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When to Brace for More Volatility

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What’s in Today’s Report:

  • Revisiting the VIX – When to Brace for More Volatility
  • Familiar Holiday Volatility Courtesy of OPEC & Russia

U.S. equity futures are slightly higher and the dollar is pulling back modestly after a mostly quiet night of news as traders eye a stabilizing oil market.

After a volatile session yesterday, WTI crude oil is trading comfortably above $80/barrel this morning, fueling a rally in energy companies which is buoying index futures in pre-market trading.

Today, there is only one lesser-followed economic report due out: Richmond Fed Manufacturing Index (E: -1.0) and two Fed officials are scheduled to speak: Mester (11:00 a.m. ET) and George (2:15 p.m. ET).

Additionally, there is a 7-Yr Treasury Note auction at 1:00 p.m. ET that could move markets but the tape has been very quiet this week as attendance is light and volumes are down given the Thanksgiving holiday schedule. So more choppy and rangebound trading between 3,900 and 4,000 in the S&P is likely.

Was Bullard That Hawkish? (No)

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What’s in Today’s Report:

  • Was Bullard That Hawkish?  (No).

Futures are moderately higher following more geo-political progress amidst an otherwise quiet night.

Russian officials signaled they are open to high-level talks with the U.S. on strategic stability, which is being taken as another (small) step towards an ultimate cease-fire.

Economically, the only notable number was UK Retail Sales and they were better than expected, rising 0.6% vs. (E) 0.2%.

Today the calendar is sparse with just Existing Home Sales (E: 4.360M) and one Fed speaker, Collins (8:40 a.m. ET) but if she doesn’t provide any hawkish surprises, this early rally can continue as stocks recoup yesterday’s Bullard inspired losses.

Are Corporate Earnings Rolling Over?

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What’s in Today’s Report:

  • Are Corporate Earnings Rolling Over?
  • Another (Small) Sign of Dis-Inflation
  • EIA Update and Oil Market Analysis

Futures are modestly lower as investors digest Wednesday’s earnings disappointments.

CSCO and NVDA reported after the close and both results were better than feared, but that’s not enough to offset growing concerns about future corporate earnings.

On inflation, October EU HICP slightly missed estimates  (10.6% vs. (E) 10.7%) although the monthly reading was in-line at 1.5%, signaling that inflation pressures in the EU aren’t declining.

Today’s focus will again be on inflation so the price indices in the Philly Fed Manufacturing Index (E: -7.0) will be the key reports and any declines in those price indices should prompt at least a small rally.  Outside of Philly Fed, we also get Housing Starts (E: 1.41M) and Jobless Claims (E: 222k), but neither should move markets.

There are also multiple Fed speakers today including Bostic (7:30 a.m. ET), Bowman (9:15 a.m. ET), Mester (9:40 a.m. ET), and Kashkari (10:40 a.m. ET & 1:45 p.m. ET), and we should expect their message to be consistent with recent Fed speak:  The size of rate hikes will shrink, but the Fed still has a long way to go to reach the “Terminal Rate.”

What the Russia/Ukraine Headlines Mean for Markets

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What’s in Today’s Report:

  • What the Russia-Ukraine Headlines Mean for Markets
  • October PPI Data Takeaways
  • Empire State Manufacturing Survey Takeaways
  • Chart: 4,007 Remains Critical Resistance for the S&P 500

Futures have stabilized with global shares as easing geopolitical angst offsets more hot inflation data in Europe.

The AP reported the projectile that killed two in Poland on Tuesday originated in Ukraine (by their air defense systems) and not Russia which has eased concerns about NATO being pulled into the war between Russia and Ukraine.

Economically, U.K. CPI rose to 11.1% vs. (E) 10.6% in October, a fresh 41-year high which rekindled some global inflation fears overnight.

Today, the focus will be on the slew of economic data due to be released: Retail Sales (E: 1.0%), Import & Export Prices (E: -0.4%, 4.0%), Industrial Production (E: 0.2%), and the Housing Market Index (E: 36). The market will want to see a continued slowdown in growth metrics but more importantly, a faster slowdown in any price measures within the data as that dynamic would improve the prospects of a soft landing.

Additionally, the Fed speakers circuit remains active with: Williams (9:50 a.m. ET), Barr (10:00 a.m. ET), and Waller (2:35 p.m. ET) all due to speak over the course of the session.

Bottom line, if economic data and geopolitical headlines remain favorable today, the S&P 500 should be able to make another run at critical technical resistance at 4,007 in the S&P 500. A close above that level would open the door to another leg higher in the latest relief rally in the broader stock market.

Fed Wildcard to Watch: Dual Risks

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What’s in Today’s Report:

  • Fed Wildcard to Watch: Dual Risks
  • Economic Data Takeaways: A Hot JOLTS Report Offsets a Favorable ISM Release
  • Chart – The Fed Could Make or Break the Gold Market Today

Futures are higher ahead of today’s Fed announcement amid continued China reopening hopes and good earnings.

AMD is up more than 4% after good earnings yesterday evening which is bolstering tech shares this morning.

Today, the focus will be on economic data early with the ADP Employment Report (E: 200K) due out ahead of the bell. The market will want to see some headline weakness to help offset yesterday’s JOLTS data in order for stocks to rebound into the Fed. Motor Vehicle Sales (E: 14.2M) will also be released over the course of the morning.

