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What Yesterday’s Rebound Means for Markets

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What’s in Today’s Report:

  • Five Reasons Stocks Rallied Yesterday
  • What the Rebound Means for Markets

Futures are slightly higher as markets digest Thursday’s rebound amidst more positive news from the UK.

Support for the Truss spending/tax cut plan has totally eroded and markets are hopeful the plan will be scrapped entirely, and that’s helping global bond yields fall.

Today there are two notable economic reports, Retail Sales (E: 0.2%) and University of Michigan Consumer Sentiment (E: 58.8), but the key for markets will be the inflation expectations within Consumer Sentiment and if the five-year inflation expectations fall further below 3.0%, that’ll be a positive for markets.  We also get two Fed speakers, George (10:00 a.m. ET) and Cook (10:30 a.m. ET) but we don’t expect them to move markets.

Earnings season also unofficially starts today and key reports to watch include: JPM ($2.97), MS ($1.51), C ($1.55), WFC ($1.09), PNC ($3.66), USB ($1.17) and FRC ($2.19).  If results are better than expected, that can extend Thursday’s rebound.

Market Multiple Table Chart

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What’s in Today’s Report:

  • Market Multiple Table Chart
  • CPI Preview:  Good Bad and Ugly

Futures are slightly higher ahead of this morning’s CPI as reports suggest UK PM Truss will have to abandon more of her fiscal spending and tax cut plan.

Positively, conservative members of Parliament continued to push back against PM Truss’s fiscal plan and that’s helping the Pound rally and GILT yields to decline.

Negatively, Chinese authorities are reimposing some restrictions in Shanghai as COVID cases rise and as Chinese officials hold on to the “Zero COVID” policy.

Focus today will be on CPI and estimates are as follows: Headline: 0.2% m/m and 8.1% y/y. Core:  0.4% m/m and 6.5% y/y.  For CPI to spark a material rally, markets will want to see outright declines in CPI (so less than 8.1% and 6.3% respectively).  Conversely, year over year CPI coming in higher than September readings will reinforce the idea that inflation is not declining, and the market is a long, long way from a Fed pivot.  The other notable report today is Jobless Claims (E: 225K) but that shouldn’t move markets.

Sevens Report Co-Editor Tyler Richey Quoted in Market Watch on October 12th, 2022

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Wall Street’s ‘fear gauge’ is flashing a warning that stocks could be about to fall off a cliff

In the past, these “golden crosses” have preceded sharp downturns in stocks. One occurred in September 2008, just before stock-market volatility exploded in response to Lehman Brothers’ bankruptcy, according to Tyler Richey, co-editor of the Sevens Report and a stock-market strategist who closely follows the Vix. Click here to read the full article.

The Current Reality Facing Stocks (Not Good)

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What’s in Today’s Report:

  • The Current Reality Facing Stocks (Not Good)
  • Technical Update:  Watch the VIX
  • Weekly Economic Cheat Sheet:  CPI Thursday is the Key Number
  • Weekly Market Preview:  Can Earnings Hold Up?

Futures are slightly lower as markets digest the implications of Friday’s strong jobs report following a mostly quiet weekend.

Friday’s jobs report won’t make the Fed any more hawkish, but it’ll keep stocks facing a dual headwind of aggressive Fed and earnings pressure, and that’s weighing on futures.

There were no notable economic reports overnight.

Today is Columbus Day so there are no economic reports while the banks and bond market will be closed, likely leading to slow trading in stocks.  There is one Fed speaker, Evans (9:00 a.m. ET), but he shouldn’t move markets (at this point it’s well-known what the Fed plans to do).

Tom Essaye Quoted in Barron’s on October 3rd, 2022

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Dow Rallies to Kick Off October

“If companies are more positive on the outlook than is currently expected (as happened with the Q2 earnings) then that will offset growing worries that earnings expectations are about to fall sharply,” Sevens Report’s Tom Essaye wrote. Click here to read the full article.

Is Credit Suisse Going the Way of Lehman?

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What’s in Today’s Report:

  • Is Credit Suisse Going the Way of Lehman?
  • Chart: 10-Yr Yield Breaks Critical Uptrend
  • ISM Manufacturing Takeaways

U.S. stock futures and European equities are solidly higher this morning while bond yields continue to pull back with the dollar amid renewed hopes of a “less-hawkish pivot” by global central banks.

The RBA was seen as dovish overnight, raising their policy rate by 25 basis points vs. (E) 50 bp which is helping pressure global bond yields and support continued risk-on money flows this morning.

Economically, EU PPI rose to 5.0% vs. (E) 4.9% in August but the fact that the print was not a “hotter” surprise is also adding a tailwind to global equities this morning.

Today, there are two economic reports to watch: Factory Orders (E: 0.2%) and JOLTS (11.150M) and multiple Fed officials speaking: Williams (9:00 a.m. ET), Logan (9:00 a.m. ET), Mester (9:15 a.m. ET), Jefferson (11:45 a.m. ET), and Daly (1:00 p.m. ET).

