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Two Reasons Rising Bond Yields Haven’t Caused a Pullback (Yet)

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What’s in Today’s Report:

  • Two Reasons Rising Bond Yields Haven’t Caused a Pullback (Yet)
  • Natural Gas Update

Futures are modestly weaker following a rally in oil prices and a continued rise in bond yields overnight.

Oil rallied 2% after Russia announced it was voluntarily reducing output by 500k bpd while OPEC+ did not signal any intention to increase output to offset the reduction.

Global bond yields moved higher after Nikkei reported Kazuo Ueda will become the next BOJ governor, and not the ultra-dove Masayoshi Amamiya (who was expected).

Today focus will remain on the data and specifically University of Michigan Consumer Sentiment (E: 65.0) and the inflation expectations in the report (any further decline will be positive for stocks).  We also get two Fed speakers: Waller (12:30 p.m. ET) and Harker (4:00 p.m. ET) and markets will want to see if they echo the hawkish tone from regional Fed presidents this week.

Market Multiple Table: February Update

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What’s in Today’s Report:

  • Market Multiple Table: February Update
  • EIA Analysis and Oil Update

Futures are enjoying a moderate bounce overnight thanks to slightly better than expected inflation data and earnings.

German CPI rose less than expected (8.7% vs. (E) 9.1%) and that’s helping to slightly calm fears of a bounce back in inflation.

Earnings overnight were also solid as DIS beat estimates and it’s fair to say this earnings season has been not as bad as feared.

Focus will remain on economic data and the only notable report today is Jobless Claims (E: 190K).  Holiday effects should be working their way out of these numbers so investors will want to see claims begin to rise over the coming weeks, otherwise it’ll imply the labor market remains much, much too tight (and that means more potential future rate hikes).

Earnings season is winding down but some notable reports today include: PM ($1.29), PYPL ($1.20), LYFT ($0.13).

Will the October Lows Hold?

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What’s in Today’s Report:

  • Subscriber Q&A: Will the October Lows Hold and What Is Going On Below the Market’s Surface?
  • The Gap Between the Fed and Markets is Closing
  • Chart: 2-Yr Yield Approaches 2023 Highs

Stock futures are little changed while the dollar and Treasuries are steady following a quiet night of news as traders await Powell’s speech today.

Economically, German Industrial Production fell -3.1% vs. (E) -0.6% in December which is rekindling recession worries this morning and helping support the stabilization in bond markets.

Looking into today’s session focus will be on Powell’s speech at 12: 40 p.m. ET as traders brace for the Fed Chair to potentially push back on the market’s dovish reaction to last week’s FOMC decision, something that happened multiple times in 2022 sparking big waves of volatility across asset classes each time.

Expectations for Powell’s speech have already become more hawkish since the January jobs report, however, so he would need to be explicit and firm about raising rates beyond 5% and not cutting rates in 2023 to cause a meaningfully hawkish reaction.

Beyond Powell, there are two lesser followed economic reports to watch: International Trade in Goods Services (E: -$68.8B) and Consumer Credit (E: $25.0B) although neither should have a material impact on markets while the Fed’s Barr also speaks this afternoon (2:00 p.m. ET).

There is a 3-Yr Treasury Note auction at 1:00 p.m. ET and the outcome will offer some evidence of bond traders’ initial take on Powell’s comments. If the auction tails significantly, expect some hawkish follow-through money flows into the afternoon.

Finally, earnings season continues with a couple of notable reports after the close today: CMG ($8.88) and PRU ($2.57).

Has the Fed Reached Peak Hawkishness?

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What’s in Today’s Report:

  • Has the Fed Reached Peak Hawkishness?
  • Weekly Market Preview:  Will Powell Sound Hawkish on Tuesday?
  • Weekly Economic Cheat Sheet:  Key inflation data Tuesday and Friday.

Futures are moderately lower mostly on follow-through selling from Friday’s hot jobs report.

The Chinese spy balloon drama dominated weekend headlines but it’s unlikely to materially alter U.S./China relations and as such shouldn’t be an influence on markets.

Rate expectations rose over the weekend following Friday’s jobs report, with markets now pricing in a terminal Fed Funds rate of 4.75% and that’s the main reason stocks are lower this morning.

Today there are no notable economic reports and no Fed speakers, so the focus will remain on yields and rate expectations and if they continue to climb, that will weigh on stocks.

