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Three Technical “Cs” for a Lasting Market Bottom

What’s in Today’s Report:

  • Three Technical “Cs” for a Lasting Market Bottom

Futures are sharply lower on continued momentum from Thursday’s late day drop and following hot German inflation data and strong UK retail sales.

German CPI didn’t decline as much as hoped, falling –1.0% vs. (E) -1.6% and rising 17.8% vs. (E) 16.0%.  UK Retail Sales were also better than expected (0.5% vs. (E) -0.3% and the two reports are combining with yesterday’s hot US PPI to push rate hike expectations higher.

Today focus will remain on data and Fed speak.  The two notable economic reports are Import & Export Prices (E: -0.1%, -0.2%) and Leading Indicators (E: -0.3%).  The first deals with inflation and the second deals with growth, and if inflation is hot and growth is cool, expect more selling pressure.

There are also two Fed speakers today, Barkin (8:30 a.m. ET) and Bowman (8:45 a.m. ET) and we should expect them to sound hawkish (as most Fed speakers have been this week).

FOMC Minutes: Not as Dovish as the Market Reaction

What’s in Today’s Report:

  • FOMC Minutes:  Not as Dovish as the Market Reaction
  • Retail Earnings Takeaways
  • EIA and Oil Market Analysis

Futures are slightly higher on better-than-expected earnings, following an otherwise quiet night of news.

Cisco (CSCO) posted strong earnings and gave positive commentary on tech demand going forward.

Economically, EU HICP (their CPI) met expectations at 8.9% yoy and that reading means a 50 bps rate hike from the ECB is still likely in September.

Today’s focus will be on economic data, specifically the Philadelphia Fed Manufacturing Survey (E: -5.0).  If Philly Fed echoes the weak Empire Manufacturing reading and the price indices don’t decline, we’ll see stagflation concerns rise.  Other reports today include Jobless Claims (E: 265K) and Existing Home Sales (E: 4.85M) but neither should move markets.

We also get two Fed speakers, George (1:20 p.m. ET) and Kashkari (1:45 p.m. ET), and the market will be looking for any insight on a 50 bps vs. 75 bps hike in September (markets are expecting 50 bps).

Why Is the Market Suddenly Resilient?

What’s in Today’s Report:

  • Why Is the Market Suddenly Resilient?

Futures are slightly higher on momentum from yesterday’s recovery and despite mixed Chinese economic data.

Chinese Industrial Production and Fixed Asset Investment both slightly missed estimates while Retail Sales beat expectations, but importantly the data didn’t show the Chinese economy had lost significant momentum.

Today there are numerous economic reports and some of them potentially will move markets.  The most important report today is 5-Yr Inflation Expectations (3.1% previous) and if they drop to 3.0% or lower that will be a good sign on inflation.  Retail Sales (E: 0.9%) and Empire State Manufacturing Index (E: -1.3) are the next most important reports today and again markets will want to see moderation – a slowing of activity but not a collapse.  Finally, we also get Industrial Production (E: 0.1%) and Consumer Sentiment (E: 50.0).

We also have one Fed speaker today, Bostic (8:45 a.m. ET), and we’d expect him to follow yesterday’s script and push back on the inevitability of a 100 basis point hike (although acknowledge that anything’s possible depending on the data).

What the Fed Decision Means for Markets

What’s in Today’s Report:

  • What the Fed Decision Means for Markets: Not as Hawkish as Feared (But That’s Not as Positive as It Used to Be)
  • FOMC Decision Takeaways
  • Retail Sales and Empire State Manufacturing Index Takeaways – A Further Loss of Momentum

Stock futures are down more than 2% this morning, tracking global shares lower as investors digest the latest central bank decisions, a rebound in rates and recession fears.

The Swiss National Bank surprised markets with a 50 bp hike overnight which is compounding fears about aggressive central bank policy in the face of slowing growth ahead of this morning’s BOE announcement.

