Posts

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

/in , /by

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

/in , /by

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?

/in , /by

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

/in , /by

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.

Pullback or Something More?

/in , /by

What’s in Today’s Report:

  • Pullback or Something More?
  • EIA Analysis and Oil Market Update

Futures are slightly higher on better than expected CSCO earnings amidst an otherwise quiet night.

Earnings this week have been solid and that continued with CSCO results overnight (stock up about 3% pre-market) and that’s driving the bounce in futures.

Earlier this week HD, TGT and TJX all posted solid results and the earnings reinforced the $240 2024 S&P 500 earnings expectation (which helps with market valuation).

Today focus will be on economic data and the key reports are:  Jobless Claims (E: 240K), Philly Fed Manufacturing Index  (E: -10) and Leading Indicators (E: -0.4%).

Markets need Goldilocks economic data to stop rising Treasury yields while at the same time further downplaying hard landing worries.  If the data is “Too Hot” yields will rise and stocks will likely fall, while conversely, a sudden drop in activity will increase worries about a hard landing (and likely pressure stocks).  Numbers close to expectations are what investors need to help support stocks.

Tom Essaye Quoted in Barron’s on August 15th, 2023

/in , /by

Stocks Could Be Sandbagged by Rising Treasury Yields

“That’s why rising Treasury yields are a problem for stocks, because investors will rotate out of riskier equities and into less-risky bonds because the additional return in stocks isn’t worth the volatility,” argues Essaye, who believes that while the current environment makes the historical 4% risk premium unlikely, a “fair” number for 2023 is “definitely higher than 1%!”

Click here to read the full article.

Hard Landing/Soft Landing Scoreboard Update

/in , /by

What’s in Today’s Report:

  • Hard Landing/Soft Landing Scoreboard Update

Futures are little changed as markets digest Thursday’s failed rally amidst more conflicting economic data.

Chinese money supply growth missed estimates and again underscored existing recession risks and that modestly weighed on sentiment.

UK economic data was better than expected, however, with  GDP (0.2% vs. (E) 0.0%) and manufacturing (2.4% vs. (E) 0.2%) both beating estimates.

Today focus will remain on inflation, as we get headline PPI (E: 0.2% m/m, 0.7% y/y) and Core PPI (E: 0.2% m/m, 2.3% y/y) along with the University of Michigan inflation readings within Consumer Sentiment (E: 71.3).  As CPI showed, an in-line inflation number that shows on going and modest disinflation won’t spark a rally, as that’s already priced in, but it will help support stocks around current levels.  A hotter than expected number, however, will likely spark another market decline.

Tom Essaye Quoted in Barron’s on August 9th, 2023

/in , /by

Stocks Pause Ahead of Inflation Data

“The Italian government clarified that a windfall tax on bank profits would be capped, sparking a relief rally in European financials and general risk-on trade in global markets,” Essaye writes. “There are no notable economic reports and no Fed officials are scheduled to speak today which is setting the session up to be fairly quiet as traders await tomorrow’s CPI release.” Click here to read the full article.

How to Explain Any Pullbacks to Clients

/in , /by

What’s in Today’s Report:

  • How to Explain Any Pullbacks to Clients (Why Too Hot or Too Cold Data Is a Negative for Markets)
  • Weekly Market Preview:  Can Goldilocks Data Continue to Support Stocks?
  • Weekly Economic Cheat Sheet:  All About Jobs (Jobs Report Friday, Claims Thursday, ADP Wednesday, JOLTS Tomorrow)

Futures are little changed following mixed global economic and inflation readings.

In China, the July PMIs were mixed as manufacturing was slightly better (49.3 vs. (E) 49.2) while services were worse (51.5 vs. (E) 52.9) and the result is markets will still want more stimulus from Chinese officials.

On inflation, EU flash core HICP (their CPI) rose 5.5% y/y vs. (E) 5.4% y/y, hinting at stickier than expected inflation.

This will be a busy week of data and earnings, but it starts slowly as there’s just one notable economic report today, the Chicago PMI (E: 43.5) and only a few notable earnings: ANET ($1.43), ZI ($0.23), WDC ($-2.01).  So, barring any major negative earnings announcements, we’d expect generally quiet trading ahead of an increase in activity starting tomorrow.

What the Stronger Dollar Means for Markets

/in , /by

What’s in Today’s Report:

  • What the Stronger Dollar Means for Markets

Futures are little changed following a quiet night of news as markets digest Thursday’s extension of the rally and as markets await comments from Fed Chair Powell later this morning.

Economically, the only notable numbers were Japanese CPI (met expectations at 3.5%) and German PPI (slightly hot at 4.1% vs. (E) 4.0%) but neither number changed the outlook for global inflation and, as such, aren’t moving markets.

Today there are no notable economic reports, but there are several important Fed speakers including Chair Powell (11:00 a.m. ET).  So far this week, markets have looked past hawkish commentary from regional Fed Presidents but if Powell hints that the Fed may hike rates in June, we could see some of this week’s rally given back.  Other Fed speakers today include Williams (8:45 a.m. ET) and Bowman (9:00 a.m. ET).