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What the Stronger Dollar Means for Markets

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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).

Why Home Depot Earnings Point to a Soft Landing

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What’s in Today’s Report:

  • Why Home Depot Earnings Point to a Soft Landing
  • Retail Sales Data Takeaways
  • Debt Ceiling Barometer: 1-Month T-Bill Yield Steadies

Stock futures are rebounding modestly from yesterday’s declines this morning as traders await more clarity on the debt ceiling negotiations (1-Month yield is down 2 bp to 5.56%) and digest in-line European inflation data.

Economically, Eurozone HICP (their CPI equivalent) met estimates at 7.0% y/y with the Narrow Core reading falling 0.1% to 5.6%, also as expected but still well above target.

There is just one economic report this morning: Housing Starts & Permits (E: 1.405M, 1.430M) and no Fed officials are scheduled to speak.

Retailer earnings continue this morning with TGT ($1.74) reporting ahead of the bell and investors will be looking for more signs of “soft landing” spending trends as we saw with HD yesterday.

As far as other potential catalysts go, there is a 20-Yr. Treasury Bond auction at 1:00 p.m. ET today and any big move in yields could impact stocks (too weak would indicate inflation worries, too strong would underscore growing debt ceiling fears).

Why Are Regional Banks Still Causing Market Declines? (It’s Not Contagion)

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What’s in Today’s Report:

  • Why Are Regional Banks Still Causing Market Declines (It’s Not Contagion)
  • What the 1.5 Year High in Jobless Claims Means for the Economy

Futures are modestly higher following some potentially small progress on debt ceiling negotiations.

The debt ceiling meeting today was postponed to early next week as staffers needed more time to work on potential areas of compromise, and that’s being taken as a mild sign of progress.

Economically, UK manufacturing was stronger than expected (0.7% vs. (E) -0.1%) but that’s not moving markets.

Today focus will be on the University of Michigan Inflation Expectations Survey, and specifically the five-year inflation expectations.  The farther they fall from 3.0%, the better for markets as it reinforces inflation is not yet a longer-term problem.  There are also three Fed speakers today: Daly (2:20 p.m. ET), Bullard & Jefferson (7:45 p.m. ET), but even if they’re hawkish they shouldn’t move markets.

What Happens If There’s No Debt Ceiling Deal?

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What’s in Today’s Report:

  • What Happens If There’s No Debt Ceiling Deal?
  • Why CPI Was Positive for Stocks and Bonds Yesterday
  • EIA Analysis and Oil Market Update

Futures are modestly higher mostly on momentum from Wednesday’s rally and following a quiet night of news.

China’s CPI rose 0.1% vs. (E) 0.3% and that’s combining with recently underwhelming Chinese economic data to raise doubts about the economic recovery.

There was no notable news on the debt ceiling, although another round of high level meetings will occur tomorrow.

Today focus will first be on the Bank of England Rate Decision (E: 25 bps hike) and then on economic data, specifically Jobless Claims (E: 245K) and PPI (E: 0.3% m/m, 2.5% y/y).  Stocks have benefitted from mostly “goldilocks” data over the past week, and if we get more of the same via in-line claims and PPI, stocks should be able to extend the rally.  Finally, there’s one Fed speaker, Waller (10:15 a.m. ET), but he shouldn’t move markets.

Tom Essaye Quoted in Swissinfo.ch on May 9th, 2023

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US Stocks Slump Before Inflation Report; Dollar Up: Markets Wrap

Equities could finally break out of that range and move higher if, data points more convincingly towards a soft landing, there are no more regional bank failures, core inflation drops faster than expected, the Fed confirms the pause and a debt ceiling deal is reached, said Tom Essaye, founder of The Sevens Report newsletter. Click here to read the full article.

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Market Multiple Chart: S&P 500

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What’s in Today’s Report:

  • Market Multiple Table Chart: S&P 500 (Separate PDF Available on Request)
  • CPI Preview – Will the Data Contradict Fed “Pause” Expectations

Futures are down modestly this morning, tracking global shares lower after soft earnings while focus turns to today’s CPI data.

ABNB shares are down 14% in premarket trade after the company offered disappointing revenue guidance after the close yesterday and that is weighing modestly on equities this morning.

Economically, German CPI was unchanged at 7.2% y/y in April, meeting analysts’ estimates, but importantly, the headline remains very elevated and much beyond policy makers’ 2.0% target which will support further tightening in the months ahead.

