tailwinds of a falling dollar and declining interest rates,” said Tyler Richey, co-editor at Sevens Report Research. Click here to read the full article.

What the Russia/Ukraine Headlines Mean for Markets

What’s in Today’s Report:

  • What the Russia-Ukraine Headlines Mean for Markets
  • October PPI Data Takeaways
  • Empire State Manufacturing Survey Takeaways
  • Chart: 4,007 Remains Critical Resistance for the S&P 500

Futures have stabilized with global shares as easing geopolitical angst offsets more hot inflation data in Europe.

The AP reported the projectile that killed two in Poland on Tuesday originated in Ukraine (by their air defense systems) and not Russia which has eased concerns about NATO being pulled into the war between Russia and Ukraine.

Economically, U.K. CPI rose to 11.1% vs. (E) 10.6% in October, a fresh 41-year high which rekindled some global inflation fears overnight.

Today, the focus will be on the slew of economic data due to be released: Retail Sales (E: 1.0%), Import & Export Prices (E: -0.4%, 4.0%), Industrial Production (E: 0.2%), and the Housing Market Index (E: 36). The market will want to see a continued slowdown in growth metrics but more importantly, a faster slowdown in any price measures within the data as that dynamic would improve the prospects of a soft landing.

Additionally, the Fed speakers circuit remains active with: Williams (9:50 a.m. ET), Barr (10:00 a.m. ET), and Waller (2:35 p.m. ET) all due to speak over the course of the session.

Bottom line, if economic data and geopolitical headlines remain favorable today, the S&P 500 should be able to make another run at critical technical resistance at 4,007 in the S&P 500. A close above that level would open the door to another leg higher in the latest relief rally in the broader stock market.

Key Inflation and Fed Events to Watch

What’s in Today’s Report:

  • The State of Inflation and Fed Speak After CPI (Key Events to Watch)

Futures are pointing to a rebound from yesterday’s profit-taking pullback amid risk-on money flows in China overnight.

Economically, Chinese Retail Sales surprisingly fell -0.5% vs. (E) +0.8% in October but the weak data was followed by the PBOC injecting $150B into the system in new near-term stimulus measures which helped Asian markets rally overnight.

Meanwhile, Warren Buffet has reportedly accumulated a more than $4B stake in TSMC which is helping semiconductors lead equity markets higher this morning.

Looking into today’s session, traders will be watching economic data early with PPI (E: 0.5%, 8.3%) and the Empire State Manufacturing Index (E: -7.6) due out before the open. For the equity rebound to resume we will want to see another cool inflation print from the PPI release and some signs of stabilization from the Empire release to help ease rising stagflation concerns.

There are also two Fed speakers to watch: Harker (9:00 a.m. ET) and Barr (10:00 a.m. ET). If they maintain a less hawkish tone, the S&P should be able to retest yesterday’s highs near 4,010, a key near-term technical resistance level.

Market Multiple Table: Headwinds Building

What’s in Today’s Report:

  • Market Multiple Table: Headwinds Building

Stock futures are higher this morning as Treasury markets are steady despite more turmoil in the Gilts market with the 30-Yr jumping another 20+ bp back towards 5.00%.

Economic data was mixed overnight as U.K. GDP dropped off further than expected in August (-0.3% vs. E: -0.1%) while EU Industrial Production for the same month was solid at 1.5% vs. (E) 0.5%.

Today, there is one inflation data point to watch pre-market: Producer Price Index (E: 0.2%) and if it runs hot, it would likely send yields to new highs and pressure risk assets ahead of the bell.

After the open, the focus will shift to the Fed with two officials speaking through the middle of the day: Kashkari (10:00 a.m. ET) and Barr (1:45 p.m. ET) before the most recent FOMC Meeting Minutes are due to be released at 2:00 p.m. ET.

In the minutes, investors will be looking for any new indication of a timeline for a policy “pivot” or what might result in one as that is still a major catalyst needed in order for stocks to bottom.

Finally, there is a 10-Yr Treasury Note Auction at 1:00 p.m. ET and if the outcome is weak, as was the case with yesterday’s 3-Yr Note auction, and yields begin to rise, that will likely be a renewed headwind on equities in the afternoon.

Bottom line, yields are still the primary driver of the stock market this week and if we see Treasuries remain stable as they are this morning, then stocks could break their multi-day losing streak, however, if yields do rise meaningfully it will be hard for the major indices to hold this week’s lows.

FOMC Preview

What’s in Today’s Report:

  • FOMC Preview

Futures reversed from overnight gains and are now tracking EU markets lower following more very hot inflation data and an aggressive policy hike by the Riksbank.

In Europe, German PPI surged 7.9% vs. (E) 1.5% in August (45.8% vs. E: 37.2% y/y) while Sweden’s Riksbank raised rates by 100 bp vs. (E) 75 bp. Both developments are driving hawkish, risk-off money flows ahead of the Fed.

Today, focus will begin to shift to the Fed as the September FOMC Meeting begins however there is one report on the housing market that will get some attention when it is released mid-morning: Housing Starts (E: 1.440M) and Permits (E: 1.621M).

Beyond that one report, there is a 20-Yr Treasury Bond auction at 1:00 p.m. ET. The auction may not move markets today with the Fed looming but it will be worth watching because if it is weak like last week’s 3-Yr and 10-Yr auctions ahead of the CPI report, it could be forecasting a more hawkish than expected Fed decision Wednesday.

Why Is the Market Suddenly Resilient?

What’s in Today’s Report:

  • Why Is the Market Suddenly Resilient?