Today, focus will be on the Bank of England announcement early and if we see another hawkish decision, stocks could extend this morning’s decline on a combination of rising rate fears and growing concerns about future economic growth.

From there, focus will turn to economic data in the U.S. with Jobless Claims (E: 220K), Housing Starts and Permits (E: 1.695M), and the Philadelphia Fed Manufacturing Index (E: 5.5) all due to be released this morning. With the Fed set on tackling inflation in the months ahead, the market will want to see strong data to show the economy can weather sharply tightening financial conditions.

Then in the late morning, the Treasury will hold an auction for 4-Week and 8-Week Bills at 11:30 a.m. ET. Bottom line, if we see rates rise materially today, especially on the shorter end of the yield curve, then stocks are likely to extend this morning’s declines on aggressive policy concerns.

The Delta Variant and Markets

What’s in Today’s Report:

  • Is the Delta Variant Impacting the Markets?
  • Retail Sales and Industrial Production Takeaways
  • Chart: Value Outperforming Growth In August

Stock futures are slightly lower as investors digest dovish central bank developments, mixed inflation data out of Europe and look ahead to the release of the Fed minutes.

The Reserve Bank of New Zealand unexpectedly left rates unchanged at 0.25% (E: 0.50%) citing COVID-19 uncertainties which crashed the kiwi to a fresh 9-month low overnight.

Economically, Eurozone HICP met estimates however U.K. PPI ran slightly hot versus expectations while revisions were to the upside which is keeping inflation concerns elevated for now.

Looking into today’s session, it should be a fairly slow morning as far as news flow goes with just one economic report to watch: Housing Starts (E: 1.61M) and no Fed officials scheduled to speak.

Then in the afternoon investors will be watching a 20 Year T-Note auction at 1:00 p.m. ET before the FOMC Meeting Minutes are released at 2:00 p.m. ET. Yesterday, there was a reversal higher in yields from overnight lows in the wake of the not-as-bad-as-feared Retail Sales report so the risk appears to be to the upside for yields which could weigh on big-cap growth names and drag major indexes lower if a rise in yields gains momentum.

Growth vs. Value: A Closer Look

What’s in Today’s Report:

  • Value Sectors vs. Growth Sectors – A Closer Look
  • Retail Sales and Industrial Production Data Takeaways

Stock futures are trading modestly higher this morning as investors continue to digest the latest vaccine news against still elevated coronavirus cases and new lockdowns across parts of the U.S.

Economically, the only report overnight was Eurozone HICP from October which met estimates at 0.2% M/M and did not materially impact markets.

Today, there is just one economic release to watch ahead of the bell: Housing Starts and Permits (E: 1.46M, 1.56M) before the “Fed speak” picks up again after the open with Evans (10:00 a.m. ET), Williams (12:15 p.m. ET), Bullard (1:20 p.m. ET), Kaplan (6:00 p.m. ET) and Bostic (7:00 p.m. ET) all due to speak over the course of the day.

Beyond data and Fed chatter, investors will continue to watch the fluid macro backdrop of the broader markets which includes vaccine developments, coronavirus case counts, lockdown policies, and any clues as to the time frame and size of the next relief package from Congress.

Economic Data Takeaways

What’s in Today’s Report:

  • Bottom Line – “Pump the Breaks”
  • Retail Sales and ISM Manufacturing Takeaways

Futures are flat and international shares were mildly higher overnight as yesterday’s sizeable rally in the U.S. was digested amid a slight pullback in bond yields.

The Reserve Bank of Australia was the latest central bank to note downside risks in the global economy overnight.

Economically, Eurozone PPI was a mild miss: 0.1% vs. (E) 0.2% in February but inflation has been subdued and the report does not change the outlook for ECB policy.

Today, Motor Vehicle Sales (E: 16.8M) will begin to come in over the course of the morning while there is one notable economic report ahead of the open: Durable Goods Orders (E: -1.8%). There are no Fed speakers today.

