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Hard Landing vs. Soft Landing Scoreboard

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Hard Landing vs. Soft Landing Scoreboard: Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • Hard Landing vs. Soft Landing Scoreboard
  • Chart: 10-Yr Yield Quickly Approaching Last Week’s “Hawkish Technical Target”

Stock futures are lower and there is a modest fear bid in Treasuries this morning. This is amid renewed worries about China’s property sector and growing angst about a potential government shutdown in the U.S.

After one of China’s largest property developers, Evergrande, missed a debt payment, multiple former executives were arrested overnight adding to worries about the embattled sector and the Chinese economy more broadly.

Also, multiple ratings agencies have offered negative warnings regarding the impact of a government shutdown on U.S. debt as the deadline for Congress to reach a deal on spending is just days away. Any progress towards a deal will be a modest positive for risk assets today.

Looking further into today’s session, there are several economic reports to watch this morning including: Case-Shiller Home Price Index (E: 0.6%), New Home Sales (E: 699K), and Consumer Confidence (E: 105.9). To stabilize, markets will want to see more Goldilocks data showing stable but slowing growth and demand metrics and no signs of rising price pressures.

In the afternoon, there is a 2-Yr Treasury Note auction at 1:00 p.m. ET, the first since the hawkish Fed meeting so the results very well could move yields and impact stocks today. Finally, there is one Fed speaker: Bowman (1:30 p.m. ET), and if “higher for longer” is reiterated, that could weigh on risk assets.

Hard Landing vs. Soft Landing Scoreboard

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What the Hawkish Fed Decision Means for Markets

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Hawkish Fed Decision: Strengthen your market knowledge with a free trial of The Sevens Report.

What’s in Today’s Report:

  • What the Hawkish Fed Decision Means for Markets
  • Key Levels to Watch:  Post-Fed Takeaways
  • EIA Analysis and Oil Market Update

Futures are moderately lower on momentum from Wednesday’s late sell-off. As the Fed’s hawkish statement and projections weighed on global markets overnight.

The Norges Bank (Central Bank of Norway) hiked rates by 25 bps and signaled another hike in December. This wasn’t expected and added to hawkish central bank anxiety.

Economically there were no notable reports overnight.

Today will be another busy day and the first important event is the Bank of England Rate Decision (E: 25 bps hike).  If the BOE hikes 25 bps and strongly signals another hike is coming, that will be incrementally hawkish and likely add to global selling pressure.

Looking at economic data, there are two important reports today: Jobless Claims (E: 225K) and Philly Fed (E: 0.5).  Especially after yesterday’s declines, markets will want to see stable data, because if data is “Too Hot” it’ll push Treasury yields higher and weigh on stocks and if data is suddenly very bad it’ll increase stagflation concerns.  We also get Existing Home Sales (E: 4.10M) but that number shouldn’t move markets.

 

Hawkish Fed

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FOMC Preview: How Long Will Rates Stay High?

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FOMC Preview: Strengthen your market knowledge with a free trial of The Sevens Report.

What’s in Today’s Report:

  • FOMC Preview – How Long Will Rates Stay High?
  • VIX Chart – Is Volatility About to Surge

S&P futures are modestly higher this morning after a favorable dip in EU inflation statistics and upward revisions to global growth forecasts while oil continues to climb towards $100/barrel.

The Eurozone’s Narrow Core HICP (their CPI equivalent) met estimates at 5.3% in August, down from 5.5% in July. The OECD raised their global growth forecast from 2.7% to 3.0%, primarily thanks to strength in the U.S. and Japan while growth estimates for Europe and China were reduced. However, the net increase in the global growth outlook was received as a mild positive this morning.

Looking into the U.S. session, there is just one economic report: Housing Starts and Permits (E: 1.435M, 1.440M). As long as there are no big surprises in the release, markets should fall into a holding pattern as the September FOMC meeting begins in Washington.

