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Why Are Chinese Stocks So Weak? (And Is There an Opportunity?)

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Why Are Chinese Stocks So Weak? Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • Why Are Chinese Stocks So Weak? (And Is There an Opportunity?)
  • Chart: Leading Economic Indicators Remain Deeply Negative

U.S. futures are flat amid mixed trade overseas as European shares pulled back modestly after a weak ECB Lending Survey while Asian shares bounced solidly amid news China is planning a $278B “market rescue package” aimed at stabilizing the nation’s volatile capital market environment.

Looking into today’s session, there is one regional Fed survey release: Richmond Fed Manufacturing Index (E: -15). And while the Richmond release is less popular than other regional Fed reports, it will be more closely monitored today after both the Empire and Philly Fed surveys badly disappointed last week.

December M2 Money Supply will also be released at 1:00 p.m. ET which could move markets in early afternoon trade (especially if there is a sharp and unexpected contraction in money supply).

There are no Fed officials scheduled to speak today but there is a 2-Yr Treasury Note auction at 1:00 p.m. ET that could offer fresh insight into market expectation for Fed policy outlook. A weak auction sending yields higher, would be a negative catalyst for stocks today.

Finally earnings season is continuing to pick up with: VZ ($1.07), MMM ($2.31), GE ($0.90), PG ($1.70), JNJ ($2.27), and SYF ($0.96) reporting before the open, and NFLX ($2.20) and TXN ($1.46) releasing results after the close.

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Does March vs. May Really Matter?

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Does March vs. May Really Matter? Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • Does March vs. May Really Matter?
  • Weekly Economic Cheat Sheet – Retail Sales Data in Focus

U.S. futures are tracking European shares lower this morning. This is amid rising bond yields and a stronger dollar following some hawkish central banker commentary this weekend.

Economically, the German ZEW’s Economic Sentiment rose to 15.2 vs. (E) 11.7 in January. Both eased recession concerns but also weighed on the prospects for imminent Fed and ECB rate cuts in the coming months.

This weekend, several ECB officials pushed back on expectations for rate cuts in H1’24. This is resulting in more of the late 2023 dovish money flows being unwound.

Looking into today’s session, there is one economic report to watch: Empire State Manufacturing Index (E: -4.0) and one Fed official scheduled to speak: Waller (11:00 a.m. ET).

Earnings season also continues to pick up with several big banks due to report today: GS ($3.47), MS ($1.07), PNC ($2.99), IBKR ($1.54).

Bottom line, investors will be looking for more Goldilocks economic data in the NY Fed release and a less-hawkish tone from Waller and no bad news out of the banks reporting earnings today in order to stabilize. Otherwise the premarket weakness is likely to continue into the primary session this morning.

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Market Multiple Table Chart

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Market Multiple Table Chart: Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • Market Multiple Table Chart
  • EIA and Oil Market Analysis

Futures are slightly higher ahead of this morning’s CPI report after another dovish pivot by a global central bank and despite an potential uptick in geo-political tensions.

South Korea’s central bank made a dovish pivot and added to the idea global central banks are turning dovish.

Geopolitically, expectations are rising for a joint U.S./U.K strike on Houthi’s attacking ships in the Red Sea.

Today focus will be on CPI and expectations are as follows: Headline CPI (0.2% m/m, 3.2% y/y) and Core CPI (E: 0.2% m/m, 3.8% y/y).  The key here is that we see continued declines in at least one of the two metrics as that will likely be enough to keep investors believing in disinflation and March rate cuts.  If both metrics rise from last month, looking for an increase in volatility.

The other notable events today include Jobless Claims (E: 209K) and one Fed speaker, Barkin (12:40 p.m. ET) although they shouldn’t move markets barring a major surprise.

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What Is The VIX Suggesting?

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What Is The VIX Suggesting?: Tom Essaye Quoted in Morningstar

What this key stock-market gauge is telling investors amid a rough start to 2024

Meanwhile, a break above the December high for the VIX “would suggest more volatility looming ahead. Conversely, a reversal back towards the current 2024 low of 13.10 would suggest volatility is easing and stocks would be in an improving position to stabilize in the weeks ahead and potentially resume the late-2023 rally,” said Tom Essaye, founder of Sevens Report Research, in a Friday note.

Also, click here to view the full MarketWatch article published on Morningstar on January 6th, 2024. However, to see the Sevens Report’s full comments on the current market environment sign up here.

Oil Inventories

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CPI Preview: Good, Bad, and Ugly

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CPI Preview: Good, Bad, and Ugly: Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • CPI Preview: Good, Bad, & Ugly
  • Chart: S&P 500 in Typical Holding Pattern – Two Levels to Watch
  • NFIB Small Business Optimism Index – Inflation Concerns and Declining Earnings

There is a cautious bid in equity futures today as the 10-Yr yield hovers just under 4%. This is following an importantly steady inflation print in Europe and dovish leaning ECB chatter.

Economically, Norwegian CPI rose 4.8% in December, unchanged from November. Which is just below estimates of 4.9% which is a favorable development following last week’s concerning uptick in German CPI.

ECB Vice President Luis de Guindos was mildly dovish in a speech overnight, citing the possibility that the economy fell into a technical recession in late 2023 which could support the case for a more accommodating policy stance and that is helping keep yields in check this morning.

