Have We Reached Peak Hawkishness?

What’s in Today’s Report:

  • Are We At Peak Hawkishness?
  • Putting the Pullback in 2-Yr Yields in Perspective: Chart
  • JOLTS Fall Sharply

Stock futures are down roughly 1% this morning as investors digest the sizeable week-to-date gains amid rebounds in Treasury yields and the dollar.

Looking overseas, the Reserve Bank of New Zealand raised rates 50 bps overnight, meeting consensus expectations while the Eurozone Composite PMI came in at 48.1 vs. (E) 48.2.

Today, the focus will be on economic data early with the ADP Employment Report (E: 200K) due out before the bell as well as data on International Trade in Goods and Services (E: -$68.0B), and then the ISM Services Index (E: 56.0).

There is also one Fed official scheduled to speak in the afternoon: Bostic  (4:00 p.m. ET).

Bottom line, most of this week’s gains have been a function of renewed “peak-hawkishness” hopes however if economic data comes in stronger than expected and we see yields turn back higher and the dollar resume its rally, then we could see stocks give back some of this week’s rally which has admittedly occurred at an unsustainable pace.

Tom Essaye Quoted in Forbes on September 19th, 2022

Stocks Struggle As Markets Brace For Another ‘Unusually Large’ Fed Rate Hike

Oil prices fell more than 2% as risks of a recession “weighed heavily” on the market, analyst Tom Essaye of the Sevens Report, wrote in a Monday note. Click here to read the full article.

Are Stocks Pricing in an Economic Contraction?

What’s in Today’s Report:

  • Bottom Line – Are Stocks Pricing in an Economic Contraction?
  • Weekly Economic Cheat Sheet – Is Stagflation Imminent?

Stock futures are trading modestly lower with European markets this morning as recession fears continue to weigh on sentiment.

Economically, global Composite PMI data was better than feared but broader concerns of a slowdown remain.

Today, investor focus will be on economic data early with Motor Vehicle Sales (E: 13.5M) and Factory Orders (E: 0.5%) both due out before the opening bell.

There are no Fed officials scheduled to speak today but the Treasury will hold auctions for 3-Month and 6-Month Bills at 11:30 a.m. ET which may move bond markets and ultimately move equities.

State of Inflation: Hints of a Peak?

What’s in Today’s Report:

  • State of Inflation:  Hints of a Peak?

Futures are sharply lower following another profit warning from a national retailer and mixed economic data.

Restoration Hardware (RH) cut guidance just a few weeks after reporting earnings, citing a sudden deterioration in demand and increasing worries about corporate earnings.

Economic data was mixed as the Chinese manufacturing PMI rose back above 50, while German unemployment rose more than expected (5.3% vs. (E) 5.0%.

Today focus will be on the Core PCE Price Index (E: 0.4% m/m, 4.8% y/y) and if we get a materially hot number above the 4.8% yoy expectation, we can expect more selling pressure while a drop towards the mid 4% range would be a welcomed surprise (and likely cut the early morning losses).  Today we also get weekly Jobless Claims (E: 226K), although that number shouldn’t move markets.

Tom Essaye Quoted in The Madison Leader Gazette on May 5, 2022

Stock Market Today: Dow Slides, Shopify Tumbles, NIO Slumps

We shouldn’t have gone up 2% yesterday on the news…said Tom Essaye, founder of Sevens Report Research. Click here to read the full article.

Ukraine Update

What’s in Today’s Report:

  • Bottom Line: Real Focus Remains on the Fed and Growth
  • Weekly Economic Cheat Sheet: Rising Threat of Stagflation?

Stock futures are down slightly this morning but well off the overnight lows as traders digest the latest geopolitical developments between Russia and Ukraine.

Russian President Putin recognized the independence of two “breakaway” regions in eastern Ukraine yesterday, but the risk of a full scale invasion of Ukraine still remains low.

Looking into today’s session, there are several economic reports due to be released including: Case-Shiller Home Price Index (E: 1.1%), FHFA House Price Index (E: 1.0%), PMI Composite Flash (E: 51.9), and Consumer Confidence (E: 110.0). There is also one Fed speaker on the schedule: Bostic (3:30 p.m. ET).

Finally, there is a 2-Yr Treasury Note auction at 1:00 p.m. ET and with the underlying market focus still on future Fed policy, a soft outcome (hawkish) could add to the current geopolitically fueled market volatility.

Regarding Ukraine, investors will await the announcement of new sanctions from the west against Russia, and depending on how severe they are, it could add to the selling pressure on stocks today. Additionally, as of now, Blinken and Lavrov are still scheduled to meet this week but if that meeting is canceled that will suggest a more severe conflict is imminent, resulting in more risk-off money flows.