With a lack of material catalysts between now and Friday’s jobs report, macro focus will be on U.S. – China trade negotiations and the bond market. If Treasury yields revisit last week’s lows, stocks will have a hard time holding the strong gains of the last few sessions, so watch bonds closely.

Seven Ifs Updated

What’s in Today’s Report:

  • Seven “Ifs” That Will Move This Market Updated (Not Much Progress)
  • Weekly Market Preview (All About China)
  • Weekly Economic Cheat Sheet (Important Numbers This Week, Starting Today)

Futures are slightly higher following a generally busy weekend of economic, geo-political and Fed related news.

Economic data was mixed as CN New Yuan Loans slightly missed estimates (885 bln vs. (E) 950bln), as did German IP (-0.8% vs. (E) 0.5%) while German exports beat estimates.

On trade, the Trump/Xi summit appears to have been delayed till April, although a trade deal is still expected so this delay isn’t a negative for markets, yet.

Fed Chair Powell was on 60 Minutes Sunday night but didn’t say anything new so it’s having no impact on markets.

Today markets will be focused on the Retail Sales (E: 0.0%) report, in part because Powell specifically cited it as something he’d be watching in the 60 Minutes interview.  The key to this number, as always, is the “Control” group which is retail sales less gas, autos and building materials, and the market estimate is 0.7%.  A beat of that estimate will provide a boost of confidence for the economy, while a miss will exacerbate fears of a potential slowdown.

Weekly Market Preview, October 9, 2017

Last Week in Review

For the most part economic data was solid last week, and suggested the recent reflation rally can continue further. But almost all the data released last week was at least in some way affected by Hurricanes Harvey and Irma. In most cases, the data was skewed for the better, and until Friday that was supporting hawkish money flows.

Starting with the ISM data, the Manufacturing release on Monday surged to 60.8 vs. (E) 58.0 which was, I believe, the strongest print in decades. However, there was a distinct outlier in this report that meaningfully skewed the headline. Supplier Deliveries (one of the five subcomponents of the headline) spiked to 64.4 vs. 57.1. Rising supplier deliveries means longer deliveries of ordered parts, which is a sign of increased demand and economic activity. But this data point was directly affected by the hurricanes and not a real uptick in demand.

Then, the ISM Non-Manufacturing Index jumped to 59.8 vs. (E) 55.5. Like the Manufacturing data, delayed deliveries had spiked 7.5 points to 58.0, which was a major supporting factor for the headline (but again, the data was skewed by the hurricanes).

As far as the two ISM reports are concerned, they both need to be taken with a grain of salt as the hurricanes played a major role in boosting the headlines. Additionally, “survey style” data continues to come in much better than “hard data” like Industrial production. Until we start to see some more upbeat “real data,” the reflation trade will only be able to accelerate so much.

Continuing with the theme of skewed data, Friday’s September jobs report was the big release of the week and the data was “off the charts” on several subcomponents while the headline job adds actually declined. Unemployment fell to 4.2% vs. (E) 4.4%, which was the lowest since 2001 while the participation rate rose to 63.1% vs. (E) 62.8%, well above the highest estimates.

While the ISM reports earlier in the week were seen as hawkish and supportive of the reflation trade, the jobs report on Friday was not as well received, as investors were skeptical of such robust data. The immediate reaction was inflationary, with the 10-year yield punching through 2.40% (the tipping point) for the first time since early May. Then with the help of some adverse headlines regarding North Korea, the morning moves unwound and bonds rebounded while gold rallied and stocks sold off. The market has started to take the September data with a grain of salt, as it is clearly skewed in favor of the hawks. This is likely to result in the reflation trade stalling, as investors await more data to see what the real trend in the economy is doing.

This Week’s Preview

As banks observe the Columbus Day holiday today, economic data doesn’t kick off until tomorrow. The NFIB Small Business Optimism Index for September will be more important than normal as investors will be looking to see how small businesses fared through the hurricanes. The previous read was 105.3, so any significant divergence from that level could likely cause some movement, especially if it misses, which could see a further unwind of the recent reflationary money flows.

