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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.

Three Reasons the June Lows Could Hold

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What’s in Today’s Report:

  • Three Reasons the June Lows Could Hold
  • Understanding Japan’s Currency Intervention

Futures are sharply lower as global yields continued to climb while economic data was largely disappointing.

September flash PMIs showed contraction in the EU (48.2) and the UK (48.4) as signs of a global slowdown grow.

The UK government announced a fiscal stimulus package but the news is spiking UK bond yields and pressuring the Pound as markets view it as inflationary.

Today we get speeches from Powell (2:00 p.m. ET) and Brainard, but don’t expect their message to be any different then what was just said at Wednesday’s FOMC meeting.  Beyond the Fed speak, the key economic report today is the September Flash Composite PMI (E: 47.0) and this data points needs to largely meet expectations, because a strong number will push yields higher, while a weak number will increase stagflation concerns.

What Could Send Stocks Higher from Here (Three Factors)

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What’s in Today’s Report:

  • What Could Send Stocks Higher from Here (Three Factors)

Futures are slightly higher as comments by San Francisco Fed President Daly are being interpreted as slightly dovish. San Francisco Fed President Daly spoke after the close Thursday and said that Wednesday’s CPI was a “welcome sign” that could lead to a “slowing” in the pace of rate hikes (to 50 bps in September, not 75 bps).

Economic data was better than expected as both UK and EU Industrial Production slightly beat estimates.

Today focus will be on the University of Michigan 5-Year Inflation Expectations (E: 2.9%) as that’s the first inflation reading in August, and if it drops below expectations we should see a continued tailwind on stocks.

Market Set Up Into Today’s CPI Report

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What’s in Today’s Report:

  • Market Set Up Into Today’s CPI Report
  • Are Semiconductor Stocks Forecasting the Slowdown?

Futures are slightly higher on mildly positive geo-political news and ahead of the CPI report.

China ended the military exercises around Taiwan and while that was always expected it’s still a mild positive as it reduces the chances of any accidental conflict.

Economically, the Chinese CPI rose 2.7% vs. (E) 2.9% allowing China to continue to actively stimulate its economy.

Today’s focus will be on the CPI report and expectations are as follows: Headline CPI:  0.2% m/m, 8.7% y/y. Core CPI: 0.5% m/m, 6.1% y/y.  Markets remain in a “glass half full” mood on inflation so unless the numbers are solidly above expectations, we’d expect stocks to weather the number with only modest declines (while a soft number will likely spur an additional rally).

We also get two Fed speakers, Evans (11 a.m. ET) and Kashkari (2 p.m. ET) but they shouldn’t move markets.

CPI Preview: Good, Bad and Ugly

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What’s in Today’s Report:

  • CPI Preview:  Good, Bad, and Ugly

Futures are slightly lower thanks to more tech stock weakness following a mostly quiet night of macroeconomic news.

Micron (MU) became the second large semiconductor company to produce negative earnings guidance (Monday it was Nvidia) as MU slashed its outlook, and that’s weighing on markets this morning.

Geo-politically, the FBI raid on Mar-a-Lago is dominating news coverage, but it has no impact on markets.

Today’s focus will remain on inflation via Unit Labor Costs (E: 9.3%) and if they come to light, that will further strengthen the idea that inflation is peaking and help to support stocks into tomorrow’s CPI report.

A Critical Week for Markets

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What’s in Today’s Report:

  • A Critical Week for Markets
  • Weekly Economic Cheatsheet:  CPI on Wednesday is the key report.
  • Weekly Market Preview:  Can a soft CPI report continue to support markets?

Futures are slightly higher thanks to solid Chinese economic data and following a mostly quiet weekend.

Chinese exports rose more than expected (18% vs. (E) 14.1%) and that’s helping to slightly improve global economic sentiment.

Politically, Senate Democrats passed the Inflation Reduction Act over the weekend as expected and it should become law this week. But, markets don’t expect any meaningful impact on corporate earnings in the n

Today there are no notable economic reports and most of the focus will be on the specific implications of the Inflation Reduction Act, which should pass the House this week.  But, this bill does not appear to have any meaningful macro-economic implications.  So, markets will look ahead to Wednesday’s all-important CPI report, and with stocks still extended, it needs to be better than expectations to support the rally.

What Can Take Stocks Sustainably Higher?

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What’s in Today’s Report:

  • What Can Take Stocks Sustainably Higher?
  • Weekly Market Preview:  Does Fed Commentary Get Less Hawkish?
  • Weekly Economic Cheat Sheet:  Jobs Report Friday

Futures are slightly lower as markets digest last week’s big rally and following generally disappointing European economic data.

Data from Europe underwhelmed as German Retail Sales plunged –9.8% vs. (E) 7.5%, the biggest annual drop in 40 years.

The July EU and UK manufacturing PMIs were in-line with low expectations (Euro Zone manufacturing PMI 49.8 vs. (E) 49.6 and UK manufacturing PMI 52.1 vs. (E) 52.2.)

Today focus will be on the ISM Manufacturing PMI (E: 52.2) and markets will want to see a moderation in the data – a decline to show economic momentum is cooling, but no sudden drop.  Practically speaking, if the ISM PMI drops to or below 50, that might scare markets that the economy is slowing too quickly.

Time to Reduce Commodity Allocations?

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What’s in Today’s Report:

  • Is it Time to Reduce Commodity Allocations?
  • Why Q2 GDP Wasn’t as Bad As It Seemed

Futures are moderately higher following a solid night of earnings.

AAPL (up 2%) and AMZN (up 12%) both beat estimates and that’s helping to extend this week’s rally.

Eurozone inflation came in slightly hotter than expected, as EU HICP rose 8.9% yoy vs. (E ) 8.8% yoy, but stronger than expected earnings are helping the market look past the slightly hot number.

Today the focus will be on inflation as we get three notable inflation readings:  Core PCE Price Index (E: 0.5% m/m, 4.7% y/y), Employment Cost Index (E: 1.1%), and the University of Michigan Five Year Inflation Expectations (E: 2.8%).  Markets have aggressively priced in a near term peak in inflation, and the data needs to start to confirm that, starting today.  If these inflation stats run hot, don’t be surprised to see stocks decline.

On the earnings front, the season is starting to wind down but there are still a few more days of notable results.  Some reports we’re watching today include: XOM ($3.80), CVX ($5.02), PG ($1.23) and CL ($0.71).

Tom Essaye Quoted in Barron’s on July 22nd, 2022

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The Stock Market Is at a Crossroads. What to Watch Next.

You’ve seen a relief rally, the Fed maybe being slightly less hawkish than you think is the hope…said Tom Essaye, founder of Sevens Report Research. Click here to read the full article.