Looking into today’s session, U.S. inflation data will be in focus with CPI (E: 0.4% m/m, 5.0% y/y) due at 8:30 a.m. ET, but the more important figure to watch is Core CPI (E: 0.4% m/m, 5.5% y/y) as a print above 5.5% will raise concerns that price pressures are sticky and not declining which will warrant a continued, aggressive stance by the Fed.

There are no Fed officials scheduled to speak today but there is a 10-Yr Treasury Note auction at 1:00 p.m. ET that could move markets, especially in the wake of the CPI data as investors look for insight as to how the “smart market” is digesting the latest look at inflation.

Finally, earnings season is winding down but there are a few notably companies reporting today: TM ($2.83) before the open, and DIS ($0.89) after the close.

Market Multiple Table: May Update

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What’s in Today’s Report:

  • Market Multiple Table – May Update (Unbranded PDF Available on Request)
  • Senior Loan Officer Opinion Survey

Stock futures are lower this morning after soft economic data overseas and growing angst about the debt ceiling.

Chinese merchandise trade data for April revealed a -7.9% drop in imports vs. (E) -0.2% which has poured some cold water on hopes for a strong recovery in the world’s second largest economy.

In the U.S., the NFIB Small Business Optimism Index came in at 89.0 vs. (E) 89.7 for the month of April but the release is not materially moving markets this morning. There are no additional economic reports today.

There are two Fed officials scheduled to speak today: Jefferson (8:30 a.m. ET) and Williams (12:05 p.m. ET) as well as a 3-Yr Treasury Note auction at 1:00 p.m. ET, all of which have the potential to impact markets in intraday trade.

With increasing focus on the debt ceiling, investors will be keenly focused on today’s meeting between President Biden and Congressional leadership as hopes for a delay to September are building and any disappointment of those hopes could result in volatility across asset classes.

Jobs Report Preview

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What’s in Today’s Report:

  • Jobs Report Preview

Futures are moderately higher ahead of the jobs report thanks to solid earnings overnight.

Earnings overnight were good, highlighted by AAPL and SQ, which both rallied after hours and are helping lift futures.

Economic data underwhelmed as both the Chinese Composite PMI and German Manufacturers’ Orders missed expectations, but the numbers aren’t moving markets.

Today focus will be on the jobs report and expectations are as follows:  178K Job Adds, 3.6% Unemployment Rate and 0.3% m/m,4.2% y/y wages.  As we cover in the Report, risks to this jobs number are two sided, as a “Too Hot” number could reverse the Fed pause expectations, while a “Too Cold” number will spike hard landing fears.  So, the market needs a number at or modestly below the expectation, and if it gets that “Just Right” number, stocks can rally today.

We also get two Fed speakers today, Cook (1:00 p.m. ET) and Bullard (1:00 p.m. ET), but neither should move markets.

Tom Essaye Quoted in Barron’s on April 25th, 2023

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Stocks Plunge as UPS, First Republic Earnings Shake Investors

The lower than expected deposit levels rekindled worries about the health of the banking system and financials are dragging the broader market lower this morning, writes Tom Essaye, founder of the Sevens Report. Click here to read the full article.

What the New Low in FRC Means for Markets

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What’s in Today’s Report:

  • What the New Low in FRC Means for Markets
  • Chart Update:  Possible Head and Shoulders
  • The Most Consistent Market Indicator Right Now (It’s in Bonds)

Futures are modestly higher thanks to more solid tech earnings overnight and some small political progress.

Meta (FB) joined MSFT and GOOGL in posting strong earnings and the stock was up more than 10% overnight.

Politically, House Republicans (barely) passed their debt ceiling bill and now more substantial negotiations can begin with the White House.

Today focus will remain on data and earnings.  Economically, the key report today is Jobless Claims (E: 249K), although the financial media will focus more on Q1 GDP (E: 2.0%).  But, Q1 GDP is a stale number at this point (it covers Jan-Mar) compared to jobless claims, which will tell us if we’re seeing more deterioration in the labor market.  Any move towards, or modestly above, 250k would further hint at labor market deterioration (which would be a mild positive for markets).

Turning to earnings, this remains the busiest week for results and key reports we’re watching today include:  AMZN (E: $0.21), INTC ($0.16), CAT ($3.79), AAL ($0.04), MA ($2.71), MRK ($1.34) and MO ($1.19).