Less Bad Isn’t Good (Especially at the Valuations)

What’s in Today’s Report:

  • Bottom Line:  Less Bad Isn’t Good (Especially at these Valuations)
  • Weekly Market Preview:  Can the S&P 500 Hold Recent Gains?
  • Weekly Economic Cheat Sheet:  More Signs of Dis-Inflation This Week?

Futures are moderately lower despite in-line economic data and more re-opening optimism from China, as markets further digest Friday’s jobs report.

Reuters reported that COVID may be downgraded to “Category B” in China which may result in new, less restrictive guidance from the government as early as this week.

Economic data largely met expectations as the Euro Zone Composite PMI, UK Composite PMI, and Euro Zone Retail Sales reports were all basically in line.

Today the calendar is mostly quiet but the focus will be on the ISM Services PMI (E: 53.5) and if the headline can remain firm (above 50) and prices can drop further, that’ll help support stocks.

Election Preview

What’s in Today’s Report:

  • Election Preview
  • Chart: Technicals Dominate S&P 500 Price Action – Key Levels to Watch

Stock futures are slightly higher and Treasury yields are largely steady ahead of today’s midterm elections.

Economically, the U.S. NFIB Small Business Optimism Index came in at 91.3 vs. (E) 91.8 while Eurozone Retail Sales met estimates at 0.4% but neither release is materially impacting markets this morning.

There are no additional economic reports today and no Fed officials are scheduled to speak.

In Monday’s Sevens Report we incorrectly said CPI was to be released on Wednesday but the report is due out on Thursday. We apologize for any confusion this may have caused.

Bottom line, focus will be on the midterms today which will likely result in a mostly quiet session, however, there is a 3-Yr Treasury Note auction at 1:00 p.m. ET that could cause a move in yields and ultimately impact trading in equities.

FOMC Meeting Preview

What’s in Today’s Report:

  • FOMC Preview
  • Chart: 3,900 Is a Key Level For the S&P 500

U.S. futures and global stocks are rallying today amid reports that China is forming a “reopening committee” as part of a new push to ease Covid restrictions (however China’s foreign ministry has denied the rumors).

The RBA raised rates by 25 bp overnight, meeting estimates while the U.K.’s Manufacturing PMI was slightly better than feared at 46.2 vs. (E) 45.8.

Today, the focus will be on economic data early with the ISM Manufacturing Index (E: 50.0) and JOLTS (E: 9.875M) both due out shortly after the opening bell. But market reactions to the data are likely to be limited as the November FOMC meeting gets underway.

Earnings will remain in focus today with UBER (-$0.17), PFE ($1.47), BP ($1.94), and SYY ($0.99) reporting ahead of the bell, while AMD ($0.55) and ABNB ($1.46) will release results after the bell.

Bottom line, the combination of mostly favorable market news flow this morning, the calendar, and trader positioning into the Fed are all contributing to this morning’s pre-market gains, however, “Fed paralysis” is likely to set in today and into tomorrow’s morning session as investors await the latest Fed decision.

Market Multiple Table Chart

What’s in Today’s Report:

  • Market Multiple Table Chart
  • CPI Preview:  Good Bad and Ugly

Futures are slightly higher ahead of this morning’s CPI as reports suggest UK PM Truss will have to abandon more of her fiscal spending and tax cut plan.

Positively, conservative members of Parliament continued to push back against PM Truss’s fiscal plan and that’s helping the Pound rally and GILT yields to decline.

Negatively, Chinese authorities are reimposing some restrictions in Shanghai as COVID cases rise and as Chinese officials hold on to the “Zero COVID” policy.

Focus today will be on CPI and estimates are as follows: Headline: 0.2% m/m and 8.1% y/y. Core:  0.4% m/m and 6.5% y/y.  For CPI to spark a material rally, markets will want to see outright declines in CPI (so less than 8.1% and 6.3% respectively).  Conversely, year over year CPI coming in higher than September readings will reinforce the idea that inflation is not declining, and the market is a long, long way from a Fed pivot.  The other notable report today is Jobless Claims (E: 225K) but that shouldn’t move markets.

Why Stocks Hit New Lows

What’s in Today’s Report:

  • Why Stocks Hit New Lows

Futures are higher on potential improvement in the UK fiscal drama and on better than feared economic data.

UK PM Truss will meet with the UK Office for Budget Responsibility today and the hope is something comes from the meeting to further stabilize markets.

Economically, the September Chinese manufacturing PMI beat estimates and rose back above 50 (50.1 vs. (E) 49.4).

The key event today will be the result of the meeting between UK PM Truss and the Office for Budget Responsibility, as that whole situation needs to stabilize if stocks are going to hold up.  Beyond the UK fiscal drama, today there is an important inflation report, the Core PCE Price Index (E: 0.5% m/m, 4.8% y/y) but unless it surprisingly drops, it shouldn’t move markets.

Finally, there are several Fed speakers today but the most important one is Brainard (9:00 a.m. ET) and if she’s slightly dovish, that could help stocks further rally.  Other speakers include Barkin (8:30 a.m., 12:30 p.m. ET), Bowman (11:00 a.m. ET) and Williams (4:15 p.m. ET).

Market Multiple Table Chart

What’s in Today’s Report:

  • Market Multiple Table Chart
  • What Fed Speak Means for Markets (Yesterday and Today)

Futures are little changed following a mostly quiet night and ahead of the ECB decision and Powell Q&A session.

The Reserve Bank of Australia signaled it will slow the pace of rate hikes going forward but gave no insight into its “Terminal Rate.”

Economically, Japanese GDP slightly beat estimates (3.5% vs. (E) 3.0%) but that’s not moving markets.