However, there is a 20-Yr Treasury Bond auction at 1:00 p.m. ET, and if the outcome moves rates materially, stocks could react amid last-minute positioning ahead of tomorrow’s Fed decision.

Fed Preview

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Economic Data Fueled the Rally

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Why Economic Data Fueled the Rally: Strengthen your market knowledge with a free trial of The Sevens Report.

What’s in Today’s Report:

  • Why Yesterday’s Economic Data Fueled the Rally
  • An Important Chart (On Page One)

Futures are slightly higher on more Chinese economic optimism as data was better than expected while Chinese officials announced more stimulus.

Chinese Retail Sales (4.6% vs. (E) 3.9%) and Industrial Production (4.5% vs. (E) 3.9%) beat expectations while authorities injected 120 billion yuan into a lending facility.

Today’s focus will be on economic data and if data is “Goldilocks” like we saw on Thursday, expect a continuation of yesterday’s rally.  Conversely, if the data shows inflation hot or growth slowing, the markets could give back most of yesterday’s rally.

Also, the important reports to watch today include:  Empire State Manufacturing Index (E: -10.0), Import and Export Prices (E: 0.3%, 0.4%), Industrial Production (E: 0.1%), and Consumer Sentiment (E: 69.2).

Finally, today is quadruple witching options expiration so don’t be surprised by big volumes and increased volatility during the final hour of trading.

Economic Data

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Market Multiple Table Chart: September

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Market Multiple Table Chart: Strengthen your market knowledge with a free trial of The Sevens Report.

What’s in Today’s Report:

  • Market Multiple Table Chart (September Update)

Futures are slightly lower following more mixed economic data overnight.

There were no changes to the Market Multiple Table Chart for September, leaving the July/August target levels in place.

Japanese GDP (1.2% vs. (E) 1.3%) and Euro Zone GDP (0.1% vs. (E) 0.3%) both slightly missed expectations and further hinted at a loss of economic momentum.  Meanwhile, German CPI was in line with expectations (0.3% m/m, 6.1% y/y) as inflation in the EU remains sticky.

Today the calendar is mostly quiet, but focus will be on the Manheim Used Vehicle Value Index (Previous 212.0) and markets will want to see that “bell weather” for inflation continue to decline. If the MUVVI falls solidly we could see Treasury yields dip and stocks enjoy a relief rally.  Other notable events today include Consumer Credit (E: $18.0B) and a speech by Fed Governor Barr at 9:00 a.m. ET, but neither event should move markets.

September Market Multiple Table Chart

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Evidence of Some Deterioration in the Fundamentals

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Deterioration in the Fundamentals: Strengthen your market knowledge with a free trial of The Sevens Report.

What’s in Today’s Report:

  • Market Multiple Table:  Evidence of Some Deterioration in the Fundamentals

Futures are modestly lower on another negative AAPL article and more mixed economic data.

AAPL shares fell another 3% pre-market as Bloomberg also reported certain Chinese government agencies would be banned from using foreign made phones.

Economically, Chinese exports were no worse than feared (-8.8%). However, German Industrial Production missed estimates (-0.8% vs. (E) -0.2%) as global recession fears crept higher.

Today focus will be on economic data and Fed speak.  The two key reports to watch are Jobless Claims (E: 238K) and Unit Labor Costs (E: 1.7%).  Markets will want to see the former rise more than expected (but not too much more) and the later be less than expectations.  The opposite (low claims and high Unit Labor Costs) will push Treasuries higher and weigh further on stocks.

Turning to the Fed, New York Fed President Williams speaks at 3:30 ET. Since he’s part of Fed leadership, we’ll pay attention and markets will hope he hints that rate hikes are done.  Bostic also speaks at 3:45 ET but his message will likely be predictably dovish, and as such it won’t move markets.

multiple

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Tom Essaye Quoted in Swissinfo.ch on August 28th, 2023

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Stocks Grind Higher at Start of Busy Economic Week: Markets Wrap

“This week is important because it has the chance to either reinforce the ‘soft/no landing’ and ‘disinflation’ pillars of the rally, or potentially undermine them,” said Tom Essaye, founder of The Sevens Report newsletter. “The former will likely result in a reflex rally, while the latter could open up a sharp drop in stocks. We’ll be watching closely.” 

