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Why Stocks Dropped Again

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What’s in Today’s Report:

  • Why Stocks Dropped (Again)
  • A Question About Silver

Futures are sharply lower following a very negative earnings pre-announcement from FedEx (FDX).

FedEx (FDX) earnings were terrible as the company reported EPS of $4.37 vs. (E) $5.10 and guidance was even worse with estimates of $2.75 vs. (E) $5.46.  The company sited significant macro-economic deterioration and the CEO warned about a “worldwide recession.”

Economically results were mixed as Chinese data beat estimates while UK Retail Sales were soft (–5.4% vs. –3.9%).

Today focus will be on Consumer Sentiment (E: 59.9) and more specifically the five-year inflation expectations.  In August they were 2.9% and if they rise back above 3.0% that’ll only compound the damage from Tuesday’s CPI and push stocks lower, while a decline below 2.9% will help offset CPI and help support stocks (although I think it’d take a sharp from below 2.9% for stocks to fully erase these early losses).

Was the CPI Report a Bearish Gamechanger?

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What’s in Today’s Report:

  • Was the Hot CPI Report a Bearish Gamechanger?
  • CPI Takeaways
  • Chart: Real Rates Surge – 5-Yr TIPS Yield Tops 1%

Equity futures are bouncing modestly relative to yesterday’s steep declines as Treasury yields are steady and the dollar is easing back with investors continuing to digest the hotter than expected August CPI report.

Economically, U.K. inflation data came in cooler than feared (PPI unexpectedly declined and CPI undershot estimates) but Eurozone Industrial Production for July badly disappointed at -2.3% vs. (E) -0.8%.

Looking into today’s session, there are no Fed officials scheduled to speak and no potentially market-moving Treasury auctions which will leave the focus on the PPI report due out ahead of the bell(-0.1%, Core: +0.3%).

If the wholesale inflation data comes in “cooler” than expected, leaving yields and the dollar to give back some of yesterday’s gains, stocks should be able to attempt to stabilize, however, another “hot” print would likely mean further losses in the midst of renewed dollar strength and likely rising rates.

What the Latest Fed Speak Means for Markets (Updated)

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What’s in Today’s Report:

  • What the Latest Fed Speak Means for Markets (Updated for Powell, the ECB, and RBA).

Futures are sharply higher on encouraging Chinese inflation data and a drop in the U.S. Dollar.

Chinese PPI (2.3% vs. (E) 2.8% y/y) and CPI (2.3% vs. (E) 3.2% y/y) both declined from last month and came in under expectations, providing more evidence that the global economy has hit “peak inflation.”

The encouraging Chinese inflation data combined with yesterday’s hawkish ECB is pushing the dollar 1% lower.

Today there are no notable economic reports but there are several Fed speakers, including Evans (10:00 a.m. ET), Waller (12:00 p.m. ET) and George (12:00 p.m. ET).  If they sound optimistic on inflation, that will help extend this morning’s rally.

Sevens Report Quoted in MorningStar on September 2nd, 2022

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EMEA Morning Briefing: Stocks Seen Higher But Caution Likely Ahead of U.S. Jobs Report

The jobs report once again carries risks for stocks because if it runs ‘too hot,’ that will increase the prospects of more hikes and, more importantly, delay when markets expect rates will be cut, Sevens Report said. Click here to read the full article.

Three Keys to a Bottom (Updated)

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What’s in Today’s Report:

  • Three Keys to a Bottom Updated (Some Progress But Not There Yet)
  • Economic Takeaways – Goldilocks Trends Emerging
  • Weekly Economic Cheat Sheet

There is a tentative risk-on tone to trading this morning as U.S. equity futures track global shares higher thanks to new stimulus measures in China and easing natural gas prices in Europe.

The PBOC announced new measures to help stabilize the yuan and bolster the economy in the face of renewed Covid lockdowns and recent signs of slowing growth which was welcomed by markets overnight.

In Europe, German Manufacturers Orders fell -1.1% vs. (E) -0.4% but that is helping dial back some of the recently more hawkish policy expectations ahead of this week’s ECB meeting.

