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Omicron Optimism

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What’s in Today’s Report:

  • Why Omicron Optimism is Helping Stocks Rally

Futures are marginally higher as studies and articles continue to be released that confirm that the Omicron variant results in much fewer severe COVID cases.

Over the past 48 hours, studies from South Africa, Denmark, and England and numerous articles (Washington Post, Bloomberg, WSJ) have all generated the same conclusion, that Omicron results in substantially fewer severe

COVID cases and that confirmation is easing COVID anxiety.

Today there is a lot of economic data but the most important report is the Core PCE Price Index (E: 0.4% m/m, 4.5% y/y).  As long as it’s not materially worse than feared, it likely won’t hit markets.  And, if the data comes in better than expected, that will add to the idea that inflation pressures have peaked, and we could easily see an extension of this week’s rally.

Other data today includes Durable Goods (E: 1.5%), Jobless Claims (E: 205k),  New Home Sales (E: 770k), and Consumer Sentiment (E: 70.4), but barring a major surprise those numbers shouldn’t move markets.

Are Central Banks Tightening into a Slowdown?

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What’s in Today’s Report:

  • Bottom Line: Are Central Banks Tightening into a Slowdown?
  • Weekly Economic Cheat Sheet: Is the Economy Losing Momentum?
  • Weekly Market Preview: Santa Claus Rally Still Possible but Volatility is on the Rise

U.S. equity futures are sharply lower with global shares amid negative COVID headlines and surprise political drama in D.C.

Democratic Senator Joe Manchin unexpectedly rejected President Biden’s Build Back Better plan over the weekend, greatly reducing the odds of its passage which saw GS revise their Q1 growth outlook from 3% to 2%.

Meanwhile, in Europe, lockdown risks are on the rise as the spread of the Omicron variant of COVID-19 accelerates.

Looking into today’s session, it appears we are going to open deep in the red amid the combination of a deteriorating political landscape and surging Omicron fears.

There are no economic reports or Fed speakers on the calendar today however there is a 6-Month Treasury Bill auction at 11:30 a.m. ET, which is not something we typically monitor, but if we see a weak outcome, then short duration yields could spike higher, compounding last week’s fears of rate hikes beginning sooner than later which would weigh on stocks, potentially in a big way. Outside of that auction, markets will be focused on the Build Back Better headlines and the new prospects of tighter COVID restrictions, particularly in Europe as that would further weigh on the outlook for economic growth.

What the Fed Decision Means for Markets

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What’s in Today’s Report:

  • What the Fed Decision Means for Markets
  • EIA and Oil Market Update

Futures are sharply higher mostly on momentum from yesterday’s strong close and despite soft economic data.

EU and UK flash PMIs missed estimates thanks to drops in the service sector and that implies Omicron is a headwind on global growth in Europe.

But, for now that concern isn’t enough to stop a year-end Santa rally as the Fed was hawkish, but not too hawkish.

Looking forward, today will be a busy day.  First, we get two important central bank decisions (Bank of England at 7:00 a.m. and ECB at 7:45 a.m), and while neither are expected to change policy if they are hawkish in a tone that could partially offset the current Fed rally.

Meanwhile, we also get a lot of economic data including, in order of importance: December Composite Flash PMI (E: 58.4), Philly Fed (E: 28.8), Jobless Claims (E: 200K), Housing Starts (E: 1.563M) and Industrial Production (E: 0.7%).  Bottom line, the market will want to see stability in the data especially given the looming rate hikes in 2022, and the last thing the market will want to see is a material weakness in the data given the Fed’s new hawkishness.

Tom Essaye Quoted in Nasdaq.com on December 10, 2021

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History Proves That Rate Hikes Don’t Have to Dent Stocks

While the market will likely remain volatile near term, there’s no reason yet to think that stocks can’t….says Essaye of the Sevens Report. Click here to read the full article.

All Clear for a Santa Rally?

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What’s in Today’s Report:

  • All Clear for a Santa Rally?
  • Weekly Market Preview:  All About the Fed
  • Weekly Economic Cheat Sheet:  First Look at December Data (Is Omicron An Economic Headwind?)

Futures are modestly higher on continued momentum from last week’s rally, following a very quiet weekend of news.

On COVID, the growing consensus is that fully vaccinated people are protected against severe illness while those with boosters are also protected against infection, so it is increasingly unlikely Omicron causes a sustained pullback.

On stimulus, Democrats are still trying to pass the $1.7-ish trillion spending bill before year-end, but Senator Manchin remains an obstacle, and passage of the bill in 2021 (or perhaps at all given high inflation and 2022 is an election year) is becoming increasingly unlikely.

Today there are no economic reports and no Fed speakers so it should be a mostly quiet day, although we could get official vaccine results vs. Omicron from PFE or MRNA any day, and if the data confirms the consensus opinion, that would be a mild tailwind on stocks.

Two Key Inflation Reports Today

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What’s in Today’s Report:

  • Future Headwinds on Gold?

Futures are modestly higher following a generally quiet night as markets await the latest readings on inflation via today’s CPI and inflation expectations index in Consumer sentiment.

Economic data slightly underwhelmed as UK Industrial Production (1.3% vs. (E) 1.4%) and UK GDP (0.9% vs. (E) 1.0%) both missed expectations.

There were no notable Omicron updates overnight.

Today the focus will be on inflations via the  Consumer Price Index (E: 0.7% m/m, 6.8% y/y) and the inflation expectations index in the Consumer Sentiment report (E: 67.0).  Markets are already expecting the Fed to materially accelerate the pace of tapering of QE next week, but if these inflation readings come in much hotter than expected, that likely will be a headwind on stocks as it will only encourage the Fed to get even more aggressive in tapering QE.

Tom Essaye Quoted in Barron’s on December 3, 2021

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The Dow Fell, November’s Jobs Report Missed—and What Else Happened in the Stock Market Today

Initially, the stock market took the jobs report as good news. Any result above 200,000 but not wildly above expectations..wrote Tom Essaye, founder of Sevens Report Research. Click here to read the full article.

Tom Essaye Quoted in CNBC on December 5, 2021

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Dow jumps nearly 650 points, erasing last week’s losses as investors shake off omicron worries

But it was comments from the Fed that unnerved markets late last week, not fears about the…according to Tom Essaye, author of the Sevens Report. Click here to read the full article.

Tom Essaye Quoted in Unseen Opportunity on December 6, 2021

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No “Santa Rally” for Stocks?

Super-cap tech has been well bid on the expectation of ‘forever’ low rates and support…said Sevens Report founder Tom Essaye. Click here to read the full article.

Tom Essaye Quoted in Aljazeera on December 6, 2021

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Stocks surge as Omicron worries abate following volatile week

That’s a set up where stocks can continue to rally, although I think we all need…wrote Tom Essaye, a former Merrill Lynch trader who founded “The Sevens Report” newsletter. Click here to read the full article.