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Market Setup into the Fed Decision

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What’s in Today’s Report:

  • Market Setup into the Fed Decision
  • Weekly Market Preview:  All About the Terminal Rate
  • Weekly Economic Cheat Sheet:  Flash PMIs Friday

Futures are moderately lower mostly on momentum from last week’s declines and following a generally quiet weekend of news.

Geo-politically, Russian President Putin and Ukrainian President Zelensky gave interviews over the weekend and neither implied the war would end anytime soon, which is a mild disappointment for markets.

Chinese authorities ended the lockdowns in Chengdu, but gave no indication the “Zero COVID” policy will change.

Today the calendar is sparse given there’s only one economic report, Housing Market Index (E: 48), and the UK and Japanese markets are closed.  So, positioning ahead of Wednesday’s FOMC decision should drive markets, and unless we get some positive corporate commentary to offset the FDX guidance, the path of least resistance into the Fed is lower.

What a “Soft Landing” Looks Like

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What’s in Today’s Report:

  • What A “Soft Landing” Looks Like (At Least From One Economic Report)

Futures are slightly lower following a mostly quiet night as investors await today’s jobs report.

Economic data was disappointing as German exports unexpectedly declined (-2.1% vs. (E) 4.1%) while Euro Zone PPI was hotter than expected (37.9% y/y vs. (E) 36.4% y/y).

In China, authorities announced that companies in Chengdu could implement “closed loop” systems and stay in operation, which should reduce supply chain disruptions.

Today the key event is the August Employment Situation report and expectations are as follows: Job Adds: 293K, UE Rate: 3.5%, Wages: 0.4% m/m, 5.3% y/y.  If markets can get a “Just Right” number (small job adds, a rise in the unemployment rate and a drop in wages) then stocks can extend yesterday’s rally as that will be the second straight “Goldilocks” report in two days (the other being yesterday’s ISM Manufacturing PMI) and it’ll increase hopes for an economic soft landing.

What Powell’s Speech Means for Markets

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What’s in Today’s Report:

  • What Powell’s Speech Means for Markets
  • Weekly Market Preview:  Are Central Banks Getting More Hawkish?
  • Weekly Economic Cheat Sheet:  How Strong is Growth (Jobs Report on Friday)

Futures are down close to 1% on follow through selling from Friday as hopes of a near term “Fed Pivot” continue to fade in reaction to Powell’s speech last week.

European shares are also sharply lower as tightening expectations for the ECB rose sharply on Friday.  Markets are now pricing in a minimum 50 bps hike next week with a 75 bps hike a real possibility.

There were no notable economic reports overnight.

Markets dropped on Friday as Powell dismissed the idea of an imminent “Fed Pivot,” but the ECB also signaled more hawkish intentions on Friday, and it was the two events that combined to cause the ugly declines.  Today there are no economic reports but there is an important Fed speaker, Brainard (2:15 p.m. ET) and if she echoes Powell’s comments from Friday, expect more losses in stocks.

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.

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.