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Why Is Consumer Spending Holding Up So Well?

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What’s in Today’s Report:

  • Why Is Consumer Spending Holding Up So Well?
  • Unemployment Rate Chart Indicates Full Employment
  • May Flash PMI Takeaways
  • Chart: S&P 500 Trend Remains Higher But Signs of Weakness Are Emerging

Equity futures are lower with global markets this morning as there has been no further progress in debt ceiling negotiations while data overnight pointed to stagflation.

Economically, U.K. CPI was 8.7% vs. (E) 8.3% y/y while the German Ifo Survey was weak across the board with Business Expectations notably falling to 88.6 vs. (E) 91.7. And sticky high inflation and fading growth prospects are a very negative scenario for global risk assets.

There are no market moving economic reports on the calendar for today which will leave traders primarily focused on the ongoing debt ceiling negotiations.

There is one Fed speaker: Waller at 12:10 p.m. ET and the May FOMC meeting minutes will be released at 2:00 p.m. ET which could shed some light on the Fed’s expected “pause.” Any indication that hikes may continue this summer would trigger volatility as current market odds of a June hike are less than 1 in 3.

Finally, there is a 5-Yr Treasury Note auction at 1:00 p.m. ET that could move yields and have an influence on equity market trading in the afternoon.

What the Stronger Dollar Means for Markets

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What’s in Today’s Report:

  • What the Stronger Dollar Means for Markets

Futures are little changed following a quiet night of news as markets digest Thursday’s extension of the rally and as markets await comments from Fed Chair Powell later this morning.

Economically, the only notable numbers were Japanese CPI (met expectations at 3.5%) and German PPI (slightly hot at 4.1% vs. (E) 4.0%) but neither number changed the outlook for global inflation and, as such, aren’t moving markets.

Today there are no notable economic reports, but there are several important Fed speakers including Chair Powell (11:00 a.m. ET).  So far this week, markets have looked past hawkish commentary from regional Fed Presidents but if Powell hints that the Fed may hike rates in June, we could see some of this week’s rally given back.  Other Fed speakers today include Williams (8:45 a.m. ET) and Bowman (9:00 a.m. ET).

Why Negative News (Still) Isn’t Making Stocks Drop

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What’s in Today’s Report:

  • Why Negative News (Still) Isn’t Making Stocks Drop
  • Weekly Market Preview:  More Insights into Hard vs. Soft Landing This Week
  • Weekly Economic Cheat Sheet:  Retail Sales (Tues) the Key Report This Week

Futures are modestly higher following reports of progress on the debt ceiling negotiations over the weekend.

Another debt ceiling meeting is scheduled for Tuesday at the White House and major officials (including Biden and Yellen) stated progress was made in negotiations over the weekend, although a deal still isn’t likely this week.

Economically, Euro Zone IP slightly missed estimates.

Today there’s only one notable economic report, the May Empire Manufacturing Index (E: -3.70), and markets will want to see stability in the data to further hint towards a soft landing.

Looking at the Fed, there are numerous speakers today including Bostic (8:45 a.m. ET), Kashkari (9:15 a.m. ET), Barkin (12:30 p.m. ET) and Cook (5:00 p.m. ET) and while their comments may have a hawkish tone, the market firmly believes the Fed has paused on rate hikes and it’ll take Powell disavowing that notion for investors to reconsider.

Finally, debt ceiling headlines will likely continue, and don’t be shocked if there’s some pushback on the “progress” narrative from the weekend as the political gamesmanship kicks into high gear, with just over two weeks till the “X” date.

Why Are Regional Banks Still Causing Market Declines? (It’s Not Contagion)

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What’s in Today’s Report:

  • Why Are Regional Banks Still Causing Market Declines (It’s Not Contagion)
  • What the 1.5 Year High in Jobless Claims Means for the Economy

Futures are modestly higher following some potentially small progress on debt ceiling negotiations.

The debt ceiling meeting today was postponed to early next week as staffers needed more time to work on potential areas of compromise, and that’s being taken as a mild sign of progress.

Economically, UK manufacturing was stronger than expected (0.7% vs. (E) -0.1%) but that’s not moving markets.

Today focus will be on the University of Michigan Inflation Expectations Survey, and specifically the five-year inflation expectations.  The farther they fall from 3.0%, the better for markets as it reinforces inflation is not yet a longer-term problem.  There are also three Fed speakers today: Daly (2:20 p.m. ET), Bullard & Jefferson (7:45 p.m. ET), but even if they’re hawkish they shouldn’t move markets.

What Happens If There’s No Debt Ceiling Deal?

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What’s in Today’s Report:

  • What Happens If There’s No Debt Ceiling Deal?
  • Why CPI Was Positive for Stocks and Bonds Yesterday
  • EIA Analysis and Oil Market Update

Futures are modestly higher mostly on momentum from Wednesday’s rally and following a quiet night of news.

China’s CPI rose 0.1% vs. (E) 0.3% and that’s combining with recently underwhelming Chinese economic data to raise doubts about the economic recovery.

There was no notable news on the debt ceiling, although another round of high level meetings will occur tomorrow.

