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Technical Outlook for Growth vs. Value

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What’s in Today’s Report:

  • Current Technical Outlook for Growth vs. Value
  • Cooler Than Feared German CPI Roils Currency Markets

Markets are trading with a risk-on tone this morning following favorable economic data overnight while traders look ahead to today’s domestic data and the release of the Fed minutes.

Economically, France’s December CPI headline fell to 5.9% vs. (E) 6.3% y/y while Composite PMI headlines across Europe were revised solidly higher from the Flash prints. Those data points indicate a faster drop in inflation and more resilient economic activity which bolsters the prospects of a soft landing.

Looking into today’s session, we get a few notable economic reports this morning including: Motor Vehicle Sales (E: 13.7 million), ISM Manufacturing Index (E: 48.0), and JOLTS (10.1 million) before the focus will turn to the release of the December FOMC Meeting Minutes at 2:00 p.m. ET.

Bottom line, optimism about quickly retreating inflation rates overseas and better-than-feared growth readings are driving risk-on money flows overseas today and if we see more of the same in the U.S. data today, that can continue. Regarding the Fed Minutes, any positive mention about progress on getting inflation under control will be well received and could see the pre-market gains extended into the afternoon.

Tom Essaye Quoted in Yahoo via Bloomberg on December 29th, 2022

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Stocks Post Month’s Best Day as Rate Surge Fades: Markets Wrap

“Markets enter 2023 at important transition points. One path is paved with continued disinflation, resilient earnings, moderating growth, a balanced labor market, and higher stock and bond prices. The other path is paved with sticky inflation, slowing growth, a continued tight labor market and lower stock and bond prices. Data points at the start of the year will offer important clues as to which path the markets are taking.” Said Tom Essaye, a former Merrill Lynch trader who founded The Sevens Report newsletter. Click here to read the full article.

Tom Essaye Quoted in Barron’s on December 21st, 2022

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Dow Soars 500 Points as Consumer Data Adds Some Cheer

“Stocks are digesting the declines of the past two weeks and while there are some notable employment and inflation numbers looming on Thursday and Friday, the bottom line is the calendar into year-end should be mostly quiet, again barring any material surprises,” Tom Essaye, the founder of Sevens Report Research, wrote Wednesday. Click here to read the full article.

Three Keys to a Bottom: Update

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What’s in Today’s Report:

  • Three Keys to a Bottom: Update
  • Weekly Economic Cheat Sheet – Jobs Report in Focus

U.S. equity futures have a tentative bid to start the new year today as tech stocks are outperforming amid a sharp pullback in Treasury yields.

Economically, China’s Manufacturing PMI fell to 49.0 in December from 49.4 in November while the U.K.’s Manufacturing PMI came in at 45.3 vs. (E) 44.7 last month. Both figures remained well below 50, in contraction territory, and that is seeing some of the recent hawkish central bank expectations unwind as we begin the new year.

Looking into today’s session, there are two economic reports to watch in the U.S., the Manufacturing PMI (E: 46.2) and Construction Spending (E: -0.4%).

Investors will be looking for data that points to a continued slowdown in growth but a more pronounced drop in price readings as that should help further ease hawkish policy expectations and allow the early but tentative risk-on money flows to continue.

There are no Fed officials scheduled to speak and no notable Treasury auctions today. That will leave investors focused on Treasuries as a continued drop in yields today should support a continued bid in tech stocks and equities more broadly as traders reposition into the new year.

 

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The Key Events to Start 2023

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What’s in Today’s Report:

  • The Key Events to Start 2023

Futures are slightly higher following a quiet night of news as markets bounce following Wednesday’s declines.

The economic calendar was mostly quiet overnight and the only notable economic report was Euro Zone Money Supply while was essentially in-line with expectations, rising 5.4% vs. (E) 5.5%.

In China, COVID cases continue to explode higher and there were reports of overwhelmed hospitals, but officials are proceeding with a full economic reopening.

Today the focus will be on Jobless Claims (E: 222K) and markets will want to see this number move higher towards 250k (and ultimately 300k).  If claims remain stubbornly low, that could weigh on stocks (like it did last week).

Tom Essaye Quoted in Barron’s on December 21, 2022

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Dow Soars 500 Points as Consumer Data Adds Some Cheer

“Stocks are digesting the declines of the past two weeks and while there are some notable employment and inflation numbers looming on Thursday and Friday, the bottom line is the calendar into year-end should be mostly quiet, again barring any material surprises,” Tom Essaye, the founder of Sevens Report Research, wrote Wednesday. Click here to read the full article.

Is the Yield Curve Already Forecasting a Fed Rate Cut?

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What’s in Today’s Report:

  • Is the Yield Curve Already Forecasting a Fed Rate Cut?

Futures are slightly higher following a quiet night of news as investors digest Thursday’s declines and look ahead to the long weekend.

Economically the only notable report was Japanese CPI and it came in slightly lower than expectations at 3.7% y/y vs. (E) 3.8% y/y. but it didn’t move markets.

Today focus will be on economic data and the key reports are, in order of importance: Core PCE Price Index (E: 0.2% m/m, 4.6% y/y), University of Michigan Consumer Sentiment (E: 59.1), Durable Goods (E: -0.8%) and New Home Sales (E: 600k).   Markets will want to see further confirmation of dis-inflation in the Core PCE Price Index and the Five Year Inflation Expectations in the University of Michigan report, and if that happens it could spur a mild rally following yesterday’s declines.

Economic Breaker Panel

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What’s in Today’s Report:

  • December Economic Breaker Panel

Futures are slightly lower following a disappointing earnings report by Micron (MU).

Micron (MU down –3% after hours) reported underwhelming results and guidance and announced layoffs, and that’s reversing some of the earnings-driven gains we saw in stocks on Wednesday.

Economic data remained sparse but UK GDP slightly missed estimates, falling –0.3% vs. (E) -0.2%.

Today’s focus will be on Weekly Jobless Claims (E: 225k) and this number needs to move higher (towards 300k) to show the Fed that the labor market is returning to better balance (something the Fed said is needed before they can think about a pivot).  We also get the Final Q3 GDP (E: 2.9%) but that data is very old now (July-September) and it shouldn’t move markets.

 

Tom Essaye Quoted in Barron’s on December 19th, 2022

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Stocks Fall to Start the Week as Recession Worries Linger

“A lot of people are throwing in the towel on the year, for lack of a better word, and you’re seeing people sort of remove some of those hopeful year-end bullish bets,” Tom Essaye, founder of Sevens Research, told Barron’s on Monday. Click here to read the full article.

Five Market Questions That Need to be Answered in 2023

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What’s in Today’s Report:

  • Five Market Questions That Need to be Answered in 2023 (And Which Answers are Positive or Negative)

Futures were volatile overnight but are now little changed following the Bank of Japan’s shock announcement of an effective interest rate increase.

The BOJ announced that it is widening the trading band on the 10 year Japanese Government Bond to 0.00% – 0.50% from the previous 0.0% – 0.25%.  This amounts to a 25 basis point rate hike.

Economic data was positive as German PPI fell more than expected (-3.9% m/m vs. (E) -2.2%) in what is another sign of global dis-inflation.

Today there is one economic number, Housing Starts (E: 1.4M), but that won’t move markets.

Instead, focus will be on the fallout from the BOJ surprise “ rate hike.”  Bottom line, markets dropped late last week and yesterday in part on higher global bond yields (following the hawkish ECB announcement) so this rate hike by the BOJ is another headwind and I’d not be surprised to see stock decline modestly on this news today, barring any positive surprises.