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Is a Yield Curve Inversion Different This Time?

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What’s in Today’s Report:

  • Is A Yield Curve Inversion Different This Time?

Futures are moderately higher on growing optimism for a sooner than later cease-fire in the Russia/Ukraine war.

Reuters quoted Putin as stating there had been “certain positive shifts” in the negotiations for a cease-fire, although the fighting continued and an imminent cease-fire is unlikely.

Economic data was sparse but generally fine.  German CPI met expectations at 5.1% yoy while UK Industrial Production rose 0.7% vs. (E) 0.1%.

Today there is only one economic report, Consumer Sentiment (E: 61.7), and the inflation expectations index within the report will be important because if five-year inflation expectations move sharply above 3%, that will get the Fed’s attention and possibly make them more hawkish.

Outside of that report, focus will remain on Russia/Ukraine and if we get any additional hints at a cease-fire, it will extend this morning rally.

Inflation Update

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What’s in Today’s Report:

  • Inflation Update
  • EIA Analysis and Oil Market Update

Futures are moderately lower as a meeting between the Russian and Ukrainian foreign ministers yielded no additional progress towards peace.

Russia and Ukraine’s foreign ministers met in Turkey for over an hour, but there were no tangible breakthroughs made towards a lasting case-fire.

That lack of progress aside, the tone of the meeting was partially positive and a path towards peace appears to be slowly forming.

Today focus will be on the ECB Announcement (7:45 a.m. ET, press conference at 8:30 a.m. ET) and CPI (E: 0.7% m/m, 7.9% y/y).

Regarding the ECB, the key question is “how dovish is Lagarde?” in her comments, given the economic risks to Europe from the war.  The market has priced in that she will be quite dovish, so there is a risk of a mildly hawkish surprise.

Regarding inflation, the number to watch is 8%.  If CPI prints above 8% y/y, that will show inflation pressures are not receding and given exploding commodity prices, that means higher inflation for longer, which will likely make the Fed more aggressive on rate hikes (although a 50 bps hike next week is still unlikely).

Finally, we also get Jobless Claims (E: 218K) but that’s shouldn’t move markets,

Market Multiple Levels: S&P 500

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What’s in Today’s Report:

  • What Does a Peace Deal Look Like?
  • Market Multiple Levels: S&P 500

Markets are trading with a clear risk-on tone today as U.S. stock futures track big gains in European shares, while both the dollar and oil decline on potential progress towards an end to the conflict between Russia and Ukraine.

Earlier today, Kremlin Press Secretary, Peskov, noted that sanctions by the West are making Russia “think carefully” about the situation and that Russia will continue with talks with Ukraine, spurring fresh optimism for a peace deal.

Looking into today’s session, there is one economic report to watch in the morning: JOLTS (E: 10.90M), and then a 10-Yr Treasury Note Auction at 1:00 p.m. ET.

The market’s main focus will remain Russia/Ukraine today as this morning’s risk-on money flows are being driven by perceived progress towards a ceasefire deal ahead of tomorrow’s scheduled talks in Turkey. And if news flow about the conflict is generally positive, oil continues to decline on fading geopolitical concerns, and the S&P 500 can top yesterday’s intraday highs, a relief rally could really gain momentum today.

Market Multiple Table: March Update

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What’s in Today’s Report:

  • Market Multiple Table: March Update

U.S. futures fell sharply overnight following Russia’s threat to shut the Nord Stream 1 pipeline and the U.S. expressing a willingness to ban imports of Russian oil. But reports of successful evacuations from Ukraine through a corridor agreed upon with Russia has sparked risk on money flows in pre-market trading.

Economic data in Europe was generally good o/n with German Industrial production topping estimates while Eurozone GDP met expectations. Domestically, the NFIB Small Business Optimism Index fell to 95.7 vs. (E) 97.1.

Today, there is one economic report to watch: International Trade in Goods & Services (E: -$84.0B), however, it should not move markets, while the Treasury will hold a 3-Yr Note auction at 1:00 p.m. ET.

Bottom line, the market is attempting to stabilize this morning following yesterday’s route, but for the market to bounce further, we will need to see meaningful de-escalation between Russia and Ukraine over the course of the day.

A Narrowing Path to an Economic Soft Landing

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What’s in Today’s Report:

  • A Narrowing Path to an Economic Soft Landing
  • Weekly Market Preview:  All About Ukraine (Will there be a real cease-fire?)
  • Weekly Economic Preview:  Inflation is key this week (CPI on Thursday)

Futures are sharply lower as oil spiked more than 6% (above $120/bbl) overnight on multiple reports the West is actively considering an embargo on Russian oil and gas.

Geopolitically, there were attempts at localized cease-fires in southern Ukraine to allow citizens to flee the cities, but those efforts have been, so far, a failure.  More peace talks are scheduled for today although not much progress is expected.

Economic data was solid as German Manufacturers’ Orders and Retail Sales both beat estimates, but that’s not moving markets.

Today there are no notable economic reports and no Fed speakers, so oil and geopolitics will continue to move markets.  If oil continues to rally throughout the day, that will further pressure stocks and it’ll take meaningful progress on a cease-fire to help markets rebound (and that doesn’t seem likely, at least not today).

