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FOMC Preview (Watch the Dots)

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What’s in Today’s Report:

  • FOMC Preview (Watch the Dots)
  • Why Yesterday’s CPI Boosted the “Growth On” Trade
  • Gold Update:  Are the 2023 Highs Already In?

Futures are modestly higher following a quiet night of news as markets look ahead to the FOMC decision and expected pause in rate hikes.

Economic data was mixed overnight as UK Industrial Production missed estimates (-0.3% vs. (E) -0.1% in manufacturing) while Euro Zone IP slightly beat (1.0% vs. (E) 0.9%), but neither number is moving markets.

Today focus will be on the FOMC Decision and the consensus expectation is that the Fed will pause.  But, it’s not clear how many additional 2023 rate hikes the “dots” will show, and that will determine if the Fed decision is hawkish or dovish (more on that inside).

Away from the Fed we also get the May PPI (E: -0.1% m/m, 1.6% y/y) and Core PPI (E: 0.2% m/m, 2.9% y/y) and if this metric comes in under expectations that’ll boost the “Immaculate Disinflation” expectation and should help cyclical sectors extend the rally.

Tom Essaye Discusses The Market Outlook on Yahoo Finance on June 5th, 2023

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Morgan Stanley expects 16% earnings drop for S&P 500 companies

The S&P 500 is nearing a bull market. But Morgan Stanley analysts are predicting a 16% earnings drop for S&P 500 companies. Ben Laidler, Global Markets Strategist at eToro, and Tom Essaye, Sevens Report Research Founder and President, give their takes on what lies ahead for the market. Click here to watch the full interview.

A “Make or Break” Week for the Rally

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What’s in Today’s Report:

  • A “Make or Break” Week for the Rally
  • Where the Opportunity is in Stocks Right Now
  • Weekly Market Preview:  Will Data Confirm “Goldilocks” Optimism?
  • Weekly Economic Cheat Sheet:  CPI Tuesday, Fed Wednesday, Key Growth Data Thursday

Futures are slightly higher on momentum from last week’s rally, as it was a very quiet weekend of actual news and investors are looking ahead to multiple important market catalysts this week.

Economically, the only notable number was Japanese PPI which rose 5.1% y/y vs. (E) 5.7% y/y in what is the latest sign of global disinflation.

Oil declined more than 2% overnight on over supply concerns as Russia is largely ignoring its production quota.

Today there are no notable economic reports nor any Fed speakers, so barring any major surprises markets should be relatively calm ahead of tomorrow’s CPI report, Wednesday’s FOMC decision and Thursday’s important economic data.

A Tale of Two Trades

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What’s in Today’s Report:

  • A Tale of Two Trades

Futures are slightly lower as markets digest Thursday’s rally following a very quiet night of news.

Economically, the only notable report overnight was Chinese PPI, which feel –4.6% vs. (E) -4.2% and provided the latest sign that global disinflation is potentially accelerating.

Politically, former President Trump was federally indicted for illegally retaining classified documents, although that shouldn’t impact markets.

Today there are no economic reports and no Fed speakers, so near term technicals should drive trading with all eyes focused in whether the S&P 500 can break above 4,300 for the first time in over a year.

Market Multiple Levels: S&P 500 Chart

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What’s in Today’s Report:

  • Market Multiple Levels: S&P 500 Chart (Unbranded PDF Available)
  • Why Did Small Caps Surge?

Stock futures are little changed in premarket trade indicating this week’s digestive churn sideways could continue today following mixed economic data overnight.

Chinese exports dropped -7.5% vs. (E) +1.0% year-over-year in May adding to worries about the health of the recovery in the world’s second largest economy.

Conversely, in Europe, German Industrial Production jumped 1.8% vs. (E) 1.4% y/y helping ease some worries about the health of the EU economy.

Looking into today’s session, the list of potential catalysts remains light as there are just two economic reports to watch: International Trade in Goods and Services (E: -$76.0B) and Consumer Credit (E: $21.0B) while there are no Fed officials scheduled to speak.