Click here to read the full article.

 

Jobs Report Preview

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What’s in Today’s Report:

  • Jobs Report Preview
  • Oil Market Update & EIA Analysis

Futures are little changed following a busy night of mixed economic data.

Positively, the August Chinese PMIs were better than feared, rising to 50.3 vs. (E) 50.1 and helping to slightly reduce China recession worries.

Negatively, the EU flash HICP (their version of CPI) was hot on the headline (5.3% vs. (E) 5.1%) but in-line on core (5.3% y/y), underscoring that inflation is sticky in the EU.

Focus today will be on economic data, specifically Jobless Claims (E: 238K) and the Core PCE Price Index (E: 0.2% m/m, 4.2% y/y).  For stocks to extend the week’s gains (and continue to bounce back from the broader pullback) investors won’t want any surprises.  In the case of jobless claims, that means no big jump in claims that hints at economic weakness, nor a further drop that might make the Fed more hawkish.  On the core PCE Price Index, an in-line to slightly below reading would be positive as it’d further pressure Treasury yields and likely lift stocks.

Finally, there is one Fed speaker today, Collins at 9:00 a.m. ET, but she shouldn’t move markets.

Is Soft Economic Data a Reason to Buy Stocks?

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What’s in Today’s Report:

  • An Easing of the Labor Market Is a Good Thing, But Be Careful What You Wish For…
  • Jobless Claims vs. the S&P 500 – An Ominous Chart
  • JOLTS Takeaways
  • Consumer Confidence Shows Measurable Deterioration in Current Family Financial Situations: Chart

Futures are slightly lower this morning as yesterday’s sizeable rally in the S&P 500 is digested ahead of more domestic jobs data while global markets were mixed overnight.

In Asia, PBOC officials met with leaders from the private sector regarding stimulus and development, but so far, government efforts have been underwhelming and Chinese markets ended little changed.

In Europe, some regional German inflation statistics came in hot, buoying government bond yields this morning which could weigh on equities if the trend continues into the U.S. session.

Today, focus will be on economic data early with the ADP Employment Report (E: 200K) and GDP report (E: 2.4%) due out ahead of the bell while Pending Home Sales (E: -0.4%) will be released shortly after the open.

There are no Fed speakers today, so investors will be looking for more evidence that supports a continued pause in the Fed’s rate hiking cycle (or peak rates already being in) and ultimately a soft landing. Anything that contradicts that narrative will be a headwind on equities and other risk assets today.

How to Explain the Current Pullback to Clients & Prospects

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What’s in Today’s Report:

  • How to Explain the Current Pullback to Clients & Prospects
  • Weekly Market Preview:  Will Treasury Yields Stabilize? (That’s the Key to Ending This Pullback)
  • Weekly Economic Cheat Sheet:  Important Growth Updates and Powell Speech on Friday

Futures are modestly higher thanks to more evidence of global disinflation and despite another round of underwhelming Chinese stimulus.

German PPI declined -6.0% y/y vs. (E) -5.1% y/y and that’s serving as a reminder that inflation is still falling globally.

In China, officials cut the Loan Prime Rate less than expected (-10 bps vs. (E) -15 bps) and while that will provide stimulus, it’s not alleviating concerns that the Chinese economy will be a headwind on global growth.

Today there are no economic reports and no Fed speakers (the Jackson Hole Fed conference is this week, so speakers will increase throughout the week culminating with Powell on Friday).  As such, Treasury yields will remain a short-term influence on stocks.  Yields and futures are higher this morning but if yields extend the rally throughout the day, don’t be surprised if stocks give back these early gains.