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If Inflation Drops and Growth Slows, What Benefits?

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What’s in Today’s Report:

  • If Inflation Drops and Growth Slows, What Benefits? (Answer Inside)
  • Why the Manheim Used Vehicle Value Index Was Important yesterday
  • EIA and Oil Market Analysis

Futures are marginally higher on additional China reopening headlines, although China embarking on a re-opening process is now well known and mostly priced into stocks.

The South China Morning Post reported that Hong Kong will ease isolation rules for COVID-positive residents and travelers, in what is the latest step towards reopening.

Economic data was sparse overnight and the only notable report was Japanese GDP which slightly beat estimates (-0.2% vs. (E) -0.3%).

Today’s focus will be on weekly Jobless Claims (E: 228K) as markets need to see further deterioration in the labor market to move the Fed closer to an ultimate “pivot.”  Any move towards 250k in should be welcomed by markets.

Sevens Report Co-Editor Tyler Richey Quoted in S&P Global on December 7th, 2022

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Stock market’s ‘fear gauge’ plunges as investors shift hedging strategies

Still, the VIX has not behaved in its typical fashion for much of this year, said Tyler Richey, a co-editor at Sevens Report Research. Click here to read the full article.

Tom Essaye Quoted in The Washington Post on December 6th, 2022

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PepsiCo layoffs could indicate broader economic woes

The company, which has a market cap of $252.3 billion, is simply signaling the headwinds to come. This is really confirming so many other signs that we are headed toward a potentially pretty significant economic slowdown, said Tom Essaye, president of Sevens Report Research. Click here to read the full article.

Market Multiple Levels: S&P 500 Chart

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What’s in Today’s Report:

  • Market Multiple Levels – S&P 500 Chart
  • VIX Breaks Longstanding Downtrend in Cautious Signal

Futures are modestly lower as persistent concerns about hawkish Fed policy and fading global growth overshadow positive Covid policy news out of China and encouraging EU economic data.

Economically, German Industrial Production was better than feared at -0.1% vs. (E) -0.6% while  Q3 Eurozone GDP topped estimates at 2.3% vs. (E) 2.1% Y/Y suggesting the EU economy may be stabilizing.

China’s NHC issued new guidelines on Covid restrictions overnight that eased certain testing and quarantine requirements and will hold a press conference tomorrow which points to the potential for more progress in moving away from Covid-Zero.

Looking into today session, there is one economic report before the bell: Productivity & Costs (E: 0.4%, 3.3%) and then Consumer Credit (E: 27.3B) will be released in the afternoon. The latter report is not one we typically follow closely but there has been increasing concern about the health of household balance sheets, so a sharp move higher in outstanding credit could raise concerns about defaults in the coming quarters.

Finally, there are no Fed speakers today but stocks have been taking queues from rate markets and the dollar so if either meaningfully move higher, that will add pressure to the broader equity market today.

Market Multiple Table: December Update

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What’s in Today’s Report:

  • Market Multiple Table December Update: Macro Improvement But It’s More Than Priced In
  • November ISM Services Index Takeaways

Futures are little changed this morning despite a stabilizing bond market and mostly positive global news flow overnight as yesterday’s hawkish money flows are digested.

Economically, German Manufacturer’s Orders rose 0.8% vs. (E) -0.2% in October suggesting that factory demand may be stabilizing.

In China, new Covid cases have declined for 8 consecutive days and the government is reducing testing requirements, bolstering optimism about a move away from the crippling Zero Covid policies.

Today is lining up to be a fairly slow day of news with just one lesser followed economic release: International Trade in Goods and Services (E: -$80.0B) and no Fed speakers as they remain in their pre-meeting blackout period. That said, equity markets will likely queue off of Treasuries and if we see a further rise in shorter-duration yields due to rising terminal rate expectations, yesterday’s declines could very well continue.

 

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Less Bad Isn’t Good (Especially at the Valuations)

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What’s in Today’s Report:

  • Bottom Line:  Less Bad Isn’t Good (Especially at these Valuations)
  • Weekly Market Preview:  Can the S&P 500 Hold Recent Gains?
  • Weekly Economic Cheat Sheet:  More Signs of Dis-Inflation This Week?

Futures are moderately lower despite in-line economic data and more re-opening optimism from China, as markets further digest Friday’s jobs report.