Today focus will first be on the Bank of England Rate Decision (E: 25 bps hike) and then on economic data, specifically Jobless Claims (E: 245K) and PPI (E: 0.3% m/m, 2.5% y/y).  Stocks have benefitted from mostly “goldilocks” data over the past week, and if we get more of the same via in-line claims and PPI, stocks should be able to extend the rally.  Finally, there’s one Fed speaker, Waller (10:15 a.m. ET), but he shouldn’t move markets.

Tom Essaye Quoted in Barron’s on May 8th, 2023

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Stocks Are Holding Steady Ahead of Busy Week

Futures are slightly higher following a mostly quiet weekend of news as markets look ahead to Wednesday’s CPI, wrote Sevens Report’s Tom Essaye. Click here to read the full article.

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Market Multiple Chart: S&P 500

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What’s in Today’s Report:

  • Market Multiple Table Chart: S&P 500 (Separate PDF Available on Request)
  • CPI Preview – Will the Data Contradict Fed “Pause” Expectations

Futures are down modestly this morning, tracking global shares lower after soft earnings while focus turns to today’s CPI data.

ABNB shares are down 14% in premarket trade after the company offered disappointing revenue guidance after the close yesterday and that is weighing modestly on equities this morning.

Economically, German CPI was unchanged at 7.2% y/y in April, meeting analysts’ estimates, but importantly, the headline remains very elevated and much beyond policy makers’ 2.0% target which will support further tightening in the months ahead.

Looking into today’s session, U.S. inflation data will be in focus with CPI (E: 0.4% m/m, 5.0% y/y) due at 8:30 a.m. ET, but the more important figure to watch is Core CPI (E: 0.4% m/m, 5.5% y/y) as a print above 5.5% will raise concerns that price pressures are sticky and not declining which will warrant a continued, aggressive stance by the Fed.

There are no Fed officials scheduled to speak today but there is a 10-Yr Treasury Note auction at 1:00 p.m. ET that could move markets, especially in the wake of the CPI data as investors look for insight as to how the “smart market” is digesting the latest look at inflation.

Finally, earnings season is winding down but there are a few notably companies reporting today: TM ($2.83) before the open, and DIS ($0.89) after the close.

Jobs Report Preview

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What’s in Today’s Report:

  • Jobs Report Preview

Futures are moderately higher ahead of the jobs report thanks to solid earnings overnight.

Earnings overnight were good, highlighted by AAPL and SQ, which both rallied after hours and are helping lift futures.

Economic data underwhelmed as both the Chinese Composite PMI and German Manufacturers’ Orders missed expectations, but the numbers aren’t moving markets.

Today focus will be on the jobs report and expectations are as follows:  178K Job Adds, 3.6% Unemployment Rate and 0.3% m/m,4.2% y/y wages.  As we cover in the Report, risks to this jobs number are two sided, as a “Too Hot” number could reverse the Fed pause expectations, while a “Too Cold” number will spike hard landing fears.  So, the market needs a number at or modestly below the expectation, and if it gets that “Just Right” number, stocks can rally today.

We also get two Fed speakers today, Cook (1:00 p.m. ET) and Bullard (1:00 p.m. ET), but neither should move markets.

What the Fed Pause Means for Markets

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What’s in Today’s Report:

  • What the Fed Pause Means for Markets
  • EIA Analysis and Oil Market Update

Futures are slightly lower following more regional bank turmoil and disappointing earnings.

Pac West (PACW) announced overnight that it’s seeking “strategic alternatives” and the stock dropped more than 30% pre-market and is weighing on other regional banks.

On earnings, EL and QCOM both missed estimates and that’s also weighing on sentiment.

Today focus will initially be on the ECB Rate Decision (E: 25 bps hike) and economic data via Jobless Claims (E: 238K) and Unit Labor Costs (E: 3.9%).  Markets will want to see 1) A not too hawkish ECB (so no 50 bps hike), 2) A mild uptick in jobless claims (signaling more balance in the labor market) and 3) A drop in Unit Labor Costs (implying wage pressures are easing).  If we get the opposite of those events, expect more declines today.

After the close we get what’s likely the most important earnings report of the season, AAPL ($1.44), and a solid number there would help sentiment.

Why Did Banks Drop Yesterday?

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What’s in Today’s Report:

  • Why Did Banks Drop Yesterday?
  • Technical Update: Two S&P 500 Charts to Watch

Futures are slightly higher despite more pain in regional bank shares in the pre-market and soft tech earnings from late yesterday as focus shifts to today’s Fed decision.

AMD is down 7%+ after a disappointing sales forecast late yesterday while shares of PACW and WAL (which fell sharply yesterday and weighed on the broader banking complex) are both down 7% to 12% in pre-market trade this morning.

Economically, Australian Retail Sales were better than expected while the Eurozone Unemployment Rate dipped which saw bond yields move off the overnight lows.

Looking into today’s session there are two important economic reports to watch as they could alter Fed policy expectations depending on how they come in. The ADP Employment Report (E: 143K) is due out before the bell while the ISM Services Index (E: 51.7) will be released at the top of the 10:00 a.m. hour ET.

From there focus will turn to the Fed with the FOMC Decision at 2:00 p.m. ET (E: +25 bp) and Fed Chair Powell’s press conference at 2:30 p.m. ET. How the Fed handles forward guidance in the statement and any insights Powell provides in the presser will be the key factors in determining whether stocks extend yesterday’s declines or stabilize and recover to test the YTD highs.

 

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