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What Is Immaculate Disinflation, and Why Did It Cause Last Week’s Rally?

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What’s in Today’s Report:

  • What Is Immaculate Disinflation, and Why Did It Cause Last Week’s Rally?
  • Weekly Market Preview:  Does Economic Data Stay Resilient?
  • Weekly Economic Cheat Sheet:  Service Sector in Focus This Week

Futures are little changed as markets digest the Thursday/Friday rally amidst a mostly quiet weekend of news.

Oil prices are solidly higher (Brent crude up 1.7%) after Saudi Arabia announced a voluntary 1M bpd production cut for the next month, although that’s not seen as a sustainable bullish catalyst.

Economically, global service PMIs were mixed as the Euro Zone Service PMI missed expectations (55.1 vs. (E) 55.9) while the UK and Chinese service PMIs were in-line.

Today focus will be on the ISM Services Index (E: 52.0.) and specifically the price index in this report.  Last week, a sharp drop in the ISM Manufacturing PMI Prices Paid Index ignited the rally, and if we see a similar drop in the services price index, it’ll help extend the rally as markets will get more confident disinflation is accelerating.

Jobs Report Preview

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What’s in Today’s Report:

  • Jobs Report Preview

Futures are modestly higher after the House of Representatives passed the debt ceiling extension.

The House passed the debt ceiling extension 314-117, effectively ending this drama (passage in the Senate is all but guaranteed).

Economically, EU Core HICP (their core CPI) rose 5.3% vs. (E) 5.5%, hinting at the re-start of disinflation.

Today focus will be on economic data and there are numerous potentially important reports, starting with the ISM Manufacturing PMI (E: 47.0), where markets will want to see stability in the data (so not dramatically above or below the expectation).  On employment, we get two important reports via the ADP Employment Report (E: 160K) and Jobless Claims (E: 235K), and moderation in both reports (so a drop in ADP and rise in claims) will be welcomed by markets.  Finally, on inflation, Unit Labor Costs (E: 6.3%) will give us the latest insight into wages (the lower this number, the better).  Finally, there is also one Fed speaker: Harker (1:00 p.m. ET).

 

Debt Ceiling Deal Update

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What’s in Today’s Report:

  • Debt Ceiling Deal Update
  • AI May Be Great, But Fundamentals Matter Too
  • Weekly Economic Cheat Sheet – Summer Rate Hike Back in Play

Stock futures are higher and Treasury yields are falling this morning amid renewed optimism for a debt ceiling deal.

President Biden and Speaker McCarthy agreed in principle to a two-year debt ceiling extension, which markets expect to be signed before the June 5th “X date.”

Eurozone Economic Sentiment dropped to 96.5 vs. (E) 99.4, underscoring worries about growth overseas but the debt ceiling deal optimism is overshadowing worries about the economy this morning.

Today, there are several economic reports to watch including the Case-Shiller Home Price Index (E: -0.1%), FHFA House Price Index (E: 0.3%), and Consumer Confidence (E: 100.0).

Additionally, there is one Fed speaker: Barkin (1:00 p.m. ET), however investors will remain primarily focused on the debt ceiling deal and as long as news flow surrounding the final negotiations remains positive, risk on money flows should continue today.

Tom Essaye Quoted in Big News Network on May 24th, 2023

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On a similar note, Sevens Report Research founder Tom Essaye said that “from a technical perspective, there are signs that a potential bottom for the dollar has been formed.” Click here to ad the full article.

Sevens Report Co-Editor, Tyler Richey, Quoted in Morningstar on May 23rd, 2023

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Natural-gas prices have dropped by nearly half this year, despite output risks and higher demand prospects

The natural-gas market is reaching a historically pivotal phase of the year, with the price swings typically occurring in the summer and winter months, said Tyler Richey, co-editor at Sevens Report Research. Natural gas is the largest source of electricity in the U.S., at roughly 40%, so when temperatures heat up in the summertime, demand for power to run air conditioning units rises in lockstep. Click here to read the full article.

Why A Soft Landing Is Still Good for Stocks

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What’s in Today’s Report:

  • Why A Soft Landing Is Still Good for Stocks
  • EIA Analysis and Oil Market Update

S&P 500 futures are solidly higher while Nasdaq futures surge 2% thanks to blow out NVDA earnings.

NVDA beat on revenue and EPS and raised guidance on strong AI chip demand, and the stock surged more than 20% after hours.

Fitch put the U.S. on “credit watch negative” as the potential “X” date for the debt ceiling is less than a week away.

Today focus will be on any debt ceiling progress (although none is expected with the looming holiday weekend) and on economic data, and the most important report is Jobless Claims (E: 248K) and markets will want to see that number flat or just slightly higher (another big jump would increase hard landing worries).

Other data today includes Revised Q1 GDP (E: 1.1%) and Pending Home Sales (E: 1.1%), but neither number should move markets.  On the Fed, we have two speakers today, Barkin (9:50 a.m. ET) and Collins (10:30 a.m. ET), but neither should move markets.

Sevens Report Co-Editor, Tyler Richey, Quoted in MarketWatch on May 23rd, 2023

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Natural-gas prices have dropped by nearly half this year, despite output risks and higher demand prospects

The natural-gas market is reaching a historically pivotal phase of the year, with the price swings typically occurring in the summer and winter months, said Tyler Richey, co-editor at Sevens Report Research. Click here to read the full article.

Tom Essaye Quoted in MarketWatch on May 22nd, 2023

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Stocks may take a hit by June if the dollar keeps rising, analyst says

The U.S. dollar, which rallied to a two-month high last week, is demonstrating a bullish signal from a technical perspective and has the potential to trend up in the coming months. The greenback’s strength will weigh on equities, starting by the beginning of June, noted Tom Essaye, founder of Sevens Report Research. Click here to read the full article.

Why Have Stocks Hit Multi-Month Highs?

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What’s in Today’s Report:

  • Why Have Stocks Hit Multi-Month Highs?
  • Weekly Market Preview:  Real Debt Ceiling Progress is Needed This Week
  • Weekly Economic Cheat Sheet:  Flash PMIs and Core PCE the Key Reports This Week

Futures are little changed despite a lack of progress on the debt ceiling and an increase in trade tensions between the U.S. and China over the weekend.

There was no progress on the debt ceiling over the weekend although Biden and McCarthy will meet again today to resume negotiations.

China banned the use of Micron (MU) chips in what is yet another escalation in U.S./China trade tensions.

Today focus will be on the debt ceiling and markets will want to hear positive and optimistic commentary from Biden and McCarthy, as the potential “X” date of June 1st is now less than 10 days away.

There are also multiple Fed speakers today, including Bullard (8:30 a.m. ET), Logan (9:00 a.m. ET), Barking & Bostic (10:50 a.m. ET) and Daly (11:05 a.m. ET), but given Powell on Friday reiterated the Fed has likely paused, their comments shouldn’t move markets.

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).