Reuters reported that COVID may be downgraded to “Category B” in China which may result in new, less restrictive guidance from the government as early as this week.

Economic data largely met expectations as the Euro Zone Composite PMI, UK Composite PMI, and Euro Zone Retail Sales reports were all basically in line.

Today the calendar is mostly quiet but the focus will be on the ISM Services PMI (E: 53.5) and if the headline can remain firm (above 50) and prices can drop further, that’ll help support stocks.

Jobs Day

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What’s in Today’s Report:

  • Jobs Day
  • Signs of Slowing Growth and Inflation Are Growing
  • Technical Update

Futures little changed following a quiet night of news as investors further digest Wednesday’s big rally in stocks and Thursday’s big rally in bonds all while awaiting today’s jobs report.

Economically, the only notable number overnight was Euro Zone PPI which fell more than expected (-2.9% vs. (E) -2.0%), adding to this week’s list of indicators showing global dis-inflation.

Focus today will be on the jobs report and expectations are as follows:  Job Adds 200K, UR Rate 3.7%, Wages 0.3% m/m 4.6% y/y.  Due to the big rally in stocks and bonds on Wed/Thurs, a lot of the “benefit” from a “Just Right” number is likely priced in at these levels, so the risk going into the report today is for disappointment, especially if we get a job adds number in the mid to high 200k.

Away from the jobs report, we also get two Fed speakers: Barkin (9:15 a.m. ET) and Evans (10:15 a.m., 1:00 p.m. ET).

Tom Essaye Quoted in Forbes on November 28th, 2022

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Credit Suisse Tumbles: Stock Hits New Record Low After Banking Giant Warns Of ‘Substantial’ Losses

“In short, Credit Suisse is starting to act like a bank that’s about to go under,” analyst Tom Essaye of the Sevens Report said in a recent note. Click here to read the full article.

Was Powell’s Speech That Bullish? No. Here’s Why.

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What’s in Today’s Report:

  • Was Powell’s Speech That Bullish?  No.  Here’s Why
  • Jobs Report Preview
  • EIA Update and Oil Market Analysis

Futures are slightly lower as markets digest yesterday’s post-Powell speech rally and focus on key economic data today (manufacturing PMI) and tomorrow (jobs report).

Global economic data underwhelmed overnight, as the Euro Zone manufacturing PMI missed estimates (47.1 vs. (E) 47.3) while the UK manufacturing PMI remained firmly in contraction territory (46.5 vs. (E) 46.2).

Looking forward to today, there are three important economic reports including (in order of importance):  ISM Manufacturing Index (E: 49.9), Core PCE Price Index (E: 0.3% m/m, 5.0% y/y), and Jobless Claims (E: 235K).  Markets will want to see 1) More evidence of easing price pressures in the ISM Manufacturing PMI and Core PCE Price Index and 2) Further labor market deterioration in jobless claims if the data is to help extend yesterday’s rally.

We also get three Fed speakers today, Logan (9:25 a.m. ET), Bowman (9:30 a.m. ET), and Barr (3:00 p.m. ET), but their commentary should be largely overshadowed by Powell’s less hawkish-than-feared remarks yesterday and I don’t expect them to move markets.

Powell Speech Cheat Sheet

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What’s in Today’s Report:

  • Three Topics to Watch During Powell’s Speech Today
  • More Signs of Disinflation
  • Chart – Has the Dollar Bottomed?

Stock futures are cautiously higher as traders look ahead to Powell’s speech today while international markets were mixed following some key economic data overnight.

The Eurozone HICP Flash (their CPI equivalent) fell to 10.0% in November from 10.7% in October (E: 10.6%), offering fresh evidence that inflation may have finally peaked in Europe while China’s Composite PMI was worse than expected. The soft data in China however was shrugged off thanks to continued optimism about easing Covid restrictions by the government.

Today is lining up to be a busy day with markets focusing on economic data early with the ADP Employment Report (E: 200K), GDP (E: 2.7%), International Trade in Goods (E: -$90.6B), JOLTS (E: 10.4M), and Pending Home Sales (E: -5.0%) all due out this morning.

Additionally, there are two Fed speakers through midday: Bowman (8:50 a.m. ET) and Cook (12:35 p.m. ET) before focus will turn to Powell’s speech in the early afternoon (1:30 p.m. ET) which will be the primary potential market catalyst today.

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