Market Multiple Levels: S&P 500 Chart

What’s in Today’s Report:

  • Market Multiple Levels: S&P 500 Chart

U.S. equity futures fell with global stocks overnight amid ongoing stagflation fears but optimism that the House will pass the debt ceiling bill today has helped stocks stabilize.

Economically, the German ZEW Survey slightly missed estimates while the NFIB Small Business Optimism Index was 99.1 vs. (E) 99.5 but neither report is materially moving markets this morning.

Looking into today’s session, there is just one economic report to watch: August JOLTS (E: 11.013M) but it would take a meaningful surprise in the release to impact markets as it is a very dated report.

Meanwhile, there are no Fed officials scheduled to speak but there are two notable Treasury auctions to watch: 3-Yr Note (11:30 a.m. ET) and 10-Yr Note (1:00 p.m. ET).

Outside any potential surprises from Congress regarding the bill to raise the debt limit, if we see rates continue to accelerate higher on inflation worries today, then stocks could remain volatile and potentially test last week’s lows.

Economic Breaker Panel: August Update

What’s in Today’s Report:

  • Sevens Report Economic Breaker Panel – August Update
  • Consumer Confidence Data Points to Stagflation – Chart

Futures are trading near record highs this morning after mostly disappointing economic data helped reinforce dovish expectations for global central bank policy overnight.

Economically, a private Manufacturing PMI in China showed factory activity fell into contraction last month while European PMI data underwhelmed versus estimates and German Retail sales fell 5.1% vs. (E) -0.9% in July.

Looking into the U.S. session, focus will be one economic data early with the ADP Employment Report (E: 500K) due out ahead of the bell and then the ISM Manufacturing Index (E: 59.0) and Construction Spending (E: 0.3%) reports due shortly after the open.

There are no Fed speakers or Treasury auctions today so the biggest driver of markets will likely be the reaction to the economic data and what it means for Fed policy expectations. The biggest risk to the rally into the end of the week is data that is “too hot” and causes a hawkish shift to a currently very accommodative Fed policy outlook.

This Is What Stagflation Looks Like

What’s in Today’s Report:

  • This is What Stagflation Looks Like
  • Yield Curve Chart: The Steepening Trend Is Stalling

U.S. futures are lower this morning amid new regulatory threats for Chinese tech companies, while Delta variant concerns linger and traders look ahead to fresh U.S. data.

Chinese regulators proposed a new set of rules for internet and technology companies overnight which once again triggered a wave of selling in Chinese markets, specifically in big cap tech names.

Economically, the Eurozone GDP flash met estimates while U.K. wage growth hit a new record in July the latest evidence that stagflation may be an emerging economic trend (more on that in today’s edition of the Report).

Looking into today’s session, there are two notable economic reports due out in the U.S. this morning: Retail Sales (E: -0.2%), and Industrial Production (E: 0.5%).

As has been the case recently, investors will be looking for data that is good enough to suggest we are not falling deeper towards a stagflationary environment but not so strong that it pulls forward expectations for tapering QE (the key to reading the data will be to monitor the reaction in the yield curve; we want to see steepening).

Finally, Fed Chair Powell will speak as part of a virtual town hall event at 1:30 p.m. ET this afternoon and the markets will be looking for any new clues as to the Committee’s taper plans/views of the economic recovery. For now, a continued, slightly dovish stance remains the best case scenario for stocks as another hawkish “tilt” would likely spark a run higher in yields, potentially weighing on broader equity markets.

Yield Curve Update (Reflation vs. Stagflation)

What’s in Today’s Report:

  • Yield Curve Update (Reflation vs. Stagflation)
  • EIA and Oil Market Update

Futures are little changed following a generally quiet night of news.

Economic data was slightly underwhelming as UK Industrial Production (-0.7% vs. (E) 0.3%) and Euro Zone IP (-0.3% vs. (E) -0.2%) both missed estimates, although neither is weighing materially on markets.

Covid headlines remained largely unchanged, although Hawaii is reimposing restrictions on social gatherings.  But, that headline isn’t enough to weigh on markets broadly, as the broad response to rising cases remains mask mandates and increased vaccinations (which aren’t material headwinds on the recovery yet).

Today focus will be on Jobless Claims (E: 378K) and markets will want to see the number continue to gradually decline (but not drop so fast that it makes the Fed taper more quickly).  We also get Final PPI (E: 0.6% m/m, 7.3% y/y) but given yesterday’s CPI wasn’t hotter than expected, PPI shouldn’t move markets.