On Wednesday, the Fed minutes from the September meeting will be in focus as investors look for further clues about future Fed policy. But as is normally the case, it is more likely than not that the release will essentially be a non-event.

Later this week focus will be on inflation data for September, as PPI and CPI are out Thursday and Friday, respectively. Also on Friday, Retail Sales data will be watched closely to see if the effects of the hurricanes were felt in the retail space. Again, any softness in the data could spur an extended pullback from recent reflation moves. Finally, Consumer Sentiment will be worth watching to see if optimism about the economy is actually taking hold, or if consumers remain mostly cautious on the forward outlook.

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Last Week and This Week in Economics, April 17, 2017

Week of April 17th and April 10th in Economics

Last Week in Economics – 4.10.17

The two important economic numbers came out Friday when markets were closed, so they didn’t receive much attention, although they should have. Both numbers (CPI and Retail Sales) further eroded the reflation trade thesis and will increase worries the economy is losing momentum.

Starting with retail sales, the headline on this number was plain ugly. March retail sales declined 0.2% vs. (E) 0.0%. Almost as importantly, February retail sales were revised down to -0.3% from the previous 0.1%. As longer-term readers know, we generally disregard the headline and instead look at the “control” group retail sales, which is retail sales ex autos, gasoline and building materials. That control group gives us a better read on truly discretionary spending.

Here the numbers are a bit better. Control retail sales rose 0.5% in March vs. (E) 0.3%, but February was revised lower from 0.1% to -0.2%. So, considering revisions, the March number wasn’t a beat.

Bottom line, this number is not good for stocks. Consumer spending was the engine powering the Q3/Q4 2016 economic acceleration, and the sluggishness in consumer spending now is extending beyond what we would consider normal slack following a big acceleration. These are not the kind of numbers we would see if a bigger economic acceleration is looming.

Turning to CPI, it also undermined the “reflation” trade in the near term. Headline CPI dropped -0.3% vs. (E) 0.0% while core CPI declined -0.1% vs. (E) 0.2%. Additionally, the year-over-year core CPI reading dipped from 2.3% in Feb. to 2.0% in March. This soft CPI reading isn’t a damning number, and clearly the trend of inflation is higher. Yet markets need modestly higher inflation and better growth to power stocks higher, and last week’s numbers did not suggest that’s happening.

Bottom line, this week now is very important, as it will go a long way to resolving the now-glaring discrepancy between still sluggish “hard” economic data and surging “soft” economic sentiment surveys.

Finally, to make this a bit more real, Friday’s numbers resulted in the GDP Now for Q1 dropping to just 0.5%. That type of economic growth simply cannot support stocks at these levels, and as such we should expect Friday’s data to further pressure bond yields and the dollar, which will increase stock headwinds.

This Week in Economics – 4.17.17

This week is important for markets because we will get a much more definitive answer to the question of whether the pace of economic growth is losing momentum. How that question is answered will go a long way to determining whether the S&P 500 takes out the March low of 2322, or if stocks can bounce.

To that point, the most important economic releases this week all contain March data, and the most important report will be the flash manufacturing PMIs out Friday, followed (in importance) by Empire Manufacturing (today) and Philly Fed (Thursday). The reason those numbers are so important is because it’s April data, so they will give us the most current view of the pace of economic activity in the US. If they further imply there is a loss of momentum, that will further undermine the reflation trade and hit stocks. Conversely, markets need strong data this week to help reinvigorate the reflation trade thesis.

Looking beyond those March data points, the next most important report this week is March Industrial Production. This number is important because a wide gulf still exists between “soft” sentiment -based data, and “hard” economic numbers. Industrial production is the next opportunity for some of that “hard” economic data to move higher and begin to close that gap.

Bottom line, we’re coming to a head on the debate over soft vs. hard economic data, and whether the recent economic acceleration can last. While there aren’t a lot of numbers this week, what data we do get is important to resolving that debate… and that will move markets.

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