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Four Debt Ceiling Deal Takeaways

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What’s in Today’s Report:

  • What the Debt Ceiling Deal Means for Markets (Four Takeaways)
  • Case-Shiller Home Price Index Comes in Hotter than Expected
  • Chart: Growth Breaks Out Over Value

Stock futures are modestly lower this morning as soft Composite PMI data in China overshadowed easing inflation numbers in Europe overnight while traders await a House vote on the new debt-limit bill.

China’s Composite PMI fell to 52.9 in May down from 54.4 in April which confirmed that the economic recovery in the world’s second largest economy is underwhelming investor expectations which were admittedly lofty coming into the year.

In Europe, French CPI dropped to 5.1% vs. (E) 5.7% y/y in May and PPI plunged to 7.0% vs. (E) 12.8% which is driving some less-hawkish money flows this morning, supporting a bid in global bond markets.

Looking into today’s session, there are two economic reports to watch: Chicago PMI (E: 47.0) and JOLTS (E: 9.35 million). Investors will want to see some moderation in the data but still not a sharp drop-off in either growth or employment as that would rekindle worries of a hard landing and weigh on risk assets.

There are also multiple Fed speakers including: Collins (8:50 a.m. ET, 12:20 p.m. ET), Harker (1:30 p.m. ET) and Jefferson (1:30 p.m. ET). And given the hawkish shift in Fed rate hike odds over the last few days, a more dovish leaning tone from any of the policy makers would be well received.

Finally, the House is set to vote on the debt limit bill today and Republican Representatives have said this morning that they have the votes to pass it. If that comes to fruition, that should remove a headwind from risk assets and open the door to a continued move higher in equity markets.

Tom Essaye Quoted in Bloomberg Quint on January 4, 2022

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U.S. Stocks Start 2022 at Record; Treasuries Fall: Markets Wrap

Bottom line, the outlook is positive for stocks, but the removal of stimulus…wrote Tom Essaye, a former Merrill Lynch trader who founded “The Sevens Report” newsletter. Click here to read the full article.

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Tom Essaye Quoted in Courthouse News Service on March 5, 2021

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According to Tom Essaye of the Sevens Report, the core issue with bond yields has been economic growth. “Due to economic re-openings, stimulus, and vaccine optimism, global investors are pricing in a huge jump…” he wrote in a Thursday investor’s note. Click here to read the full article.

Why Stocks Faded Yesterday (and Why They Are Down This Morning)

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What’s in Today’s Report:

  • Why Stocks Faded Yesterday (And Why They Are Down This Morning)

Futures are moderately lower on disappointing economic data and as optimism on stimulus fades slightly.

On stimulus, the political reality of Washington is starting to impact markets, and it’s becoming more unclear when Democrats’ ambitious stimulus goals will become law.

Economically, global flash PMIs were bad.  Japanese, EU and British PMIs all fell further below 50 and there was significant deterioration across the board from the December readings, implying that the coronavirus lockdowns are having a negative impact on global growth (and slowing global growth isn’t priced into stocks).

Today the key number will be the Flash Composite PMI (E: 55.5).  Markets will be looking for stability and for the U.S. to avoid the slowing of activity that we saw in the global data earlier this morning, because again a material slowing in growth is not priced into stocks at these levels.  We also get Existing Home Sales (E: 6.540M) later this morning.

Finally, earnings season remains in full swing, and some reports we’ll be watching today include:  ALLY ($ 1.05), SLB ($ 0.18) KSU ($1.91).

Are Investors Expecting Too Much from This Market?

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What’s in Today’s Report:

  • Are Investors Expecting Too Much from This Market?

Futures are modestly lower following a generally quiet night as Biden’s stimulus plan met market expectations.

President Elect Biden’s $1.9 trillion stimulus plan is being met by a “sell the news” reaction as markets already priced in most of what was included, while easy passage of the bill is not guaranteed (this could still take months to become law).

Economically, UK Industrial Production missed estimates, while EU Exports were in line with expectations but neither number is moving markets.