Looking into today’s session, there is one economic report to watch: ISM Services Index (E: 55.4), and no Fed officials are scheduled to speak.

That should leave the focus on currency and bond markets in the U.S. if both the dollar and short-duration yields can stabilize, and not move materially higher, then stocks should be able to make an attempt to stabilize after Friday’s late session reversal lower.

Additionally, if we see natural gas prices in Europe continue to pull back from Friday and yesterday’s rise, that should help the risk-on mood in markets persist as the Nord Stream 1 halt was the main catalyst for stocks rolling over on Friday.

What a “Soft Landing” Looks Like

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What’s in Today’s Report:

  • What A “Soft Landing” Looks Like (At Least From One Economic Report)

Futures are slightly lower following a mostly quiet night as investors await today’s jobs report.

Economic data was disappointing as German exports unexpectedly declined (-2.1% vs. (E) 4.1%) while Euro Zone PPI was hotter than expected (37.9% y/y vs. (E) 36.4% y/y).

In China, authorities announced that companies in Chengdu could implement “closed loop” systems and stay in operation, which should reduce supply chain disruptions.

Today the key event is the August Employment Situation report and expectations are as follows: Job Adds: 293K, UE Rate: 3.5%, Wages: 0.4% m/m, 5.3% y/y.  If markets can get a “Just Right” number (small job adds, a rise in the unemployment rate and a drop in wages) then stocks can extend yesterday’s rally as that will be the second straight “Goldilocks” report in two days (the other being yesterday’s ISM Manufacturing PMI) and it’ll increase hopes for an economic soft landing.

Tom Essaye Quoted in Barron’s on August 30th, 2022

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Job Openings Rise More Than Expected in July to 11.2 Million

There are multimillion more job openings than there are people who are actually looking for a job…said Tom Essaye, founder of Sevens Report Research. Click here to read the full article.

What Should Clients Do in This Environment?

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What’s in Today’s Report:

  • What Should Clients Do in This Environment?
  • S&P 500 Approaching Key Support: Chart
  • JOLTS Data Takeaways – Labor Market Remains Tight

Stock futures pulled back from overnight gains and are now trading flat as most international markets are lower following mixed economic data.

Japanese Retail Sales and Industrial Production figures both handily topped estimates but the August HICP Flash in Europe (their CPI equivalent) showed core inflation jumped 4.3% vs. (E) 4.0%, reiterating inflation risks.

Today, the early focus will be on the ADP Employment Report (E: 200K) which will be the first one since they updated the methodology of the report so be prepared for a potentially surprising print.

From a market standpoint, traders will want to see a moderation in the labor market (especially after yesterday’s JOLTS report) to show the Fed’s tightening actions are beginning to cool the labor market which is one of the key steps towards reaching “peak hawkishness.”

There are also a few Fed speakers to watch today: Mester (8:00 a.m. ET), Logan (6:00 p.m. ET), and Bostic (6:30 p.m. ET) and the market would welcome any degree of less hawkish commentary as the more hawkish tone of the last week has been largely responsible for the equity market losses into the end of the month.

Tom Essaye Interviewed by BNN Bloomberg on August 30th, 2022

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Invest in defensive sectors so you don’t get shaken out by oncoming volatility: Tom Essaye

Tom Essaye, founder and president of Sevens Report Research, joins BNN Bloomberg to talk on the markets. Click here to watch the full interview.

Sevens Report Co-Editor Tyler Richey Quoted in Market Watch on August 26th, 2022

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Grass-roots group urges U.K. public to stop paying energy bills. Its campaign has drawn over 100,000 supporters.

If one million households in the U.K. didn’t pay their utility bills, I have to assume the respective utility companies would eventually cut power to those homes and that would actually ease some of the demand pressures on the grid which is expected to be strained this winter given the very low flows from Russia to Europe…Tyler Richey, co-editor at financial research firm, Sevens Report Research, told MarketWatch. Click here to read the full article.