As long as the pullback in bond yields and the dollar continue over the course of the day, stocks should be able to extend yesterday’s gains however the pace of the early quarter rebound has approached an unsustainable level and at some point, we will need to see some consolidation across asset classes.

What’s Needed for Markets to Stabilize

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What’s in Today’s Report:

  • Bottom Line:  What’s Needed for Markets to Stabilize (It’s Not That Much)
  • Weekly Market Preview:  Can Bond Yields Fall Further?
  • Weekly Economic Cheat Sheet:  Jobs Report on Friday

Futures are slightly higher following some backtracking on the UK fiscal spending plan.

UK PM Truss has abandoned part of her spending/tax cut plan amidst market and political pressure as she will no longer eliminate the 45% top tax rate (this is a mild positive as GILT yields were slightly lower on the news).

Oil prices rallied 3% as markets expect a material production cut from OPEC+ at this week’s meeting.

Today focus will be on the ISM Manufacturing PMI (E: 52.0) and while the headline reading is important as always, the Prices index will also be closely watched.  If that index can decline below 50 it will be a strong signal that dis-inflation is starting to work its way into the economy (and that’s a good thing). There’s one Fed speakers today, Williams at 3:10 p.m. ET but he shouldn’t move markets.

Why Stocks Hit New Lows

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What’s in Today’s Report:

  • Why Stocks Hit New Lows

Futures are higher on potential improvement in the UK fiscal drama and on better than feared economic data.

UK PM Truss will meet with the UK Office for Budget Responsibility today and the hope is something comes from the meeting to further stabilize markets.

Economically, the September Chinese manufacturing PMI beat estimates and rose back above 50 (50.1 vs. (E) 49.4).

The key event today will be the result of the meeting between UK PM Truss and the Office for Budget Responsibility, as that whole situation needs to stabilize if stocks are going to hold up.  Beyond the UK fiscal drama, today there is an important inflation report, the Core PCE Price Index (E: 0.5% m/m, 4.8% y/y) but unless it surprisingly drops, it shouldn’t move markets.

Finally, there are several Fed speakers today but the most important one is Brainard (9:00 a.m. ET) and if she’s slightly dovish, that could help stocks further rally.  Other speakers include Barkin (8:30 a.m., 12:30 p.m. ET), Bowman (11:00 a.m. ET) and Williams (4:15 p.m. ET).

Understanding What’s Happening in the UK and with the BOE (This Matters to U.S. Stocks and Bonds)

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What’s in Today’s Report:

  • Understanding What’s Happening in the UK and with the BOE (This Matters to U.S. Stocks and Bonds)
  • What the Nordstream Pipeline Sabotage Means for Energy Markets

Futures are down close to 1% on digestion of Monday’s bounce and as UK PM Truss defended her spending plan.

UK Prime Minister Truss doubled down on her tax cut and spending package, calling it the “right plan.”  The market still disagrees, however, and the Pound is down –0.5% and 10-year GILT yields are up 14 bps on the comments.

Economically the only notable report was EU Economic Sentiment which missed estimates (93.7 vs. (E) 96.0).

Today the key economic report will be weekly Jobless Claims (E: 218K) and as we’ve consistently said, the sooner this number moves towards 300k, the better for markets.  We also get the final Q2 GDP (E: -0.6%) and there are two Fed speakers, Mester (1:00 p.m. ET) and Daly (4:45 p.m. ET) but they shouldn’t move markets.

Like the past several days, the British Pound and 10-year GILT yields will drive global markets.  If the Pound drops and GILT yields rise further, stocks will fall and could give back most, if not all, of yesterday’s gains.

How Bad Can It Get? (And What Makes It Stop?)

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What’s in Today’s Report:

  • How Bad Could It Get and What Makes It Stop?
  • Weekly Market Preview:  Can the June lows hold?
  • Weekly Economic Cheat Sheet:  Does economic growth stay resilient?

Futures are modestly lower as global bond yields rose further while the British Pound remained extremely volatile.

The British Pound plunged to an all time low vs the dollar earlier this morning before rebounding and the extreme volatility is adding to investor worries.

Economically, the German Ifo Business Expectations Index fell to the lowest level since March 2020 (84.3 vs. (E) 87.1).

Today there are no notable economic reports but there are numerous Fed speakers, including Collins (10:00 a.m. ET), Bostic (12:00 p.m. ET), Logan (12:30 p.m. ET) and Mester (4:00 p.m. ET).  But, they shouldn’t move markets (we already know what the Fed intends to do).

Instead, the Pound and global bond yields (especially 10-year GILT yields) will determine trading today.  Markets need to see the Pound stabilize and 10-year GILT yields stop rising (they’re up nearly 60 bps in two days) to inject some macro-economic stability into the markets.  Don’t be shocked if the Bank of England announces a surprise rate hike today (or in the coming days) and if so, that should help global yields stabilize (which would be positive for sentiment and markets).