Jobs Day

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What’s in Today’s Report:

  • Jobs Day (An Important Report)

Futures are moderately lower and European markets are down 3% as the Russia/Ukraine war shows little to no signs of actual de-escalation.

Russian forces attacked the largest nuclear power plant in Ukraine (and Europe) and a fire broke out at the plant.  The fire has been extinguished, but Russians now control the plant and the episode highlights the increasing chances of regional collateral damage from the ongoing conflict.

Today focus will remain first on the Russia/Ukraine conflict and any headlines about a cease-fire will obviously result in a knee-jerk rally higher (although to be clear no cease-fire headlines are expected today).

Away from Russia/Ukraine, the key event today is the Employment Situation report and expectations are as follows:  Job adds: 390K, Unemployment Rate: 3.9%, Wages: 0.5% m/m, 5.8% y/y.  Especially given geopolitical concerns, the market needs a “Just Right” number to help limit losses this morning, and if we get a “Too Hot” reading (on all three metrics) or a very soft number, expect losses to accelerate.

Finally, we get one Fed speaker today, Evans (8:45 a.m. ET), but he shouldn’t move markets given Powell’s testimony the past two days.

Jobs Report Preview

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What’s in Today’s Report:

  • Jobs Report Preview
  • Oil Market Update and EIA Analysis

Futures are slightly lower following a mostly quiet night of news as the world awaits the results of the latest peace talks today between Russia and Ukraine.

Russia continued its bombardment of Ukraine’s cities while another round of peace talks will occur today.

Economic data was slightly underwhelming as Chinese, UK, and EU February composite PMIs slightly missed estimates.

Today’s focus will be on the Ukraine/Russia peace talks and if a cease-fire is agreed to, that will cause another knee-jerk rally in stocks.

Beyond geopolitics, we also get several important economic reports today.  The key report is the ISM Services PMI (E: 60.9), and markets will want to see stability in those numbers.  We also get Jobless Claims (E: 232K) and Unit Labor Costs (E: 0.3%).  The later is a notable inflation indicator and if it’s “hot” that could weigh slightly on stocks.

Finally, we get the second half of Powell’s testimony (10:00 a.m. ET), although we likely won’t get any surprises.   Barkin (12:00 p.m. ET) and Williams (6:00 p.m. ET) also speak today but shouldn’t move markets.

Tom Essaye Quoted in Barron’s on February 28, 2022

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Buying the Russia Dip? Consider These Stocks.

The main reason the European markets are down more than the U.S. is because Russia is a major trading partner with Europe…said Tom Essaye, founder of Sevens Report Research. Click here to read the full article.

 

It’s All About Escalation (And What Can Go Wrong)

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What’s in Today’s Report:

  • It’s All About Escalation (And What Can Go Wrong)
  • ISM Manufacturing Report Takeaways

Stock futures recovered from overnight losses as investors digest President Biden’s State of the Union speech, and a slight de-escalation in the Russia-Ukraine conflict.

Geopolitically, President Biden announced that the U.S. would close its airspace to Russian planes during the open of his State of the Union address, however overnight, Russia expressed willingness to resume talks with Ukrainian leadership today and that is raising hopes for a ceasefire deal, fueling moderate risk-on money flows.

Economically, the Eurozone HICP Flash was hot with the headline jumping to 5.8% vs. (E) 5.3% which is adding to angst about stagflation.

Today, there are a few data points to watch including: Motor Vehicle Sales (E: 14.6M) and the first look at official February jobs data in the form of the ADP Employment Report (E: 320K).

Additionally, there are two Fed speakers around the time of the open: Evans (9:00 a.m. ET) and Bullard (9:30 a.m. ET) before Fed Chair Powell will begin his semi-annual Congressional testimony at 10:00 a.m. ET.

Bottom line, the Russia-Ukraine conflict will continue to dominate the headlines and markets today, and any de-escalation could trigger a further relief rally. However, investors will be watching Powell closely for any signs of a change in policy which could also impact markets.

Why the SWIFT Ban and Other Sanctions Matter

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What’s in Today’s Report:

  • Why the SWIFT Ban and Other Sanctions Matter
  • Update on Value/Growth Rotation

It is a moderately risk-off morning with stock futures down just over 0.5% while Brent crude prices have jumped back above $100/barrel and the 10-Yr Treasury yields have dipped below 1.75% amid the ongoing conflict in Ukraine.

Western allies added more sanctions on Russian financial institutions overnight while a 40-mile long Russian military convoy continued to make progress towards Kyiv however high-level diplomatic talks between Russia and Ukraine are expected to resume today.

Looking at the calendar, there are two economic reports to watch today: ISM Manufacturing Index (E: 58.0) and Construction Spending (E: -0.2%) as well as one Fed speaker: Bostic (2:00 p.m. ET).

But, the market will remain largely focused on the Russia/Ukraine conflict and whether or not there is any progress in the ongoing diplomatic talks. As has been the case since last week, any deterioration in the conflict will result in further risk-off money flows across asset classes while any sense of de-escalation could support a continued relief rally.