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Why the U.K. Budget Drama Matters to You

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What’s in Today’s Report:

  • Why the U.K. Budget Drama Matters (Hint: Spiking Yields)
  • Two Technical Takeaways from Yesterday’s New Lows

Stock futures are trading cautiously higher while yields and the dollar ease from yesterday’s highs after the Fed’s Evans made some less hawkish commentary overnight.

While speaking on “Squawk Box Europe” early this morning, Charles Evans said he was getting nervous about the Fed’s pace of tightening and that if inflation peaks, the FOMC could cut rates as soon as early 2023 which has sparked a relief rally across risk assets amid renewed hopes for “peak hawkishness.”

Economically, Chinese Industrial Profits declined -2.2% in August from -1.1% in July but slowing global growth is largely priced into the market at this point.

Looking into today’s session there are multiple economic reports to watch including: Durable Goods (E: -1.2%), S&P Case-Shiller Home Price Index (E: 0.3%), New Home Sales (E: 498K), and Consumer Confidence (E: 104.3). Investors will be continuing to look for slowing growth, a moderating labor market and most importantly any further signs of easing price pressures as those are all necessary components in getting the Fed to “peak hawkishness.”

Regarding the Fed, there are several officials speaking today: Powell (7:30 a.m. ET), Daly (8:35 a.m. ET), and Bullard (9:55 a.m. ET). And while it is unlikely any of them echo Evans’ dovish tone form earlier this morning, if they do come across as less hawkish, we could see a violent relief rally play out as stocks have become oversold in recent sessions.

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.

Sevens Report Co-Editor Tyler Richey Quoted in Market Watch on September 21st, 2022

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U.S. oil futures settle lower as Fed rate hike feeds worries about a recession

Higher rates are restrictive in nature, and likely to become a headwind on consumer spending including that on refined products like gasoline and diesel…said Tyler Richey, co-editor at Sevens Report Research. Click here to read the full article.

Tom Essaye Quoted in Forbes on September 19th, 2022

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Stocks Struggle As Markets Brace For Another ‘Unusually Large’ Fed Rate Hike

Oil prices fell more than 2% as risks of a recession “weighed heavily” on the market, analyst Tom Essaye of the Sevens Report, wrote in a Monday note. Click here to read the full article.

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.