Today focus will be on economic data, as we get the first data point from January via the  Empire State Manufacturing Index (E: 6.0) and markets will want to see stability in the data to imply that the recovery isn’t losing too much momentum. Other notable reports include Retail Sales (E: -0.1%), Industrial Production (E: 0.5%) and PPI (E: 0.4%).  There’s also one Fed speaker, Kashkari at 11:30 a.m. ET, but he shouldn’t move markets.

Finally, earnings season begins today with results from JPM (E: $2.72), WFC (E: $0.59) and C (E: $1.35).

Tom Essaye Quoted in NBC Philadelphia on January 11, 2021

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Tom Essaye, founder of The Sevens Report, noted that “with all this current and expected stimulus, the risks of a disorderly acceleration in bond yields and inflation…” Click here to read the full article.

Why 2021 Could Start With a Bang (In Stock and Bond Markets)

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What’s in Today’s Report:

  • Why 2021 Could Start With a Bang (In Stock and Bond Markets)

Futures are slightly higher following a generally quiet night of news.

Economically, the only notable report was the Chinese December Manufacturing PMI, which declined from November but slightly beat estimates at 51.9 vs. (E) 51.5.

On the stimulus front, despite the recent drama of the last few days, the payouts to people in the stimulus bill will not be increased to $2000.  However, if Democrats win the Senate, expect this issue to come up again in early 2021.

Today focus will be on Jobless Claims (E: 830K) and markets will want to see continued improvement in that weekly data to imply the economic recovery has not lost meaningful momentum.  Outside of that and some year-end positioning, today should be a generally quiet day (although markets will get busy again starting next week).

Tom Essaye Quoted in CNBC on December 27, 2020

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“All the bluster neither significantly changed to outlook for stocks, as markets still expected (and ultimately received) stimulus of a minimum…” wrote Tom Essaye, founder of The Sevens Report. Click here to read the full article.

What Are the Next Catalysts for the Market?

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What’s in Today’s Report:

  • What Are the Next Catalysts for the Market?
  • Weekly Economic Cheat Sheet:  Jobless Claims are The Key Report This Week
  • Weekly Market Preview:  With Stimulus Done, What’s the Next Positive Catalyst?

Futures are moderately higher after President Trump signed the $900 billion dollar stimulus package.

Late Sunday night Trump signed the stimulus package as-is, avoiding a government shutdown and delivering economic stimulus to U.S. citizens.  Despite threats not to sign the bill,  markets always expected Trump to ultimately sign the legislation, so while stocks are enjoying a bounce on the news, this was already mostly priced in (so don’t expect a big rally off the news).

Economically, there were no notable reports overnight and this will be a very quiet week for economic data.

Today, with stimulus behind us and this week traditionally devoid of any major economic reports or corporate news, markets will focus on 1) COVID-19 and economic lockdown trends (both still worsening) and 2) The pace of vaccine rollout (lagging behind expectations).  Improvement in both will help fuel a rally into the new year.

Dollar Outlook (This Matters to Stocks)

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What’s in Today’s Report:

  • Dollar Outlook (This Matters to Stocks)

Futures are little changed following a quiet night as markets digest the week’s rally.

Economic data beat estimates overnight, as UK Retail Sales fell less than expected (-3.8% vs. (E) -4.2%) while German Ifo Business Expectations also beat estimates (92.8 vs. 91.8).

Stimulus talks continued, and while a deal isn’t likely today (a mild disappointment), one is still expected in the next few days.

Today we get one notable economic report, Leading Indicators (E: 0.4%) and two Fed speakers, Evans (11:00 a.m. ET), Brainard (11:10 a.m. ET).  But, none of that should move markets.

Instead, markets will be on “stimulus watch” and right now the expectation is for a $900 billion-ish stimulus deal to be approved in the next few days (definitely before Christmas).  Anything that confirms that expectation will help stocks rally today, and anything that implies it might not happen will cause a stock decline. Finally, today is Quadruple Witching options expiration so expect some big volumes and potential volatility into the close.