Tom Essaye Quoted in Forbes on January 30th, 2023

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Natural Gas Prices Crashing Amid Warmest January In 15 Years—Here’s How Bad Bear Market Could Get

“Warmer-than-average temperatures across much of the country is suppressing heating demand, domestic production remains at record highs, and inventories are seasonably healthy,” explains analyst Tom Essaye, founder of the Sevens Report, of the recently collapsing market for natural gas. Click here to read the full article.

Tom Essaye Quoted in Blockworks on January 30th, 2023

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Fed Watch: Bitcoin Gives Up Weekend Gains, Analysts Say Not To Worry

“Reaching peak hawkishness is one of our three keys to a bottom, and the most important one, so if the Fed has reached peak hawkishness that’s a powerful positive to consider,” Tom Essaye, founder of Sevens Report Research, wrote in a note Monday. Click here to read the full article.

FOMC Meeting Preview

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What’s in Today’s Report:

  • FOMC Preview
  • VIX Chart – Is Volatility About to Surge Again?

U.S. stock futures are tracking European markets lower this morning amid a hawkish reaction to strong economic data and disappointing earnings from UBS and Samsung.

Economic data in Europe showed a reversal back higher in French inflation and better than-feared growth in the EU which is resulting in more hawkish money flows ahead of the several key central bank decisions this week and that is ultimately weighing on risk assets this morning.

Looking into today’s session, there are a few economic reports to watch in the U.S. (in order of importance): Q4 Employment Cost Index (E: 1.1%), Consumer Confidence (E: 109.0), Chicago PMI (E: 45.1), and the Case-Shiller Home Price Index (E: -0.5%).

With the FOMC Meeting getting underway, the macro focus will be on rate markets and expectations for the terminal rate as tomorrow’s 25 basis point hike is priced in with nearly 100% confidence. If market-based terminal rate expectations rise today, expect further pressure on risk assets and lower equity prices broadly.

Meanwhile, earnings season continues in full force today with notable releases coming from: UPS ($3.58), GM ($1.65), XOM ($3.32), MCD ($2.45), CAT ($3.95), and AMD ($0.67).

Did Yesterday’s Data Imply a Soft Landing is More Likely?

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What’s in Today’s Report:

  • Did Yesterday’s Data Imply a Soft Landing is More Likely?

Futures are slightly lower as markets digest Thursday’s rally following a mostly disappointing night of earnings.

Intel (INTC) posted very disappointing results and the stock dropped –9% overnight while other earnings reports were mostly mixed.

Economic data was sparse as Euro Zone Money supply was the only notable indicator and it rose 4.7% vs. (E) 4.8%.

Today focus will turn to inflation via the Core PCE Price Index (E: 0.3%, 4.4%) and five-year inflation expectations in U-Michigan Consumer Sentiment (E: 64.6).  The lower those inflation numbers, the better, and if we get soft inflation data that likely will help extend this week’s rally as it’ll increase expectations for a Fed pause in the next month or two.  We also get Pending Home Sales (E: -1.0%) but that shouldn’t move markets.

On the earnings front, important reports today include: CVX ($4.16), AXP ($2.18), and CL ($0.76).

Tom Essaye Quoted in MarketWatch on January 24th, 2023

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Tech rally is ‘biggest game of chicken between the Fed and the market I’ve ever seen’: analyst

“We are now witnessing the biggest game of ‘Chicken’ between the Fed (who says rates are going to above 5%) and the market (who thinks the Fed cuts rates at least twice this year) that I’ve ever seen,” said Tom Essaye, founder of Sevens Report Research, in a Tuesday newsletter. Click here to read the full article.

Economic Breaker Panel: January Update

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What’s in Today’s Report:

  • Economic Breaker Panel – January Update
  • January Composite PMI Data Takeaways

U.S. stock futures are lower this morning, led by mega-cap tech after MSFT earnings topped estimates but guidance disappointed which is weighing on sentiment broadly.

Economically, the Business Expectations component of the German Ifo Survey notably firmed to 86.4 vs. (E) 85.0 further supporting hopes that Europe will avoid a recession in 2023 but concerns about the global tech sector is offsetting the good economic data this morning.

There are no notable economic reports and no Fed officials are scheduled to speak today which will leave the focus on earnings.

Notable companies releasing quarterly results today include: BA ($0.30), T ($0.58), and FCX ($0.40) ahead of the bell, and TSLA ($1.15), IBM ($3.60), CSX ($0.47), and STX ($0.08) after the close.

Intraday, the Treasury will hold a 5-Yr Note auction at 1:00 p.m. ET, and as we saw with yesterday’s 2-Yr auction which sent stocks to new session highs, the outcome of the auction could move markets before focus returns to post-market earnings reports.