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Why the U.K. Budget Drama Matters to You

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What’s in Today’s Report:

  • Why the U.K. Budget Drama Matters (Hint: Spiking Yields)
  • Two Technical Takeaways from Yesterday’s New Lows

Stock futures are trading cautiously higher while yields and the dollar ease from yesterday’s highs after the Fed’s Evans made some less hawkish commentary overnight.

While speaking on “Squawk Box Europe” early this morning, Charles Evans said he was getting nervous about the Fed’s pace of tightening and that if inflation peaks, the FOMC could cut rates as soon as early 2023 which has sparked a relief rally across risk assets amid renewed hopes for “peak hawkishness.”

Economically, Chinese Industrial Profits declined -2.2% in August from -1.1% in July but slowing global growth is largely priced into the market at this point.

Looking into today’s session there are multiple economic reports to watch including: Durable Goods (E: -1.2%), S&P Case-Shiller Home Price Index (E: 0.3%), New Home Sales (E: 498K), and Consumer Confidence (E: 104.3). Investors will be continuing to look for slowing growth, a moderating labor market and most importantly any further signs of easing price pressures as those are all necessary components in getting the Fed to “peak hawkishness.”

Regarding the Fed, there are several officials speaking today: Powell (7:30 a.m. ET), Daly (8:35 a.m. ET), and Bullard (9:55 a.m. ET). And while it is unlikely any of them echo Evans’ dovish tone form earlier this morning, if they do come across as less hawkish, we could see a violent relief rally play out as stocks have become oversold in recent sessions.

How Bad Can It Get? (And What Makes It Stop?)

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What’s in Today’s Report:

  • How Bad Could It Get and What Makes It Stop?
  • Weekly Market Preview:  Can the June lows hold?
  • Weekly Economic Cheat Sheet:  Does economic growth stay resilient?

Futures are modestly lower as global bond yields rose further while the British Pound remained extremely volatile.

The British Pound plunged to an all time low vs the dollar earlier this morning before rebounding and the extreme volatility is adding to investor worries.

Economically, the German Ifo Business Expectations Index fell to the lowest level since March 2020 (84.3 vs. (E) 87.1).

Today there are no notable economic reports but there are numerous Fed speakers, including Collins (10:00 a.m. ET), Bostic (12:00 p.m. ET), Logan (12:30 p.m. ET) and Mester (4:00 p.m. ET).  But, they shouldn’t move markets (we already know what the Fed intends to do).

Instead, the Pound and global bond yields (especially 10-year GILT yields) will determine trading today.  Markets need to see the Pound stabilize and 10-year GILT yields stop rising (they’re up nearly 60 bps in two days) to inject some macro-economic stability into the markets.  Don’t be shocked if the Bank of England announces a surprise rate hike today (or in the coming days) and if so, that should help global yields stabilize (which would be positive for sentiment and markets).

Tom Essaye Quoted in Barron’s on September 20th, 2022

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Stocks Tumbled as Market Continues to Fear the Fed Ahead of Wednesday Meeting

“Tomorrow’s FOMC decision will likely either further pressure stocks… or offer some relief to markets that the Fed isn’t going to raise rates as much as feared, and in doing so allow markets to bounce,” wrote Sevens Report’s Tom Essaye. Click here to read the full article.

Three Reasons the June Lows Could Hold

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What’s in Today’s Report:

  • Three Reasons the June Lows Could Hold
  • Understanding Japan’s Currency Intervention

Futures are sharply lower as global yields continued to climb while economic data was largely disappointing.

September flash PMIs showed contraction in the EU (48.2) and the UK (48.4) as signs of a global slowdown grow.

The UK government announced a fiscal stimulus package but the news is spiking UK bond yields and pressuring the Pound as markets view it as inflationary.

Today we get speeches from Powell (2:00 p.m. ET) and Brainard, but don’t expect their message to be any different then what was just said at Wednesday’s FOMC meeting.  Beyond the Fed speak, the key economic report today is the September Flash Composite PMI (E: 47.0) and this data points needs to largely meet expectations, because a strong number will push yields higher, while a weak number will increase stagflation concerns.

Another Hawkish Surprise: What the Fed Decision Means for Markets

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What’s in Today’s Report:

  • Another Hawkish Surprise: What the Fed Decision Means for Markets

Futures are little changed as markets digested yet another hawkish Fed decision amidst more global rate hikes.

The overnight session was mostly quiet as investors digested the Fed rate hike while other global central banks raised rates (five separate central banks hiked rates overnight, as expected).

The Bank of Japan intervened in the currency markets for the first time since 1998, causing a 1% rally in the yen.

Today focus will be on the Bank of England Rate Decision (E: 50 bps hike) and on weekly Jobless Claims (E: 220K).  Fed Chair Powell again highlighted that the labor market is still much too tight, so markets need these jobless claims to start to rise towards 300k to prevent even further Fed tightening in the future.  The sooner the labor market returns to better balance, the sooner we get to “peak hawkishness.”

Sevens Report Co-Editor Tyler Richey Quoted in Market Watch on September 21st, 2022

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U.S. oil futures settle lower as Fed rate hike feeds worries about a recession

Higher rates are restrictive in nature, and likely to become a headwind on consumer spending including that on refined products like gasoline and diesel…said Tyler Richey, co-editor at Sevens Report Research. Click here to read the full article.

Tom Essaye Quoted in Forbes on September 19th, 2022

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Stocks Struggle As Markets Brace For Another ‘Unusually Large’ Fed Rate Hike

Oil prices fell more than 2% as risks of a recession “weighed heavily” on the market, analyst Tom Essaye of the Sevens Report, wrote in a Monday note. Click here to read the full article.

Sevens Report Analyst Quoted in Market Watch on September 19th, 2022

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Gold retreats, holds near a more than 2-year low as investors await Fed decision

The new lows for gold have shifted our call on gold from neutral to bearish for the medium term. That will remain the case until we reach peak hawkishness with Fed expectations resulting in a top in the dollar and interest rates, both nominal and real, beginning to decline…analysts at Sevens Report Research wrote in Monday’s newsletter. Click here to read the full article.

Fed Day Technical Take

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What’s in Today’s Report:

  • Pre-Fed Technical Take: a Make-or-Break Tipping Point for Equities

Stock futures are trading with cautious gains this morning as traders shrug off escalating tension between Russia and Ukraine while the BOJ initiated new stimulus overnight as focus turns to today’s Fed meeting.

Geopolitically, Russia is mobilizing 300,000 reservists to bolster military operations in Ukraine and indirectly threatened nuclear options in the latest escalation in the conflict which is driving gains in safe havens ahead of the Fed this morning.

Today, there is one economic report to watch in the morning: Existing Home Sales (E: 4.70M) but the primary market focus will clearly be on the Fed with the FOMC Announcement at 2:00 p.m. ET followed by Fed Chair Powell’s press conference at 2:30 p.m. ET.

Regarding the Fed, a 75 basis point hike and terminal Fed Funds rate near 4.25% is the consensus expectation so anything more hawkish than that will likely spark volatility and potentially even result in a test of the June lows in the S&P while anything more dovish than expectations has the potential to unleash a sizeable relief rally.

Tom Essaye Quoted in S&P Global on September 19th, 2022

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Persistent inflation to push Fed to tighten more, delay rate peak

From a Fed standpoint, obviously they cannot even think about stopping until this [inflation] number gets down to something more tenable…said Tom Essaye, a trader and founder of financial research firm The Sevens Report. Click here to read the full article.