Looking into today’s session, there are no notable economic reports but one Fed speaker on the schedule who could move markets: Williams (3:15 p.m. ET).

In the early afternoon, three is a 10-Yr Treasury Note auction (1:00 p.m. ET) and investors will want to see more evidence of strong demand as was seen in yesterday’s 3-Yr auction as weak demand could send the benchmark yield up through 4% creating a renewed headwind for equity markets.

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2024 Technical Outlook: Key Levels to Watch in Q1

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What’s in Today’s Report:

  • 2024 Technical Outlook:  Key Levels to Watch in 2024
  • Jobs Day

Futures are modestly lower following more evidence of a bounce back in inflation in the EU and ahead of today’s jobs report.

The EU December HICP (their CPI) rose less than expected (2.9% vs. 3.0% y/y) but still increased from the 2.4% Nov. reading and that’s further reducing ECB rate cut expectations and weighing on global markets.

Today focus will be on economic data and there are two potentially market moving reports:  The jobs report and the ISM Services PMI.

Regarding the jobs report, expectations are as follows:  Job Adds: 158K, UE Rate: 3.8%,  Avg Hourly Earnings: 0.3% m/m, 3.9% y/y.  The key here is moderation in the data and a job adds number above 200k or Avg. Hourly Earnings much above 4.0% will further push back on rate cut expectations and likely weigh on stocks.

Looking at the ISM Services PMI (E: 52.7), the key here is that the number stays solidly above 50 (which it should).  A drop below 50 will increase slowdown worries (and weigh on stocks).  Finally, there is one Fed speaker today, Barkin at 1:30 p.m. ET, but he shouldn’t move markets.

Sevens Report Quarterly Letter 

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The Fed Pivot Has Already Occurred

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The Fed Pivot Has Already Occurred: Tom Essaye Quoted in MarketWatch

Here’s when falling bond yields might become a problem for stock-market bulls in 2024

Heading into 2024, the path of least resistance for Treasurys is for higher prices and lower yields (prices and yields move opposite each other), “although the decline in yields won’t be the boost for stocks in 2024 as it was in 2023, because if it keeps going and we see the 10-year yield break through support at 3.75% and keep dropping towards 3.00%, investors will interpret that as an economic warning sign now that the Fed pivot has already occurred,” said Tom Essaye, founder of Sevens Report Research, in a Friday note.

Also, click here to view the full MarketWatch article published on December 29th, 2023. However, to see the Sevens Report’s full comments on the current market environment sign up here.

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The Timing Of Rate Cuts Is A Big One

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Markets Have Priced In The Dovish Pivot: Tom Essaye Quoted in Yahoo Finance

3 important things pros say you should watch out for in the stock market for 2024

Tom Essaye, founder of Sevens Report Research: “I agree the timing of rate cuts is a big one that people are focused on, but there are two others I think are equally as important.

First is earnings. Reports recently haven’t been good, and if disinflation turns into a headwind for corporate profits, that could be a surprise in early 2024 because markets have priced in solid earnings growth in 2024.

Second, what if the slowdown is worse than feared? For anyone who has been through previous Fed rate cut cycles, they usually don’t end well for stocks. Yes, it’s possible that this time is different and I agree there are unique circumstances coming from the pandemic, but the complacency towards a gradual slowdown is something that we need to watch early in the New Year.”

Also, click here to view the full Yahoo Finance article published on December 29th, 2023. However, to see the Sevens Report’s full comments on the current market environment sign up here.

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Jobs Report Preview

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What’s in Today’s Report:

  • Jobs Report Preview

Futures are rebounding very slightly following better than expected global service PMIs.

The December Chinese Service PMI handily beat estimates (52.9 vs. (E) 51.6) offering an encouraging signal on Chinese growth while the EU and UK services PMIs also slightly best estimates.

On inflation, data was more mixed as French CPI met estimates at 3.7% but rose slightly from last month challenging the disinflation narrative.

Today focus will be on economic data and specifically the labor market via Jobless Claims (E: 218K) and the ADP Employment Report (E: 115K) and the key here remains Goldilocks data that isn’t so strong it reduces rate cut expectations nor so bad it stirs worries about the economy.  Also, we get the December PMI Composite Index (E: 51.0) but barring a major surprise that shouldn’t move markets.

Jobs Report

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The Market Is “Sitting On Big Gains”

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The Market Is “Sitting On Big Gains”: Tom Essaye Quoted on BNN Bloomberg

Markets today: AI mania driving Nasdaq 100’s best run since 1999

The market is “sitting on big gains” and most participants just want the year to end to register those gains, according to Tom Essaye, a former Merrill Lynch trader who founded The Sevens Report newsletter.

“But I’ve been in this industry long enough to know that when everyone seems to be leaning on one side of the proverbial canoe, it pays to move to the middle.”

Warnings about a market that’s flashing overbought signals have been raising concern about a pullback, with some market observers saying that traders have gone too far, too fast in pricing in a dovish Fed pivot.

Also, click here to view the full BNN Bloomberg article published on December 27th, 2023. However, to see the Sevens Report’s full comments on the current market environment sign up here.

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Join hundreds of advisors from huge brokerage firms like Morgan Stanley, Merrill Lynch, Wells Fargo Advisors, Raymond James, and more! To start your quarterly subscription and see how The Sevens Report can help you grow your business, click here.