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What The Hot CPI Report Means for Markets

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What’s in Today’s Report:

  • What the Hot CPI Report Means for Markets
  • EIA Analysis and Update (Demand Falling)

Futures are sharply lower as markets digest the hot CPI amidst numerous hawkish central bank decisions.

Global central banks are aggressively tightening policy and that was displayed yesterday and overnight as the Bank of Canada and the central banks of Singapore, Philippines, and, Chile all hiked more than expected.

Meanwhile, U.S. Fed Fund Futures are now pricing in a 100-bps hike in July.

Today we get two notable economic reports via Jobless Claims (E: 234K) and PPI (0.8% m/m, 10.4% y/y).  Starting with PPI, if we see a big drop (which isn’t expected but possible) that will be a mild positive as PPI is sometimes a leading indicator for broader inflation.  Jobless claims, meanwhile, should continue to tick higher towards 250k.

On the earnings front, Q2 earnings season unofficially kicks off today with results from JPM ($2.85) and MS ($1.55) and in addition to wanting to see earnings beats, markets will be looking for commentary from management on the state of the economy, and if that commentary is cautious it’ll be a headwind on stocks.

Tom Essaye Quoted in CNBC on July 12th, 2022

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Bond yields fall with key part of yield curve hits lowest level since 2007

The widening spread between the 2-year and the 10-year is signaling a very clear recession warning, especially if it reaches 15 basis points…wrote Tom Essaye of The Sevens Report. Click here to read the full article.

Tom Essaye Quoted in Barron’s on July 12th, 2022

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Dow Drops, Peloton Gains—and What Else Happened in the Stock Market Today

Rising recession concerns in the EU…continue to drive the dollar relentlessly higher vs. the euro, pound, and yen…wrote Tom Essaye, founder of Sevens Report Research. Click here to read the full article.

Tom Essaye Quoted in Kiplinger on July 7th, 2022

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Stock Market Today: S&P Surges to Fourth Gain in a Row

The key for tomorrow’s jobs report is that it furthers the idea that we’ve hit ‘peak hawkishness’ with the Fed and peak inflation…says Tom Essaye, editor of the Sevens Report. Click here to read the full article.

 

Market Multiple Table

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What’s in Today’s Report:

  • July Market Multiple Table (Important Changes)
  • Weekly Market Preview:  All About Inflation (and CPI on Wednesday)
  • Weekly Economic Cheat Sheet: Important Inflation and Growth Data This Week

Futures are modestly lower following new COVID-related shutdowns in China.

Macau will close most businesses, including casinos, for one week following a COVID outbreak while Shanghai will continue with massive testing, in what is a signal that the “Zero COVID” policy is at least partially still in effect.

Geo-politically, Canada released a turbine to Gazprom (a Russian energy company) and the hope is that will result in increased natural gas flows to Europe in the coming weeks, putting more pressure on commodity prices.

Today there are no notable economic reports and just one Fed speaker, Williams at 2:00 p.m. ET.  Futures are taking the new lockdowns in China somewhat in stride but if headlines imply anything like a repeat of the Shanghai lockdowns of March-May, expect stocks to drop as a result.

Why Stocks Rallied Yesterday

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What’s in Today’s Report:

  • Why Stocks Rallied
  • Jobs Report Preview (Redux)
  • Is the VIX Fixed? (Chart)
  • Oil Update: Demand Rebound Helps Energy Markets Stabilize

Stock futures are trading modestly lower with EU markets this morning as traders digest yesterday’s gains ahead of today’s June jobs report.

Sadly, former PM of Japan, Shinzo Abe, has died after an assassination attempt at a campaign stop overnight.

Economically, Japanese Household Spending fell -1.9% vs. (E) +1.2%  in May, rekindling concerns about the health of global growth.

Looking into today’s session, the focus will be almost entirely on the June Employment Situation report from the BLS (E: Job Adds 270K, Unemployment Rate 3.6%, Wages 5.0% y/y) which is due out at 8:30 a.m. ET. There is also one Fed official speaking this morning: Williams (8:30 a.m. and 11:00 a.m. ET).