Today’s focus will be on Powell (9:10 a.m. ET) and the ECB (75 bps hike), and any hint of “peak hawkishness” from Powell or the ECB will be a positive catalyst for markets (and no hints of it will likely be a headwind on stocks).  Outside of Powell and the ECB, we also get Jobless Claims (E: 240K) and there’s one Fed speaker, Evans (12:00 p.m. ET), but neither of those should move markets.

Market Multiple Table: Fork in the Road?

What’s in Today’s Report:

  • Market Multiple Table: Fork in the Road?
  • S&P 500 Chart: 50-50 Chance of New Lows
  • ISM Service Sector PMI
  • OPEC+ Policy Meeting Takeaways

U.S. stock futures have rebounded from overnight losses amid a steadying bond market and mostly upbeat economic data out of Europe.

Economically, German Industrial Production and Italian Retail Sales were both notably better than feared while the Final Q2 Eurozone GDP came in at 0.8% vs. (E) 0.6%, all of which is helping ease concerns about an imminent recession in Europe.

Today, there is one economic report to watch in the morning: International Trade in Goods (E: -$70.5B) and the Fed will release their Beige Book in the afternoon (2:00 p.m. ET) that could shed some light on the Fed’s current view of the economy and inflation trends ahead of this month’s FOMC meeting.

Additionally, there are a few Fed speakers over the course of the day: Mester (10:00 a.m. ET), Brainard (11:55 a.m. ET), and Barr (2:00 p.m. ET). Investors will be most closely focused on commentary from Vice Chair Brainard with the September meeting coming into view.

Bottom line, if data is generally good, rhetoric from the Fed is not more hawkish than it has been lately, and the bond market continues to stabilize, the S&P 500 should be able to hold the critical 3,900 area. However, a break below would be notable and greatly increase the odds of a retest of the June lows.

What Should Clients Do in This Environment?

What’s in Today’s Report:

  • What Should Clients Do in This Environment?
  • S&P 500 Approaching Key Support: Chart
  • JOLTS Data Takeaways – Labor Market Remains Tight

Stock futures pulled back from overnight gains and are now trading flat as most international markets are lower following mixed economic data.

Japanese Retail Sales and Industrial Production figures both handily topped estimates but the August HICP Flash in Europe (their CPI equivalent) showed core inflation jumped 4.3% vs. (E) 4.0%, reiterating inflation risks.

Today, the early focus will be on the ADP Employment Report (E: 200K) which will be the first one since they updated the methodology of the report so be prepared for a potentially surprising print.

From a market standpoint, traders will want to see a moderation in the labor market (especially after yesterday’s JOLTS report) to show the Fed’s tightening actions are beginning to cool the labor market which is one of the key steps towards reaching “peak hawkishness.”

There are also a few Fed speakers to watch today: Mester (8:00 a.m. ET), Logan (6:00 p.m. ET), and Bostic (6:30 p.m. ET) and the market would welcome any degree of less hawkish commentary as the more hawkish tone of the last week has been largely responsible for the equity market losses into the end of the month.

Updated Technical Take On the Market

What’s in Today’s Report:

  • Updated Technical Take
  • EIA Update and Oil Market Analysis
  • More Bad Consumer Earnings

Futures are solidly higher following better-than-expected economic data and as markets continue to recoup Monday’s declines ahead of the Powell speech tomorrow.

Economic data was better than expected overnight as German GDP beat estimates (1.8% vs. (E) 1.4%) as did the IFO Business Expectations survey (80.3 vs. (E) 78.8).

On the Fed front, Bostic said the September rate hike was a 50/50 proposition between 50 bps or 75 bps, and that’s largely in line with market expectations.

Today’s focus will be on economic data via Jobless Claims (E: 255k) and Revised Q2 GDP (E: -0.9%) and markets will want to see a continued slow rise in jobless claims and a stable GDP report (so not materially worse than expected).

Additionally, while the official Fed speaker calendar doesn’t have any events today, we should prepare for a deluge of Fed commentary via the financial media (CNBC, FT, WSJ, Marketwatch, etc.) as the Jackson Hole conference begins.  Barring any major surprise commentary, though, markets should look past Fed speak today and focus on Powell’s speech tomorrow.

Economic Breaker Panel: August Update

What’s in Today’s Report:

  • Sevens Report Economic Breaker Panel: August Update
  • S&P 500 Reaches Key Technical Support: Chart

Stock futures are steady this morning as this week’s rise in both the dollar and bond yields has paused while economic data in Europe was better than feared

Economically, the Eurozone Manufacturing PMI was 49.7 vs. (E) 49.0 and the Services PMI came in at 50.2 vs. (E) 49.0 which is helping ease some stagflation concerns after last week’s soft growth numbers yet stubbornly high inflation across Europe.

Looking into today’s session, the focus will be on economic data early, specifically, the PMI Composite Flash (E: 49.2) as investors will want to continue to see steady moderation and evidence of slowing growth but not an all-out crash in the data either. New Home Sales (E: 575K) will also be released shortly after the open.

Outside of the data, there is one Fed speaker on the calendar: Kashkari, but not until after the close (7:00 p.m. ET) while there is a 2-Yr Treasury Note auction at 1:00 p.m. ET that could move yields.

Bottom line, news flow has not been decidedly negative over the last few sessions and the pullback in stocks has been largely driven by the rally in the dollar and rising bond yields. So if we can see those two markets stabilize, equities should be able to stabilize today as well, especially with the S&P into solid technical support, however, if the dollar and yields both grind higher, expect further volatility in the stock market ahead of Jackson Hole.