Futures are slightly higher on momentum from yesterday’s recovery and despite mixed Chinese economic data.

Chinese Industrial Production and Fixed Asset Investment both slightly missed estimates while Retail Sales beat expectations, but importantly the data didn’t show the Chinese economy had lost significant momentum.

Today there are numerous economic reports and some of them potentially will move markets.  The most important report today is 5-Yr Inflation Expectations (3.1% previous) and if they drop to 3.0% or lower that will be a good sign on inflation.  Retail Sales (E: 0.9%) and Empire State Manufacturing Index (E: -1.3) are the next most important reports today and again markets will want to see moderation – a slowing of activity but not a collapse.  Finally, we also get Industrial Production (E: 0.1%) and Consumer Sentiment (E: 50.0).

We also have one Fed speaker today, Bostic (8:45 a.m. ET), and we’d expect him to follow yesterday’s script and push back on the inevitability of a 100 basis point hike (although acknowledge that anything’s possible depending on the data).

Jobs Report Preview

What’s in Today’s Report:

  • Jobs Report Preview
  • Is Good Economic Data Bad for Markets?

Futures are modestly higher following a soft EU inflation reading and on reports, OPEC members may increase oil production.

Euro Zone PPI undershot expectations (1.2% vs. (E) 2.3%) offering some hope that inflation in the EU is peaking.

Oil is down 2.5% after Saudi Arabia said it may increase oil production to make up for any Russian shortfall.

Today’s focus will be on the economic and inflation data including, in order of importance: ADP Employment Report (E: 240k), Unit Labor Costs (E: 11.6%), and Jobless Claims (E: 210k).  If the data is “Goldilocks” then this early rally can continue.  Finally, there are two Fed speakers today, Logan (12:00 p.m. ET) and Mester (1:00 p.m. ET), with the latter more important (and if she’s hawkish that will weigh on sentiment).

Why Are the VIX and S&P 500 Possibly Diverging?

What’s in Today’s Report:

  • Why Are the VIX and S&P 500 Possibly Diverging?
  • Is Selling Becoming Mechanical?
  • CPI Takeaways (It Won’t Make the Fed More Hawkish)

Futures are moderately lower mostly on momentum from Wednesday’s afternoon selloff.

Economically, UK economic data disappointed (GDP and Industrial Production both missed estimates) while BOE officials warned of more rate hikes reminding markets there’s a real stagflation threat in the UK.

Geo-politically, Finland formally applied to join NATO (and Sweden is expected to follow), keeping NATO/Russia tensions high for the foreseeable future (meaning quarters and years).

Today, we get Jobless Claims (E: 190K) and PPI (0.5% m/m, 10.7% y/y) and one Fed speaker, Daly (4:00 p.m. ET), but barring a big spike in claims, a big move in PPI or incrementally hawkish commentary from Daly (all of which are unlikely) these events won’t move markets.  So, short-term technical will continue to be the main driver of stocks, and markets need to show some stabilization, otherwise, the declines themselves will invite more selling.

Yield Curve Update

What’s in Today’s Report:

  • Yield Curve Update (Are Recession Risks Rising?)
  • Why European Energy Companies Buying Gas in Rubles Matters to Stocks
  • Q1 GDP – Not as Bad as It Looks

Futures are moderately lower following underwhelming earnings and guidance from AMZN and AAPL.

AMZN results underwhelmed the street (especially margins) while APPL beat earnings but had cautious guidance for Q2 based on supply chain issues.

Economically, inflation pressures remained high as core EU HICP (their CPI) rose 3.5% yoy vs. (E) 3.1%.

Today focus will be on inflation as we get two important readings: Core PCE Price Index (E: 0.3%, 5.3%) and the Employment Cost Index (E: 1.1%).  Markets will want to see the actual numbers miss estimates, and in doing so further hint at a peak of inflation.  If the opposite happens (the numbers are hotter than estimates) that will further pressure stocks.  We also get Consumer Sentiment (E: 65.6) and the Inflation Expectations sub-index will be watched closely.

On the earnings front, some important results today include:  XOM ( $2.25), CVX ($3.44), CL ($0.74).

The Yield Curve Is Hitting Resistance

What’s in Today’s Report:

  • 10s-2s Into Resistance (Chart)
  • U.S. Consumer Price Index Takeaways
  • Chart – WTI Crude Oil Hits Technical Resistance

Stock futures are attempting to stabilize this morning while global shares were mixed overnight as traders assess the latest economic data ahead of today’s unofficial start to Q1 earnings season and another important U.S. inflation print.

Economic data was negative and again pointed to stagflation overnight as Japanese Machine Orders plunged -9.8% vs. (E) -1.5% while U.K. CPI jumped to 7.0% vs. (E) 6.7%.

Today is lining up to be a very busy session from a news flow and catalyst standpoint as we kick off Q1 earnings season with reports from: JPM ($2.73), BLK ($8.92), and DAL (-$1.33) ahead of the bell. Investors will be looking for solid results to confirm the strength and resilience of corporate America.

Then we will get the March PPI report at 8:30 a.m. ET (E: 1.1%, 10.6%), but as long as the headlines are not materially hotter than expected, and the “core figures” are in line with estimates, stocks could mount a relief rally as the market has become near-term oversold.

 

In the afternoon, there is one Fed speaker: Barkin (12:30 p.m. ET) as well as a 30-Yr Treasury Bond auction at 1:00 p.m. ET. And if bond yields hold below the highs from earlier this week, that should be an additional tailwind for stocks today, especially the beaten-down tech sector.