Then focus will turn to the Fed with the FOMC Announcement at 2:00 p.m. ET followed by Powell’s Press Conference at 2:30 p.m. ET. A dovish release could trigger a sharp and squeezy rally while a hawkish decision would almost certainly result in investor pain.

Earnings will be on the backburner today but there are still a few notable releases to watch: CVS ($1.99), PGR ($1.48), CHRW ($2.15), QCOM ($3.14), EBAY ($0.93).

Have We Reached Peak Hawkishness?

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What’s in Today’s Report:

  • Are We At Peak Hawkishness?
  • Putting the Pullback in 2-Yr Yields in Perspective: Chart
  • JOLTS Fall Sharply

Stock futures are down roughly 1% this morning as investors digest the sizeable week-to-date gains amid rebounds in Treasury yields and the dollar.

Looking overseas, the Reserve Bank of New Zealand raised rates 50 bps overnight, meeting consensus expectations while the Eurozone Composite PMI came in at 48.1 vs. (E) 48.2.

Today, the focus will be on economic data early with the ADP Employment Report (E: 200K) due out before the bell as well as data on International Trade in Goods and Services (E: -$68.0B), and then the ISM Services Index (E: 56.0).

There is also one Fed official scheduled to speak in the afternoon: Bostic  (4:00 p.m. ET).

Bottom line, most of this week’s gains have been a function of renewed “peak-hawkishness” hopes however if economic data comes in stronger than expected and we see yields turn back higher and the dollar resume its rally, then we could see stocks give back some of this week’s rally which has admittedly occurred at an unsustainable pace.

What’s Needed for Markets to Stabilize

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What’s in Today’s Report:

  • Bottom Line:  What’s Needed for Markets to Stabilize (It’s Not That Much)
  • Weekly Market Preview:  Can Bond Yields Fall Further?
  • Weekly Economic Cheat Sheet:  Jobs Report on Friday

Futures are slightly higher following some backtracking on the UK fiscal spending plan.

UK PM Truss has abandoned part of her spending/tax cut plan amidst market and political pressure as she will no longer eliminate the 45% top tax rate (this is a mild positive as GILT yields were slightly lower on the news).

Oil prices rallied 3% as markets expect a material production cut from OPEC+ at this week’s meeting.

Today focus will be on the ISM Manufacturing PMI (E: 52.0) and while the headline reading is important as always, the Prices index will also be closely watched.  If that index can decline below 50 it will be a strong signal that dis-inflation is starting to work its way into the economy (and that’s a good thing). There’s one Fed speakers today, Williams at 3:10 p.m. ET but he shouldn’t move markets.

Fed Day Technical Take

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What’s in Today’s Report:

  • Pre-Fed Technical Take: a Make-or-Break Tipping Point for Equities

Stock futures are trading with cautious gains this morning as traders shrug off escalating tension between Russia and Ukraine while the BOJ initiated new stimulus overnight as focus turns to today’s Fed meeting.

Geopolitically, Russia is mobilizing 300,000 reservists to bolster military operations in Ukraine and indirectly threatened nuclear options in the latest escalation in the conflict which is driving gains in safe havens ahead of the Fed this morning.

Today, there is one economic report to watch in the morning: Existing Home Sales (E: 4.70M) but the primary market focus will clearly be on the Fed with the FOMC Announcement at 2:00 p.m. ET followed by Fed Chair Powell’s press conference at 2:30 p.m. ET.

Regarding the Fed, a 75 basis point hike and terminal Fed Funds rate near 4.25% is the consensus expectation so anything more hawkish than that will likely spark volatility and potentially even result in a test of the June lows in the S&P while anything more dovish than expectations has the potential to unleash a sizeable relief rally.

The Ukraine Counteroffensive and Markets

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What’s in Today’s Report:

  • What the Ukraine Counteroffensive Means for Markets

Stock futures are extending recent gains this morning while the dollar continues to fall ahead of today’s CPI report.

In Europe, German CPI for August was unchanged at 7.9% y/y which met expectations and is being well-received by investors ahead of today’s U.S. inflation data.

Domestically, the NFIB Small Business Optimism Index came in at 91.8 vs. (E) 90.5, underscoring the resilience of the U.S. economy in the face of Fed policy tightening so far.

Today, the main event will be the release of the August CPI data (E: -0.1% m/m, 8.1% y/y) ahead of the open. If the data is inline or below estimates, specifically the core figure, then stocks should be able to extend the recent rally as expectations for the “terminal rate” will likely fade lower however a hot print could send yields and the dollar sharply higher and cause a potentially sharp reversal of the recent gains.

The only other potential catalyst today is a 30-Yr Treasury Bond auction at 1:00 p.m. ET. Yesterday’s 3-Yr and 10-Yr auctions did notably move Treasury markets as yields jumped but stocks shrugged off the soft auction outcomes with focus on today’s CPI. If the 30-Yr auction is weak and yields move higher with the CPI data already released as of this morning, that could act as a strengthening headwind on equities in the afternoon.

Sevens Report Analyst Quoted in Market Watch on August 4th, 2022

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Oil rout deepens as U.S. crude benchmark finishes below $90 a barrel for first time since February

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,” wrote analysts at Sevens Report Research, in a note. Click here to read the full article.