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Why Treasury Yields Surged Yesterday (Hint: Inflation)

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What’s in Today’s Report:

  • Why Treasury Yields Surged Yesterday (Hint:  inflation)

Futures are flat as markets digest Thursday’s rally and consider multiple reports that a debt ceiling deal is imminent.

Numerous media outlets have reported a two-year debt ceiling deal is imminent, and if that becomes official today we should expect a modest and temporary rally.

AI optimism/euphoria continued overnight with Marvell Technologies (MRVL) rising 18% on strong AI guidance.

Focus today will first be on the debt ceiling, and if a formal deal is announced with should expect a knee jerk rally, although by itself a debt ceiling compromise won’t be a sustainable bullish catalyst.  Outside of the debt ceiling, the key reports today include the Core PCE Price Index (E: 0.3% m/m, 4.6% y/y)  and Durable Goods Orders (E: -1.1%) and investors will want to see stability in both reports to hint at ongoing disinflation and a soft landing.  We also get Consumer Sentiment (E: 58.0) and if inflation expectations rise further in that report, it could become a headwind on stocks.

Why Stocks Rallied on Thursday

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What’s in Today’s Report:

  • Why Stocks Rallied on Thursday
  • Policy Spread Update (Rate Cuts Imminent?)

Futures are slightly lower on digestion of Thursday’s rally and as markets await bank earnings this morning.

Fed balance sheet news overnight was mixed, as total usage of the Discount Window and BTFP dropped to $139 bln from $149 bln, but that’s still very elevated and it underscores there’s still stress in the regional banks.

Focus today will be on economic data and earnings, and the key here remains stability in both sets of reports (so no major disappointments).  Important economic reports today include, in order of importance, Retail Sales (E: -0.4%), Industrial Production (E: 0.3%) and Consumer Sentiment (E: 62.7).

Earnings season starts today and key reports we’re watching include: JPM ($3.41), C ($1.66), WFC ($1.15), PNC ($3.60), BLK ($7.73), UNH ($6.24).

Finally, there’s one Fed speaker, Waller at 8:45 a.m. ET but he shouldn’t move markets (the Fed message is very consistent right now).

The Three Assumptions Supporting Stocks

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What’s in Today’s Report:

  • The Three Assumptions Supporting Stocks
  • Weekly Economic Cheat Sheet (All About Inflation and Growth This)
  • Weekly Market Preview:  Can Stocks Continue to Ignore Rising Bond Yields?

Futures are little changed following a mostly quiet weekend of news as markets look ahead to tomorrow’s CPI report.

The only notable economic report overnight was better than expected growth and inflation updates from the European Commission, who now sees EU growth rising 0.9% this year (up from 0.3%) and inflation at 5.6% (down from the previous 6.1%).  These revised estimates are helping to bolster the “No Landing” economic scenario.

Markets should mostly be in a holding pattern today as the CPI report looms tomorrow morning, but there are two notable events on the calendar to watch:  New York Fed Inflation Expectations (One Year: 5.0%, Five-Year: 2.4%) and one Fed speaker:  Bowman (8:00 a.m. ET).  If inflation expectations are higher than before or Bowman is hawkish, that could mildly pressure stocks.

Was Powell’s Press Conference A Bullish Gamechanger?

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What’s in Today’s Report:

  • Why Did Stocks Rally During Powell’s Press Conference?
  • Was the FOMC Decision A Bullish Gamechanger (No, But It Was a Positive Event)
  • EIA Update and Oil Market Analysis

Futures are solidly higher on continued momentum from Wednesday’s “not hawkish” post-FOMC rally and following better-than-expected META earnings.

META surged 19% overnight as the company reported better-than-feared earnings driven by gains in artificial intelligence and aggressive cost-cutting.

Today will be a very busy day of micro and macro-economic events as we get major central bank decisions, more important economic data, and key earnings.

First, this morning there are two central bank decisions:  BOE Rate Decision (E: 50 bps hike) and ECB Rate Decision (E: 50 bps hit).  If either is overtly hawkish (maybe the ECB) it could send global yields higher and take back some of yesterday’s rally.

After those two central bank decisions, we get an update on the labor market via Jobless Claims (E: 193K),  inflation via Productivity & Costs (E: 2.4%, 1.5%), and economic growth via Factory Orders (E: 2.2%).  Especially in light of Powell’s not hawkish press conference, data that shows stability and declining price pressures will support stocks.

Finally, on earnings, today is likely the single most important day of the earnings season as we get results from three of the most widely held stocks in the market:  AAPL ($1.93), AMZN ($0.15), and GOOGL ($1.14).

CPI Takeaways and Updated FOMC Preview

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What’s in Today’s Report:

  • What Does the CPI Report Mean for Markets?
  • FOMC Preview: Post CPI Report (Encore Edition)
  • Fibonacci Retracement Levels Remain Pivotal for the S&P 500 – Chart

S&P 500 futures are little changed, notably hovering within a few points of their pre-CPI levels from yesterday as traders await the December Fed decision.

Economically, U.K. CPI favorably dropped sharply from 2.0% in October to 0.4% in November, below estimates of 0.6% in the latest sign of easing global inflation pressures.

China is moving forward with economic/Covid policy meetings this week after previously saying they would be postponed pointing to a potential reopening occurring sooner than later.

Today, there is just one economic report due early in the day: Import & Export Prices (E: -0.5%, -0.6%) but unless there is a huge surprise the numbers are not likely to have an impact on equities with the Fed looming.

Turning to the Fed, the FOMC Announcement will hit the wires at 2:00 p.m. ET with markets pricing in a high likelihood of a 50 bp hike while the market will be focused on the “dot plot.” A terminal rate of 5% or above will be viewed as hawkish and likely weigh on stocks.