That will leave focus on market internals and whether or not the early June money flows into cyclicals and small cap stocks can continue. If so, the improving breadth in the market with the S&P 500 sitting just under YTD highs will add to the case that the 2023 rally is sustainable.

Market Multiple Table: June Update

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What’s in Today’s Report:

  • Market Multiple Table – June Update
  • ISM Services PMI Takeaways

There is a modest risk-off tone in global markets this morning as a favorable drop in inflation expectations in Europe is helping offset an unexpected rate hike by the RBA.

The Reserve Bank of Australia surprised markets for the second month in a row as policy makers raised rates 25 bp to 4.10% as still elevated inflation levels remains a concern.

Meanwhile, in Europe, the ECB’s 1-Yr Consumer Inflation Expectations dropped to 4.1% in April from 5.0% in March which supports the case that the disinflation trend in Europe and the U.S. has resumed which is helping bonds rally this morning.

Looking into today’s session, it is lining up to be a quiet day as there are no economic reports and no Fed officials are scheduled to speak.

Tom Essaye Quoted in Yahoo Finance on May 31st, 2023

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Stock Rally Loses Steam After AI-Fueled Euphoria: Markets Wrap

Yes, AI does have great potential and it does appear to be the ‘next big thing’. But I don’t see how that promise can offset the reality of higher interest rates and more pressure on the economy, at least not for a sustainable period…wrote Tom Essaye, a former Merrill Lynch trader who founded The Sevens Report newsletter. Click here to read the full article.

What Is Immaculate Disinflation, and Why Did It Cause Last Week’s Rally?

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What’s in Today’s Report:

  • What Is Immaculate Disinflation, and Why Did It Cause Last Week’s Rally?
  • Weekly Market Preview:  Does Economic Data Stay Resilient?
  • Weekly Economic Cheat Sheet:  Service Sector in Focus This Week

Futures are little changed as markets digest the Thursday/Friday rally amidst a mostly quiet weekend of news.

Oil prices are solidly higher (Brent crude up 1.7%) after Saudi Arabia announced a voluntary 1M bpd production cut for the next month, although that’s not seen as a sustainable bullish catalyst.

Economically, global service PMIs were mixed as the Euro Zone Service PMI missed expectations (55.1 vs. (E) 55.9) while the UK and Chinese service PMIs were in-line.

Today focus will be on the ISM Services Index (E: 52.0.) and specifically the price index in this report.  Last week, a sharp drop in the ISM Manufacturing PMI Prices Paid Index ignited the rally, and if we see a similar drop in the services price index, it’ll help extend the rally as markets will get more confident disinflation is accelerating.

Tom Essaye Quoted in Swissinfo.ch on May 30th, 2023

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“Yes, AI does have great potential and it does appear to be the ‘next big thing’,” wrote Tom Essaye, a former Merrill Lynch trader who founded The Sevens Report newsletter. “But I don’t see how that promise can offset the reality of higher interest rates and more pressure on the economy, at least not for a sustainable period.” Click here to read the full article.

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Jobs Report Preview

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What’s in Today’s Report:

  • Jobs Report Preview

Futures are modestly higher after the House of Representatives passed the debt ceiling extension.

The House passed the debt ceiling extension 314-117, effectively ending this drama (passage in the Senate is all but guaranteed).

Economically, EU Core HICP (their core CPI) rose 5.3% vs. (E) 5.5%, hinting at the re-start of disinflation.

Today focus will be on economic data and there are numerous potentially important reports, starting with the ISM Manufacturing PMI (E: 47.0), where markets will want to see stability in the data (so not dramatically above or below the expectation).  On employment, we get two important reports via the ADP Employment Report (E: 160K) and Jobless Claims (E: 235K), and moderation in both reports (so a drop in ADP and rise in claims) will be welcomed by markets.  Finally, on inflation, Unit Labor Costs (E: 6.3%) will give us the latest insight into wages (the lower this number, the better).  Finally, there is also one Fed speaker: Harker (1:00 p.m. ET).