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What’s Changed Since February? (Other than the S&P 500, Not Much)

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What’s in Today’s Report:

  • What’s Changed Since February?  (Other than the S&P 500, Not Much)

Futures are slightly lower on potentially negative U.S./China trade headlines and after more hawkish rhetoric from ECB members.

A WSJ article released late Tuesday stated the U.S. was considering more restrictions on chip exports to China, and that’s weighing on sentiment and the chip stocks.

Multiple ECB members made hawkish comments overnight, increasing the expectation for two more rate hikes.

Today there are no notable economic reports, but Fed Chair Powell does speak at 9:30 a.m. ET.  However, if he just reiterates his previous message (progress has been made on inflation but the work isn’t done, meaning another rate hike) then his comments shouldn’t materially move markets.

Tom Essaye Quoted in Barron’s on June 23rd, 2023

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S&P 500 Opens Lower, Heads for First Losing Week in More Than a Month

If the data meaningfully disappoints, especially in the service sector, expect more risk off money flows amid growing recession worries today, wrote Tom Essaye, president of Sevens Report Research. Click here to read the full article.

Why the Fed Wants Higher Rates

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What’s in Today’s Report:

  • Why Would the Fed Keep Hiking Rates if Inflation Is Coming Down?
  • Jobless Claims Chart – Critical to See Further Move Higher

Equity futures are modestly higher this morning as traders weigh renewed optimism about Chinese growth against more hawkish policy speak from multiple ECB officials, including President Lagarde, reiterating the need for a “higher for longer” policy rate path.

Premier Li of China confirmed the government is committed to achieving their 5% GDP target overnight which helped Asian markets outperform and fueled modest risk-on money flows around the globe.

Today’s list of economic data releases is a long one with Durable Goods Orders (E: -1.0%), Case-Shiller Home Price Index (E: 0.5%), FHFA House Price Index (E: 0.4%), Consumer Confidence (E: 103.7), and New Home Sales (E: 663K).

Beyond those economic reports, there are no Fed officials scheduled to speak today but there is a 5-Yr Treasury Note Auction at 1:00 p.m. ET that could move yields and influence equity market trading.

Bottom line, in order for markets to stabilize here and stocks to resume their 2023 rally, we will need to see signs of slowing, but not collapsing growth in today’s economic data and no surprises in the Treasury auction. Looking ahead, trading may slow down some today as investors position into tomorrow’s Central Bank Forum hosted by the ECB in which Fed Chair Powell will participate.

Sevens Report Analysts Quoted in Seeking Alpha on June 23rd, 2023

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Recession fears, central bank rate hikes sent crude oil reeling this week

WTI futures have dropped below $70/bbl four times this year with increasing frequency, but each time technical support has held at $67-$69, Sevens Report Research said, also noting each subsequent price bounce has run out of steam at a lower price point. Click here to read the full article.

Tom Essaye Quoted in Barron’s on June 22nd, 2023

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Weekly Jobless Claims Flat at 264,000

A further rise in claims could bring into question whether or not the labor market is suddenly beginning to deteriorate meaningfully, wrote Tom Essaye, president of Sevens Report Research, prior to the economic data release. Click here to read the full article.

What Russian Political Turmoil Means for Markets

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What’s in Today’s Report:

  • What Russian Political Turmoil Means for Markets
  • More Signs the Market is Starting to Believe the Fed
  • Weekly Economic Cheat Sheet:  Core PCE Price Index and Jobless Claims are the Key Reports this Week
  • Weekly Market Preview:  Will Hard Landing Fears Keep Rising?

Futures are slightly lower as markets digest the political volatility in Russia and underwhelming economic data.

A short-lived rebellion by the Wagner private army against the Russian government dominated headlines this weekend, but from a market standpoint this only matters via its impact on oil prices, and they are little changed.

Economically, German IFO Business Expectations fell to 83.6 vs. (E) 88.0, which is the second weak German economic number in the past two trading days.

Today focus will remain on the Russian political situation, so watch oil to cut through the headline noise.  If oil rises sharply, the situation is deteriorating and that would weigh on markets.

Hawkish Central Bank Surprises Bolster Recession Fears

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What’s in Today’s Report:

  • Hawkish Central Bank Surprises Bolster Recession Fears
  • Jobless Claims Remain Elevated – Indicate Deteriorating Labor Market
  • EIA Data Takeaways – Consumer Demand Remains Healthy But Recession Fears Grip Futures Market

Stock futures are tracking global equity markets lower this morning while longer duration bonds are rallying after soft PMI data in Europe bolstered recession fears overnight.

Economically, the Eurozone Composite PMI Flash fell to 50.3 vs. (E) 52.5 indicating the EU economy is on the brink contracting.

The Manufacturing PMI was better than feared but the Services PMI dropped to 52.4 vs. (E) 54.7 pointing to a sudden slowdown in the service sector which accounts for the bulk of developed economic growth around the globe.

