“On the charts, gold has held support at the $1,900 area, but more dollar strength or rising yields would jeopardize the year to date gains,” analysts at Sevens Report Research said in Monday’s newsletter.
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“This week will be more important than it appeared it would when we started August because of last week’s surprisingly soft flash PMIs, as there is a lot of important economic data this week,” argued Tom Essaye, president of Sevens Report Research. If it confirms that the economy is losing momentum and a hard landing is more likely than previously thought, it will pressure stocks,” he added.
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What’s in Today’s Report:
U.S. stock futures are slightly higher this morning, tracking modest gains in global shares thanks to news that China is considering deeper rate cuts on deposits and mortgages while important economic data due later in the week remains in focus.
Economically, the German GfK Consumer Climate Index for September fell to -25.5 vs. (E) -24.3 underscoring widely held concerns about the future of the Eurozone economy.
Looking into today’s session, there are three economic reports due out this morning: Case-Shiller Home Price Index (E: 1.1%), Consumer Confidence (E: 116.5), JOLTS (E: 9.559M).
Markets will be looking for easing, but still healthy consumer confidence readings and a declining, but not collapsing JOLTS figure to support the thesis that the economy is slowing at a pace consistent with a soft landing. Data that is too strong or too weak will likely weigh on equities.
Additionally, there is a 3-Yr Treasury Note auction at 1:00 p.m. ET and if the outcome is weak pushing rates higher, that will create a headwind on risk assets.
Finally, there is one Fed official scheduled to speak today: Barr (3:00 p.m. ET). Considered a centrist, his comments will be closely scrutinized for any clues of a shift in policy expectations following Powell’s Jackson Hole speech Friday.
What’s in Today’s Report:
Futures are bouncing modestly following a quiet night of news and as investors look ahead to Powell’s speech later this morning.
EU economic data was soft again overnight, as German IFO Business Expectations missed estimates (82.6 vs. (E) 83.6) and added to the list of disappointing economic reports this week.
Today focus will be on Powell’s speech (10:00 a.m. ET) and if Powell’s tone implies “higher for longer” on rates, that will boost Treasury yields and pressure stocks. Conversely, if he talks about being “patient” with the 2% inflation target, that will be seen as dovish.
Away from Powell, the only notable reports are Consumer Sentiment (E: 71.2) and the One-Year Inflation Expectations (E: 3.3%) and Five-year Inflation Expectations (E: 2.9%). If inflation expectations are solidly under estimates, that’ll be a mild positive for markets.
What’s in Today’s Report:
S&P 500 futures are solidly higher thanks to strength in tech following very strong NVDA earnings.
NVDA beat earnings estimates and raised guidance on strong AI chip demand and the stock is up 8% pre-market and boosting Nasdaq and S&P 500 futures.
However, the “non-tech” parts of the market are flat to down as investors digest Wednesday’s disappointing economic data.
Today another AI driven rally in tech, following the NVDA earnings, should help support markets. But, away from tech, markets will be focused on Jobless Claims (242K) and Durable Goods (E: -4.0%), and again the key here is stability, in that the data doesn’t show a sudden deterioration in activity (so spike in claims, drop in Durable Goods) or extreme strength (which would undo yesterday’s Treasury yield decline and weigh on the markets).
The surge in US yields has been the primary reason stocks have declined over the past several weeks, with investors “pushing out” the date of expected rate cuts as they begin to accept the Fed may keep rates “higher for longer,” according to Tom Essaye, founder of “The Sevens Report” newsletter. “It’s not the height of rates that matters as much as how long they stay high,” Essaye noted. “If we see Powell hint at higher for longer on Friday, we will need to brace for more equity market volatility.”
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What’s in Today’s Report:
Stock futures are solidly higher this morning ahead of the widely anticipated release of NVDA earnings after the close today while Treasuries yields are retreating on the back of weak economic data overseas.
The Eurozone PMI Composite Flash indicated the economy fell deeper into contraction territory this month (47.0 vs. E: 48.4) led by an unexpected drop off in service sector activity which is weighing on bond yields this morning and easing some concerns about continued aggressive policy by central banks.
This morning, focus will be on economic data with the U.S. PMI Flash data due out just after the open at 9:45 a.m. ET. The Manufacturing Flash is expected to come in at 48.8 while the Services Flash is expected to hold expansion territory at 52.0).
The market is looking for stabilization in the manufacturing sector and moderation, but not contraction, in the service sector. Material weakness in either headline will rekindle worries about a hard-landing while data that is much better than expected would raise Fed rate hike expectations. So, a “Goldilocks” release will be important for both stock and bond markets to stabilize today.
New Home Sales (E: 702K) will also be released at 10:00 a.m. ET but should have a limited impact on markets.
From there, focus will turn to earnings with NVDA reporting after the close (Earnings Estimate: $2.18, Revenue Estimate: $11.09B). Investors have very high hopes for NVDA’s quarterly performance as well as their forward guidance, so any meaningful disappointment is likely to weigh heavily on the stock, the tech complex, and the markets more broadly in after hours trade.
Tom Essaye, the founder of Sevens Report Research, which counts some of the biggest institutions on Wall Street among its clients, said while inflation on a year-over-year basis has come down significantly, the cumulative price increases we’ve seen since the start of the pandemic will eventually force consumers to cut back on spending.
“People get very excited about CPI and say, ‘Hey, CPI went up only 0.1% over the past month and it’s only up 3% over the past year,'” Essaye said. “Well, think about that in practical terms. If I go to buy my kids a bag of Skittles, in 2019 it cost $0.75. Now it costs $1.50. Am I supposed to get excited because next year it costs $1.55?”
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Sevens Report analysts: “The market of 2023 is being defined almost by hyperbolic extremes. We started 2023 with investors fearing a catastrophic recession, 1970s- style inflation and 1970s-style rate hikes. That hasn’t happened. But just because that didn’t happen, it doesn’t mean that: No economic slowdown will occur, inflation will magically crash to late 20-teens levels, and the Fed will suddenly turn dovish (as markets priced in at 4,600). The truth is in the middle, and that’s where we are now.”
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