Bottom line, the market will want to see jobs data that meets our “Just Right” scenario from our Jobs Report Preview which would suggest we are seeing slowing growth in the labor market, yet not a full-on collapse, and increase hopes we are close to or beyond “peak hawkishness” from the Fed. That would open the door to a continued relief rally, however, a report that is either too strong or overly disappointing could send stock falling sharply today.

Tom Essaye Quoted in Market Watch on July 6th, 2022

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Why a rally in growth stocks could signal ‘peak’ Fed hawkishness has passed

While it’s too early to declare the value outperformance ‘over,’ we do think the outperformance of tech recently is notable, because if it continues that will be a strong signal that the market is now looking past future rates hikes towards eventual rate cuts in 2023…said Tom Essaye, founder of Sevens Report Research, in a note Wednesday. Click here to read the full article.

Have Bond Yields Peaked?

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What’s in Today’s Report:

  • Are Stocks Starting to Signal Bond Yields Have Peaked?
  • Growth Is Beginning to Outperform Value; Will It Last?
  • Oil Tumbles Through Technical Trend Support: Chart

Futures are flat while international markets were mixed overnight as investors continue to weigh recession fears against a slightly less hawkish shift in monetary policy expectations.

The 10s-2s yield curve spread notably inverted overnight as the odds of a recession in the quarters ahead continue to rise.

Economically, Eurozone Retail Sales edged up just 0.2% vs. (E) 0.4% in May which was the latest data point to show a slowdown in consumer spending amid high inflation, further compounding worries about global growth.

Looking into today’s session, there is one Fed speaker ahead of the bell (Williams at 9:00 a.m. ET) and the focus will be on economic data with the ISM Services Index (E: 54.8) and JOLTS (E: 11.250M) both due out shortly after the open.

The market will want to see a continued moderation in growth to show the Fed’s policy actions are working to slow demand, but not too weak to suggest we are quickly fading into a recession.

From there, the focus will shift to the release of the June FOMC Meeting Minutes at 2:00 p.m. ET as investors look for new insight into the Fed’s view of the economy and potential clues as to whether we have reached “peak hawkishness” yet, or not. If there is evidence peak hawkishness is behind us, yesterday’s risk-on money flows could continue today.

Are Stocks Pricing in an Economic Contraction?

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What’s in Today’s Report:

  • Bottom Line – Are Stocks Pricing in an Economic Contraction?
  • Weekly Economic Cheat Sheet – Is Stagflation Imminent?

Stock futures are trading modestly lower with European markets this morning as recession fears continue to weigh on sentiment.

Economically, global Composite PMI data was better than feared but broader concerns of a slowdown remain.

Today, investor focus will be on economic data early with Motor Vehicle Sales (E: 13.5M) and Factory Orders (E: 0.5%) both due out before the opening bell.

There are no Fed officials scheduled to speak today but the Treasury will hold auctions for 3-Month and 6-Month Bills at 11:30 a.m. ET which may move bond markets and ultimately move equities.

A Historical Reason to be Optimistic for the Second Half

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What’s in Today’s Report:

  • A Historical Reason to Be Optimistic for the Second Half

Futures are slightly lower following another high-profile guidance cut and more mixed economic and inflation data.

Micron (MU) materially cut forward guidance, sighting a steep drop in demand at the end of the second quarter and becoming the latest company to warn of deteriorating business conditions.

Economic and inflation data was mixed as EU headline HICP (their CPI) was hotter than expected but Core HICP underwhelmed, while the EU and UK final manufacturing PMIs reflected the slowing growth sweeping the globe.

Today’s focus will be on the ISM Manufacturing Index (E: 55.0) and the key here is moderation – markets need to see a slowing of growth but not a dramatic collapse.  If we see moderation, stocks can rally to start the second half.