Finally, Fed Chair Powell’s Press Conference is at 2:30 p.m. ET and his tone could very well decide the final direction of stocks into the close today (a stubbornly hawkish stance remains a threat to equities and other risk assets right now).

CPI Day and FOMC Preview

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What’s in Today’s Report:

  • FOMC Preview
  • CPI Preview (Abbreviated Version)
  • Chart – NY Fed Survey Inflation Expectations Fall Sharply

Stock futures are extending yesterday’s gains as traders await today’s CPI report amid mixed news from overnight.

In China, a $143B stimulus package aimed at the semiconductor industry helped offset the delay of an economic/Covid policy meeting due to a surge in Covid cases.

Economic data was mixed overnight but there were no surprises material enough to derail the tentative pre-CPI rally this morning.

Today, traders will be keenly focused on the November CPI report at 8:30 a.m. ET with the headline expected to come in at 0.3% M/M and 7.3% Y/Y while the Core figure is expected to be 0.4% M/M and 6.1% Y/Y. Bottom line, a print below 7.3% on the headline and below 6.1% in the core figure will be well received by investors but an upside miss in either could trigger a sharp reversal of this most recent move higher in the broader stock market.

Once markets digest the CPI report, money flows are likely to take on a positioning tone with tomorrow’s Fed decision looming and a limited list of catalysts for the remainder of the day. There is a 30-Yr Treasury Bond auction at 1:00 p.m. ET that could move rates and have a mild impact on stocks.

How Far Can Stocks Run (New Technical Targets)

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What’s in Today’s Report:

  • How Far Can Stocks Run? (New Technical Targets)
  • Why Did the Dollar and Treasury Yields Fall So Hard?

Futures are modestly higher on continued momentum from Thursday’s CPI report and as Chinese officials further signaled changes to their “Zero COVID” policy.

China made more than 20 changes to COVID policies overnight, all of which relaxed COVID rules and further signaled a departure from “Zero COVID.”

Economic data was mixed as German CPI met expectations at 10.4%, while UK GDP and Industrial Production were slightly better than expected.

Today the only notable number is Consumer Sentiment (E: 59.6) and specifically the Five-Year Inflation Expectations Index.  If that number falls further away from 3.0% (and drops to or below 2.7%) that will further fuel the idea that inflation pressures are receding, and stocks should extend the rally.

Market Multiple Levels: S&P 500 Chart

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What’s in Today’s Report:

  • Market Multiple Levels – S&P 500 Chart
  • What the Midterms Mean for Markets

Stock futures have stabilized after yesterday’s midterm-induced declines and Treasury yields are modestly lower this morning as the focus turns to today’s all-important CPI data.

It was a quiet night of news and there were no market-moving economic reports overseas.

Today, trader focus will be on the October CPI report (E: 0.7%) due out at 8:30 a.m. ET. We will also get Jobless Claims (E: 221K) before the opening.

The Fed speaker circuit picks up as well today with Harker (9:00 a.m. ET), Logan (9:35 a.m. ET), George (1:30 p.m. ET), and Williams (6:35 p.m. ET) all scheduled to speak today.

Bottom line, today’s CPI report is likely to make or break the latest attempt at a broad-based relief rally. If the data is hot and Treasuries decline (yields rise) in a hawkish manner, expect further pressure on equities. Conversely, if CPI is “cooler” than expected and Fed speak is on the dovish side, the S&P 500 could retest recent highs near 3,900.

Is the UK Fiscal Crisis Over?

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What’s in Today’s Report:

  • Is the U.K. Fiscal Crisis Over? (If So, What Does It Mean for Markets?)
  • Empire State Manufacturing Index Takeaways

U.S. equity futures are up more than 1% in sympathy with EU markets following mixed messages about BOE policy.

An FT article overnight said the BOE would delay QT plans further in an attempt to insure stability in U.K. markets which fueled a continued rebound in risk assets, however, the BOE later said the report was “inaccurate” which has seen some of those pre-market moves unwind.

Looking into today’s session, there are two economic reports to watch: Industrial Production (E: 0.1%) and the Housing Market Index (E: 44) while there are two Fed officials scheduled to speak: Bostic (2:00 p.m. ET) and Kashkari (5:30 p.m. ET).

Earnings season will continue to pick up today with GS ($7.47), JNJ ($2.49), and LMT ($6.60) reporting ahead of the bell while NFLX ($2.11), UAL ($2.21), and JBHT ($2.46) releasing results after the close.

Bottom line, risk assets remain buoyant following last week’s volatility, and as long as fixed-income markets continue to stabilize and earnings do not materially disappoint, the relief rally that stocks enjoyed yesterday should be able to extend higher today.

What Yesterday’s Rebound Means for Markets

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What’s in Today’s Report:

  • Five Reasons Stocks Rallied Yesterday
  • What the Rebound Means for Markets

Futures are slightly higher as markets digest Thursday’s rebound amidst more positive news from the UK.

Support for the Truss spending/tax cut plan has totally eroded and markets are hopeful the plan will be scrapped entirely, and that’s helping global bond yields fall.

Today there are two notable economic reports, Retail Sales (E: 0.2%) and University of Michigan Consumer Sentiment (E: 58.8), but the key for markets will be the inflation expectations within Consumer Sentiment and if the five-year inflation expectations fall further below 3.0%, that’ll be a positive for markets.  We also get two Fed speakers, George (10:00 a.m. ET) and Cook (10:30 a.m. ET) but we don’t expect them to move markets.

Earnings season also unofficially starts today and key reports to watch include: JPM ($2.97), MS ($1.51), C ($1.55), WFC ($1.09), PNC ($3.66), USB ($1.17) and FRC ($2.19).  If results are better than expected, that can extend Thursday’s rebound.