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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.

Sevens Report Analysts Quoted in The Market Herald on August 5th, 2022

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ASX Today: Cautious start as traders await US jobs report

Demand concerns are now the dominant influence on the global energy market and even though supply worries will persist with the Russia-Ukraine war, we will need to see evidence of demand stabilizing for the oil market to begin to find a near-term bottom,” analysts at Sevens Report Research wrote. Click here to read the full article.

Tom Essaye Quoted in Barron’s on August 5th, 2022

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Dow Wavered After Jobs Report, Virgin Galactic Slides—and What Else Happened in the Stock Market Today

That could be because traders are “holding out hope that the consumer price index report is going to be good,” Tom Essaye, founder of Sevens Report Research, said on Friday. Click here to read the full article.

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.

Jobs Day

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What’s in Today’s Report:

  • Jobs Day
  • Why the BOE Hiked 50 bps Yesterday

Futures are flat ahead of today’s jobs report and following a generally quiet night of news.

The only notable economic report was German Industrial Production and it beat estimates rising 0.4% vs. (E) -0.4%.

Geo-politically, China suspended military, climate, and drug enforcement communications with the U.S in retaliation for the Pelosi visit to Taiwan.  But, unless retaliation from China impacts U.S./China trade or commodities prices, markets will largely ignore it.

Today the focus will be on the jobs report and the key for markets is that it shows easing wage pressures and moderation in the labor market.  So, a mildly underwhelming reports vs expectations (E: 250K job adds, 3.6% UE Rate, 5.0% y/y wage growth) is the best outcome for stocks.

There’s also one Fed speaker today, Barkin at 8:00 a.m. ET, but he shouldn’t move markets.

The Latest on Taiwan and China

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What’s in Today’s Report:

  • The Latest on Taiwan and China
  • JOLTS Decline But Remain Historically Elevated
  • Big One-Day Reversal in the 10-Year Yield: Chart

Stock futures are trading cautiously higher this morning as geopolitical angst is easing after Pelosi’s departure from Taiwan while economic data was mostly positive overnight.

Chinese and EU Composite PMIs for July topped estimates while Eurozone PPI was no worse than feared and that data is helping some of the hawkish fears from Tuesday unwind.

Looking into today’s session, earnings season is beginning to wind down but there are still a few notable reports due out today: MRNA ($4.50), CVS ($2.16), YUM ($1.08), HOOD (-$0.36), EBAY ($0.89), and MGM ($0.24).

However, the market’s main focus will be on economic data today with ISM Services Index (E: 53.0) and Factory Orders (E: 1.1%) both due out shortly after the open while there is one Fed speaker: Harker (10:30 a.m. ET).

Investors will want to see still solid growth numbers in the data, further easing in inflation readings, and hopefully a less hawkish tone out of the Fed if the July relief rally is going to extend into August.

What Escalating U.S.-China Tensions Mean for Markets

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What’s in Today’s Report:

  • What Escalating U.S.-China Tensions Mean for Markets
  • What’s the Fed’s Endgame With Rates?
  • How Low Could Oil Prices Go?

Stock futures are lower and the 10-year yield fell to a 4-month low overnight amid heightened tensions between the U.S. and China over Speaker Pelosi’s trip to Taiwan.

Speaker Pelosi is scheduled to land in Taiwan later this morning despite repeated and stern warnings from China about a potential military response to the visit and the elevated tensions are resulting in equity market weakness and rising demand for safe havens assets such as Treasuries.

Looking beyond geopolitics, there are a few other potential catalysts to watch today including two economic reports: Motor Vehicle Sales (E: 13.5M) and JOLTS (11.0M), as well as two Fed officials scheduled to speak: Evans (9:00 a.m. ET) and Bullard (6:45 p.m. ET).

Earnings season also continues today with results from CAT ($3.00), JBLU (-$0.11), MAR ($1.59), TSEM ($0.52), AMD ($1.03), PYPL ($0.85), and SBUX ($0.77).

Bottom line, markets are trading with a risk-off tone due to the U.S.-China tensions surrounding Taiwan however a meaningful escalation including military action between the U.S. and China remains very unlikely, and as such the pressure on equities is not expected to deepen or last very long and market focus is likely to turn back to Fed policy later in the week as the July jobs report is due out on Friday.

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).

Two Clear Takeaways from the Fed Decision

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What’s in Today’s Report:

  • Two Clear Takeaways from the Fed Decision
  • EIA Analysis and Oil Update

Futures are modestly lower on disappointing earnings and the increased probability of higher corporate taxes.

Earnings from META, QCOM, and others disappointed and that’s reversing some of Wednesday’s tech-driven gains.

Senate Democrats agreed on a smaller Build Back Better bill that includes some corporate tax increases, although it’s still not clear when this becomes law.

Today will be a busy day from a data and earnings standpoint.  Economically, Jobless Claims (E: 249K) is the key report and if it moves considerably above 250k that will signal further deterioration in the labor market.  We also get Preliminary Q2 GDP (E: 0.5%) and as we said yesterday, don’t be shocked if it’s negative and you hear a lot of recession commentary.

On the earnings front, today is an important day and the key reports will be:  PFE ($1.72), MA ($2.36), AAPL ($1.14), AMZN ($0.15), INTC ($0.69).