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Will Politics Force a Fed Policy Error?

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What’s in Today’s Report:

  • Will Politics Force a Fed Policy Error?
  • PPI Takeaways: Inflation Still Rising

U.S. equity futures are flat and global markets were mixed overnight as investors digest another hotter-than-expected inflation print and soft growth data ahead of the Fed.

U.K. CPI rose 5.1% vs. (E) 4.7% in November while Chinese growth data missed expectations across the board, rekindling stagflation fears ahead of the slew of central bank meetings in the back half of the week.

There are multiple economic reports due out this morning including: Retail Sales (E: 0.8%), Empire State Manufacturing Index (E: 25.5), Import & Export Prices (E: 0.7%, 0.7%) and the Housing Market Index (E: 84). But once again, unless there are any material surprises, the market impact should be limited ahead of the Fed this afternoon.

The FOMC Announcement will hit at 2:00 p.m. ET and Fed Chair Powell’s Press Conference begins at 2:30 p.m. ET. Bottom line, the biggest risk to equities remains a more hawkish shift in tone with a faster than anticipated acceleration in tapering of QE and any hints at more than two rate hikes next year.

Fed Meeting Preview

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What’s in Today’s Report:

  • FOMC Preview

U.S. futures are trading lower with most global equity markets after some negative Omicron headlines while investor focus shifts ahead to this week’s central bank meetings.

Initial studies in South Africa show the PFE vaccine has a lower efficacy rate against Omicron, rekindling concerns about the strain potentially leading to new restrictions or lockdown measures around the globe.

Economically, EU Industrial Production grew 1.1% vs. (E) 1.2% in October and the U.S. NFIB Small Business Optimism Index came in at 98.4 vs. (E) 98.3 but neither release materially changed the outlook for central bank policy.

Looking into today’s session, there is one inflation data point due ahead of the bell: PPI (E: 0.5%) but unless it is a material surprise against expectations, it should not move markets with the December FOMC meeting getting underway.

Bottom line, the focus has largely turned to this week’s central bank meetings, most importantly the FOMC, so it is likely that we see a form of “Fed paralysis” grip the markets between now and tomorrow afternoon’s meeting announcement, barring any unforeseen surprises regarding Omicron.

Two Key Inflation Reports Today

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What’s in Today’s Report:

  • Future Headwinds on Gold?

Futures are modestly higher following a generally quiet night as markets await the latest readings on inflation via today’s CPI and inflation expectations index in Consumer sentiment.

Economic data slightly underwhelmed as UK Industrial Production (1.3% vs. (E) 1.4%) and UK GDP (0.9% vs. (E) 1.0%) both missed expectations.

There were no notable Omicron updates overnight.

Today the focus will be on inflations via the  Consumer Price Index (E: 0.7% m/m, 6.8% y/y) and the inflation expectations index in the Consumer Sentiment report (E: 67.0).  Markets are already expecting the Fed to materially accelerate the pace of tapering of QE next week, but if these inflation readings come in much hotter than expected, that likely will be a headwind on stocks as it will only encourage the Fed to get even more aggressive in tapering QE.

Tom Essaye Quoted in CNBC on December 5, 2021

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Dow jumps nearly 650 points, erasing last week’s losses as investors shake off omicron worries

But it was comments from the Fed that unnerved markets late last week, not fears about the…according to Tom Essaye, author of the Sevens Report. Click here to read the full article.

Tom Essaye Quoted in Unseen Opportunity on December 6, 2021

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No “Santa Rally” for Stocks?

Super-cap tech has been well bid on the expectation of ‘forever’ low rates and support…said Sevens Report founder Tom Essaye. Click here to read the full article.

Jobs Report Preview (Why It’s Still A Very Important Report)

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What’s in Today’s Report:

  • Jobs Report Preview (Why It’s Still A Very Important Report)
  • Oil Update and EIA Analysis

Futures are solidly positive as markets bounce from Wednesday’s sell-off following a quiet night of news.

There are no definitive results yet, but the chatter on Omicron is that vaccines do still provide protection from severe illness, and that is slightly easing anxiety about the variant.

Economic data was sparse but showed continued inflation pressures as Euro Zone PPI rose 5.4% vs. (E) 3.2%.

Today the key report is Jobless Claims (E: 245K) and we expect a solid bounce back from last week’s very low numbers, but clearly, trends in the labor market continue to improve.  We also get numerous Fed speakers including: Bostic (8:30 & 11:30 a.m. ET), Quarles (11:00 a.m. ET), Daly (11:30 a.m. ET), and Barkin (11:30 a.m. ET).

Bottom line, the market is dealing with three separate headwinds (ranked in order of importance):  Omicron uncertainty, Fed tapering acceleration, and Washington dysfunction (possible shutdown).  Positive headlines on any of them will help stocks bounce, while further negative headlines (like yesterday with a possible government shutdown) will cause another decline.