Looking into today’s session, focus will be on the U.S. PMI Flash data due out shortly after the bell with the Manufacturing PMI Flash expected to come in at 48.5 while the Services PMI Flash is expected at 53.5. If the data meaningfully disappoints, especially in the service sector, expect more risk off money flows amid growing recession worries today.

Finally, there are two Fed officials speaking today: Bostic (7:30 a.m. ET) and Mester (1:40 p.m. ET) but it is unlikely that either materially deviates from the Fed’s narrative from the last week which is continued commitment to reigning in inflation with further policy tightening in H2’23.

Earnings Disappointments Rekindle Economic Worries

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What’s in Today’s Report:

  • Earnings Disappointments From FDX and WGO Rekindle Economic Worries
  • What the Strong Housing Starts Mean for Markets
  • Bear Flattening Trend in Treasuries Underscores Hawkish Fed Expectations

Stock futures are falling with global markets and yields are rising this morning after more hawkish central bank decisions overnight as focus turns to the BOE.

In Europe, monetary policy decisions were net hawkish as Norway’s central bank raised rates 50 bp vs. (E) 25 bp to 3.75% while the Swiss National Bank met estimates with a 25 bp hike to 1.75%. The rate hikes are pressuring global bond markets (yields higher) and weighing on sentiment, dragging equity markets lower.

Looking into today’s session, early focus will be on the Bank of England as a 25 bp hike to 4.75% in the benchmark policy rate is expected but there is risk of a 50 bp hike to 5.00% which would be another hawkish surprise for markets and likely result in rising yields and more pressure on overbought equity markets.

In the U.S. there are two economic reports to watch: Jobless Claims (E: 261K) and Existing Home Sales (E: 4.250M). A further rise in claims could bring into question whether or not the labor market is suddenly beginning to deteriorate meaningfully while strong housing data would warrant a hawkish reaction after the much better than expected Housing Starts print earlier this week.

From there, focus will turn to the Fed as Chair Powell continues his semi-annual Congressional testimony at 10:00 a.m. ET while Mester will speak around the same time (10:00 a.m. ET).

Finally, there is a 5-Yr TIPS auction at 1:00 p.m. ET that could offer insight to inflation expectations and move yields, but most of the market-moving news will likely hit before the lunch hour today.

Hard vs. Soft Landing Scoreboard Update

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What’s in Today’s Report:

  • Hard vs. Soft Landing Scoreboard Update (Cracks Emerging)

Futures are flat as investors digest a disappointing earnings forecast by FDX (down 3% premarket) and a hotter than expected inflation print overseas as focus turns to Powell’s testimony on Capitol Hill today.

U.K. CPI held steady at 8.7% vs. (E) 8.4% y/y in May which saw the odds of a 50 bp BOE hike tomorrow jump to 50% which is weighing modestly on bonds this morning.

There are no notable economic reports in the U.S. today which will leave investors focused on Powell’s semiannual testimony before Congress which begins at 10:00 a.m. ET. Investors will be looking for any clarity on the Fed’s future policy plans as the markets currently do not believe the FOMC’s dot plot showing two more rate hikes before year end.

Outside of the D.C., there are several other Fed speakers to watch including: Cook (10:00 a.m. ET), Jefferson (10:00 a.m. ET), Goolsbee (12:25 p.m. ET), and Mester (E: 4:00 p.m. ET). Again markets will be looking for any clarity on rate hiking plans following the June “skip.”

Finally, there is a 20-Yr Treasury Bond auction at 1:00 p.m. ET that could impact yields and if we see yields move meaningfully higher, that will weigh on the high valuation sectors that have led the market higher this year.

Updated Market Outlook

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What’s in Today’s Report:

  • Updated Market Outlook – Markets Price in “Economic Nirvana”
  • Based on Valuations, Cyclical Sectors Poised to Outperform
  • Weekly Economic Cheat Sheet: Will the Flash PMIs Support Soft-Landing Optimism?

Futures are lower to start the holiday-shortened trading week today with Asian markets underperforming as the latest Chinese stimulus efforts were seen as underwhelming while inflation trends in Europe remain favorable.

The PBOC lowered both the 1-Yr and 5-Yr prime loan rates by 10 bp overnight to 3.55% and 4.2%, respectively, but the cuts disappointed versus hopeful investor expectations given weak economic data lately, and markets traded with a risk-off tone in the wake of the announcements.

In Europe, German PPI fell to 1.0% vs. (E) 1.8% in May offering the latest evidence that the global disinflation trends remain intact.

Looking into today’s session, there is just one economic report to watch: Housing Starts (E: 1.40M) which shouldn’t move markets, and only one Fed speaker: Williams (11:45 a.m. ET).

With stocks overextended by multiple measures right now, there will likely be some degree of digestion of the latest leg higher in equity markets now that the June Fed decision and Friday’s massive options expiration are behind us. With that in mind, focus will begin to shift to Powell’s semi-annual Monetary Policy Report to Congress which begins tomorrow as investors look for further insight to the Fed’s future policy plans.