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The Ukraine Counteroffensive and Markets

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What’s in Today’s Report:

  • What the Ukraine Counteroffensive Means for Markets

Stock futures are extending recent gains this morning while the dollar continues to fall ahead of today’s CPI report.

In Europe, German CPI for August was unchanged at 7.9% y/y which met expectations and is being well-received by investors ahead of today’s U.S. inflation data.

Domestically, the NFIB Small Business Optimism Index came in at 91.8 vs. (E) 90.5, underscoring the resilience of the U.S. economy in the face of Fed policy tightening so far.

Today, the main event will be the release of the August CPI data (E: -0.1% m/m, 8.1% y/y) ahead of the open. If the data is inline or below estimates, specifically the core figure, then stocks should be able to extend the recent rally as expectations for the “terminal rate” will likely fade lower however a hot print could send yields and the dollar sharply higher and cause a potentially sharp reversal of the recent gains.

The only other potential catalyst today is a 30-Yr Treasury Bond auction at 1:00 p.m. ET. Yesterday’s 3-Yr and 10-Yr auctions did notably move Treasury markets as yields jumped but stocks shrugged off the soft auction outcomes with focus on today’s CPI. If the 30-Yr auction is weak and yields move higher with the CPI data already released as of this morning, that could act as a strengthening headwind on equities in the afternoon.

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

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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.

Tom Essaye Quoted in Barron’s on April 14th, 2022

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Tech Stocks Slide, Banks Report Earnings—and What Else Is Happening in the Stock Market Today

Banks only do that when they think that default rates, which are currently low, will start to rise…wrote Tom Essaye, founder of Sevens Report Research. Click here to read the full article.

Are Stock and Bond Markets Starting to Forecast an Economic Slowdown?

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What’s in Today’s Report:

  • Are the Stock and Bond Markets Starting to Forecast An Economic Slowdown?

Futures are slightly higher mostly on momentum from Thursday’s close, following a quiet night of news.

The global trend in central banks turning more hawkish continued overnight as the Reserve Bank of India left rates unchanged (as expected) but warned that inflation was too high.

Geopolitically, a Kremlin spokesman said that Russia hoped to end its “operation” in Ukraine in the coming days or weeks, although analysts are skeptical of the promise.

Today there are no notable economic reports nor any Fed speakers, so between the sparse calendar and the Masters, I’d expect a relatively slow day.  That said, if we get any geo-political headlines from Russia that imply a sooner than expected cease-fire, then stocks can extend Thursday’s rally.

Tom Essaye Quoted in Barron’s on March 28, 2022

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3 Headwinds Could Pummel Stocks. What to Know.

We must acknowledge the challenges ahead, and be ready with a plan to insulate ourselves from volatility and protect portfolios…wrote Tom Essaye, founder of Sevens Report Research. Click here to read the full article.

Tom Essaye Quoted in Market Watch on February 9, 2022

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Will hot inflation data kill the stock-market bounce? What investors want to see

Inflation has to stop going up. I know that sounds overly simplistic, but the bottom line is that for the past several months, markets and the Fed have seen ‘hints’ of a peak in inflation pressures, yet that wasn’t reality…said Tom Essaye, founder of Sevens Report Research. Click here to read the full article.

Is An Underwhelming CPI Report A Bullish Gamechanger?

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What’s in Today’s Report:

  • Is An Underwhelming CPI Report A Bullish Gamechanger?
  • EIA Analysis and Oil Market Update

Futures are slightly lower following Wednesday’s rally and ahead of this morning’s CPI report.

Governments and central banks pushed back a bit overnight on the global hawkish narrative as the European Commission predicted inflation would return to 1.7% yoy in 2023 while the Swedish National Bank was dovish in its commentary (no rate hikes or QT anytime soon).

Economic data was sparse overnight although Chinese money supply did beat estimates, reflecting the continued accommodation in that economy.

Today the key event is the CPI Report (E: 0.5% m/m and 7.3% y/y) and an in-line or smaller than expected increase will likely spur a further rally in stocks as markets try and price in a “not as hawkish as feared” Fed (although we’d be skeptical of that rally – more on that in the Report).  We also get Jobless Claims (E: 230K) and one Fed speaker this evening: Barkin at 7:00 p.m. ET.

Tom Essaye Quoted in Blockworks on January 31, 2022

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Bitcoin, Stocks Rebound to End Month, But Sell Off May Continue, Analysts Warn

For stocks to stabilize and rebound, they need one, the Fed to stop providing hawkish surprises. Two, inflation data to peak and recede. And three, economic data to remain firm to…said Tom Essaye, founder of Sevens Report Research. Click here to read the full article.

Tom Essaye Quoted by Switzer Daily on January 28, 2022

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Why are stocks slumping and why am I not worried?

The Fed is serious about raising rates, that’s going to continue to … keep markets volatile…Tom Essaye, founder of Sevens Report, said in a note. Click here to read the full article.

How Should We React to Fed Hawkishness?

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What’s in Today’s Report:

  • How Should We React to Fed Hawkishness?
  • Weekly Market Preview:  All About the Fed (Powell testifies Tuesday, Brainard testifies on Thursday).
  • Weekly Economic Cheat Sheet:  All About Inflation (CPI Wednesday is the Key Report).

Futures are slightly lower following a generally quiet weekend as investors digest last week’s hawkish surprises ahead of Powell’s testimony tomorrow and CPI on Wednesday.

Economically, the only notable number was Eurozone Unemployment, which met expectations at 7.2%.

Chances of Build Back Better passing fell further over the weekend as according to the Washington Post, Manchin remains against the current framework for the plan.

Today there are no economic reports and just one Fed speaker, Bostic (12:00 p.m. ET), so we’d not be surprised to see markets churn ahead the three major catalysts coming later this week:  Powell’s testimony on Tuesday, Wednesday’s CPI Report, and Brainard’s testimony on Thursday.  Those three events will determine whether stocks rally of decline this week and any additional hawkish surprises will pressure stocks.