Omicron and Fed Tapering

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What’s in Today’s Report:

  • Omicron and Fed Tapering
  • Omicron Update (Some Incremental Information)

Stock futures are down more than 1%, tracking global equities lower while the 10-year yield is down more than 10 basis points on renewed omicron variant concerns.

In an interview with the FT, MRNA’s CEO said the scientists he had spoken with expect a material decline in the efficacy of current vaccines against the new omicron variant of the coronavirus due to the high number of mutations and that is weighing heavily on risk assets this morning.

Today, there are a few economic reports due out: Case-Shiller Home Price Index (E: 1.1%), FHFA House Price Index (E: 1.0%), and Consumer Confidence (E: 110.7), but all of the data was gathered well before the omicron news emerged and therefore will not have a major impact on markets given the keen focus on COVID in recent days.

Fed Chair Powell will join Treasury Secretary Yellen in testifying before the Senate this morning at 10:00 a.m. ET and any indication that the Fed may change course regarding policy plans as a result of omicron could move markets. There is one other Fed speaker today: Williams (10:30 a.m. ET).

Bottom line, this is once again a COVID-driven market and any negative headlines about vaccine effectiveness or the severity of omicron infections could cause more risk off money flows as the odds of new lockdowns in parts of the world would rise as a result.

Market Multiple Levels: S&P 500 Chart

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What’s in Today’s Report:

  • Market Multiple Levels: S&P 500 Chart

Stock futures are mildly lower and Treasury yields are rising with the dollar this morning after hotter than expected Chinese inflation data is prompting some hawkish money flows ahead of today’s U.S. CPI report.

Economically, Chinese CPI rose slightly more than forecast in October (1.5% vs. E: 1.4%) but PPI surged 13.5% vs. (E) 12.0% which was the highest reading since 1995.

Looking into today’s session there are a few potential catalysts to move markets with the October CPI release (E: 0.5%) being the primary focus but Jobless Claims data (E: 267K) will also warrant attention. Both reports are due out at 8:30 a.m. ET.

After those pre-market releases, the schedule is pretty clear with no Fed officials speaking over the course of the day but there is a 30-Year Treasury Bond auction at 1:00 p.m. ET that could move yields and potentially stocks.

Finally, earnings season is already beginning to wind down however DIS ($0.50) will report quarterly results after the closing bell.

Bottom line, focus is on inflation data and if today’s CPI report runs hot, we could see taper expectations, as well as the market’s rate hike outlook, take a hawkish turn which would spur broad market volatility.

 

Near-Term Macro Calm (But Risks Building for 2022)

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What’s in Today’s Report:

  • Near Term Macro Calm (But Risks Building for 2022)
  • Weekly Market Preview (Risks of An Accelerated Taper?)
  • Weekly Economic Cheat Sheet (Key Inflation Data This Week)

Futures are little changed following a quiet weekend outside of the passage of the physical infrastructure bill.

On Friday the House passed the physical infrastructure bill but it’s only $550 billion of new spending over 10 years, and that’s not going to have a big impact on the economy.

The broader $1.75 trillion spending bill remains under debate as Democrat infighting continues, but a deal is expected by year-end.

Today there are no economic reports, but there are numerous Fed speakers and the market will be looking for insight into the possibility of an accelerated taper beyond December.  Powell (10:30 a.m.) is the headliner today but he’s only making opening remarks and shouldn’t offer any insights on policy.  Vice Chair Clarida (9:00 a.m.) will speak on policy, so his interview is probably the most important one to watch today.  Other Fed speakers include Montgomery (10:00 a.m.), Harker (12:00 p.m.) and Evans (1:50 p.m.) but they shouldn’t move markets.

Earnings in Focus

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What’s in Today’s Report:

  • Bottom Line – Earnings in Focus
  • Charts: 10-Year Yield Meets Resistance, Global Inflation on the Rise

U.S. stock futures are pointing to a higher open today as bond markets remain largely steady and investors continue to focus on the solid start to Q3 earnings season.

There were no notable economic reports or market-moving headlines overnight.

Looking into today’s session, there is one economic report to watch: Housing Starts (E: 1.621M) and several Fed officials are scheduled to speak: Daly (8:00 a.m. ET), Harker (8:50 a.m. ET), and Bostic (1:00 p.m. & 2:50 p.m. ET). But as long as there are no major, hawkish shifts in tone by the Fed speakers, the market impact should be limited with the focus increasingly on earnings.

On the earnings front, we will get results from JNJ ($2.37), PG ($1.59), BK ($1.02), TRV ($2.04), SYF ($1.43) ahead of the bell, and then NFLX ($2.56), and UAL (-$1.65) after the close. The important thing investors will be looking for is any new insight on the impact of inflation and margin compression on earnings and importantly forward guidance.