Posts

Three Keys to a Bottom Updated (Not Good)

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What’s in Today’s Report:

  • Three Keys to a Bottom Updated (Not Good)
  • Weekly Market Preview: All About the Fed
  • Weekly Economic Cheat Sheet: Survey Data in Focus

Global stocks are trading sharply lower and bond yields rose to new multi-year highs overnight amid fears that the Fed is getting more aggressive into an economic slowdown.

In the wake of Friday’s hot CPI report, rate markets are now pricing in a 75 basis point hike by the Fed in the next three months which saw the 10s-2s spread invert overnight underscoring renewed and growing recession worries.

Looking into today’s session, there are no notable economic reports, and no Fed officials are scheduled to speak.

There are two Treasury Bill auctions at 11:30 a.m. ET (3-Month Bills and 6-Month Bills). And while they are typically lesser followed, the results could shed light on market expectations of Fed policy in the coming months and if we see rates continue to surge higher, especially those with shorter duration, then concerns about a more aggressive stance by the Fed will likely keep pressure on risk assets today.

Why Stocks Dropped Yesterday

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What’s in Today’s Report:

  • Why Stocks Dropped Yesterday
  • ECB Takeaways and Why Fragmentation Matters to Markets

Futures are slightly lower as markets look ahead to today’s latest read on inflation via the CPI report while news from China was again mixed.

Negatively, Shanghai residents will undergo mandatory COVID testing this weekend (another potential setback to fully reopening).

Positively, Chinese CPI came in under expectations, rising 2.1% yoy vs. (E) 2.3% yoy, allowing for more stimulus.

Today focus is on CPI and expectations are as follows: 0.7% m/m, 8.2% y/y; Core: 0.5% m/m, 5.9% y/y.  Given yesterday’s late declines, unless we see an outright increase in CPI from April, I don’t think a firm CPI number should cause much more selling, while a slightly underwhelming CPI could prompt a solid rebound.  The other notable report today is Consumer Sentiment (E: 58.5) and we’ll look for five-year inflation expectations to stay below 3.0%.

Tom Essaye Quoted in S&P Global on June 9, 2022

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Manufacturing momentum drags as interest rates rise, supply chains snag

This is exactly what the Fed wants, The question is how quickly do we lose momentum and a slowing of growth becomes an outright contraction…said Tom Essaye, president of Sevens Report Research, of the slower momentum in manufacturing. Click here to read the full article.

The State of Inflation (CPI Preview and Inflation Expectations Update)

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What’s in Today’s Report:

  • The State of Inflation:  CPI Preview and Inflation Expectations Update
  • EIA Data and Oil Market Analysis (How High Can The Rally Go?)

Futures are modestly higher as markets bounce back from Wednesday’s declines following mixed news from China.

Positively, Chinese authorities may allow ANT Group to IPO, which is another sign China is easing pressure on tech companies. Additionally, Chinese exports handily beat estimates (16.9% vs. (E) 8.0%).

Negatively, Shanghai and Beijing reimposed some COVID restrictions, showing “Zero COVID” remains in effect.

Today focus will be on the ECB Rate Decision, and while no rate hike is expected, President Lagarde is expected to hint that a rate hike is coming in July and another rate hike is coming later this year (if it’s more hawkish than that, that will be a headwind on global stocks).  We also get Jobless Claims (E: 210K) but that shouldn’t move markets.

Market Multiple Levels: S&P 500 Chart

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What’s in Today’s Report:

  • Market Multiple Levels Chart: S&P 500

U.S. futures are tracking European shares lower this morning amid hawkish money flows ahead of tomorrow’s ECB meeting announcement.

Economically, Eurozone Q1 GDP was revised up to 0.6% vs. (E) 0.3%, bolstering bets that the ECB could raise rates by 50 bp in July which is driving bond yields higher and pressuring equities this morning.

There are no notable economic reports and no Fed officials are scheduled to speak today but there is a 10-Yr Treasury Note auction at 1:00 p.m. ET.

Bottom line, investors remain focused on high inflation and uncertain economic growth right now and if we see rates begin to meaningfully move higher again today, especially in the wake of the 10-year auction, then the S&P 500 test and potentially break down through key near term support at 4,080 today.

Tom Essaye Quoted in Barron’s on June 6, 2022

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The Dow Ends Higher — and What Else Is Happening in the Stock Market Today

We need to see more proof those Keys to the Bottom are becoming more likely for stocks to move materially higher from here…wrote Tom Essaye, founder of Sevens Report Research. Click here to read the full article.

Tom Essaye Quoted in CNBC on June 6, 2022

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Nasdaq rises slightly to start week, shaking off jump in bond yields

Since those lows near 3,800 in the S&P 500 there has been real progress: China is reopening and hopefully the economy will be close to operating at near-full capacity within a month. That will add a large tail-wind to the global economy, and perhaps most importantly, ease supply chain stress…Tom Essaye of the Sevens Report said in a note. Click here to read the full article. 

 

Tom Essaye Quoted in Courthouse News Service on June 3, 2022

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Markets dip slightly on conflicting jobs report data

Tom Essaye of the Sevens Report noted that “very strong data would incur more Fed hawkishness while really soft data would spike stagflation concerns — and ‘moderating’ was just what we got from the ADP jobs report.” Click here to read the full article.

Tom Essaye Quoted in Nasdaq on June 2, 2022

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Markets Slide Once More: Navigate with Managed Futures

Numbers this strong would likely reverse any hopes the Fed would consider a pause in rate hikes after the June/July increases because it would signal the labor market remains very tight…Tom Essaye of the Sevens Report told CNBC. Click here to read the full article.

Not As Bad As Feared, But How Much Better Are Fundamentals?

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What’s in Today’s Report:

  • Fundamentals:  Not As Bad As Feared, But How Much Better Are They?
  • Weekly Market Preview:  Can the S&P 500 Hold This Recent Bounce?
  • Weekly Economic Cheat Sheet:  Friday’s CPI is the Key Report This Week

Futures are solidly higher thanks to positive news from China.

The economic reopening in China progressed over the weekend as COVID cases continued to decline, authorities relaxed more restrictions in Beijing, and none of the fifty largest cities in China have intense restrictions in place.

Also in China, the WSJ reported authorities may soon end their probe into Didi, and that might also signal an end to the government crackdown on Chinese tech stocks (if so that’d be a major positive for Chinese tech names and a peripheral positive for tech stocks more broadly).

Today there are no notable economic reports or Fed speakers, so it should be a generally quiet day of news.  Across the pond, UK Prime Minister Johnson faces a “no confidence” vote in Parliament, but he’s expected to survive it (if he doesn’t, that could be a surprise negative for stocks today but again that is unlikely).