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What’s Expected from Washington This Week?

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What’s in Today’s Report:

  • What’s Expected/Priced In This Week from Washington?
  • Durable Goods Orders – Takeaways
  • Energy Update: Fundamentals, Technicals, and Momentum All Favor the Bulls

U.S. equity futures are decidedly lower this morning as Treasury yields continue this week’s surge higher. The 10-year note yield topped 1.52% in overnight trading which is weighing heavily on high valuation tech names today.

From a catalyst standpoint, today is lining up to be a busy day with a slew of economic data due to be released: International Trade in Goods (E: -$87.0B), Case-Shiller Home Price Index (E: 1.6%), FHFA Home Price Index (E: 1.5%), and Consumer Confidence (E: 114.8).

Of those releases, the market will be most interested in whether or not Consumer Confidence can stabilize following the disappointing August print.

There is a 7-Year Treasury Note action at 1:00 p.m. ET and given how much bonds are influencing stocks so far this week, the results could impact equity markets (strong demand would help stabilize stocks, weak demand would likely see losses extended).

Finally, there are multiple Fed speakers today including: Evans (9:00 a.m. ET), Powell (10:00 a.m. ET), Bullard (1:40 & 7:00 p.m. ET), and Bostic (3:00 p.m. ET). Focus will clearly be on Powell and any insight he may provide regarding inflation expectations and the Fed’s plans to react.

Bottom line, the stock market is being driven by the bond market this week and if we see bonds continue to drop (yields spike higher) then that will result in further underperformance by growth stocks and drag the broader market lower while stabilization in yields would likely allow for a rebound.

 

Sevens Report Q3 Quarterly Letter Coming October 1st.

The Q3 2021 Quarterly Letter will be delivered to advisor subscribers on Friday, October 1st.

With Fed tapering, Washington budget battles and possible tax hikes looming, Q4 could be the most volatile of the year. Our quarterly letter will help you set the right expectations for clients so they aren’t blindsided by any market volatility.

You can view our Q2 ’21 Quarterly Letter here.

Why Treasury Yields Keep Falling

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What’s in Today’s Report:

  • Why Treasury Yields Keep Falling

Futures are slightly higher on some mild infrastructure optimism.

A group of 10 bipartisan Senators reached a compromise on an infrastructure bill worth about $1T total that includes $600 billion of new spending over 5-8 years and contains no corporate tax hikes.   But, this compromise is still very unlikely to ever become law, mainly because the spending is paid for via an increase in the gas tax, which Democrats have previously been against.

Economic data underwhelmed as UK Industrial Production (1.3% vs. (E) 1.2%) and UK GDP both missed estimates.

Today focus will be on Consumer Sentiment (E: 84.0) and specifically inflation expectations, and if we see a big rise in the one and five year inflation expectations that could cause a rally in Treasury yields, which would pressure stocks.  However, barring that event, the path of least resistance for markets right now is higher.

FOMC Preview

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What’s in Today’s Report:

  • FOMC Preview (Wildcard to Watch)
  • What Do Rising Treasury Yields Really Mean?

S&P 500 futures are down roughly 1% this morning tracking European shares lower after German trade data showed a much larger than anticipated drop in exports during the depths of the COVID-19 pandemic in April.

Eurozone GDP and the NFIB Small Business Optimism Index slightly beat expectations however German exports declined by the most on record in April, tumbling by -24.0% on the month which is weighing heavily on EU shares today.

Looking into today’s session, there are two lesser followed economic reports due to be released: April JOLTS (E: 5.750M) and Wholesale Trade (E: 0.4%) which are not likely to move markets while there are no Fed speakers as the June FOMC Meeting Begins today.

With tomorrow’s Fed announcement and Powell’s press conference coming into focus, it is possible we see a continued wave of profit taking today, especially given the disappointing economic data out of Europe, however a sense of “Fed paralysis” should keep the losses somewhat limited.

Tom Essaye Quoted in CNBC on September 23, 2019

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“These are not good numbers and they do not imply global economic stabilization is occurring,” said Tom Essaye, founder of The Sevens Report, in a note. Click here to read the full article.

Treasury Chart

Are Cyclical Sectors Set To Rebound?

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What’s in Today’s Report:

  • Are Cyclical Sectors Set To Rebound?  (They Did Yesterday)

It’s green across the screen this morning but the gains are modest as more positive commentary on U.S./China trade and decent economic data  are supporting markets.

On trade, Treasury Secretary Mnuchin said talks have been “productive” but gave no further details.

Economically, German Retail Sales beat estimates rising 0.9% vs. (E) -1.0%, making it two days in a row of better than expected EU data.

In normal times, today the key data point would be the Core PCE Price Index (E: 0.2% m/m, 1.9% y/y) as that’s the Fed’s preferred measure of inflation.  And, if it ran hot or cold, it would have an impact on perceived Fed policy.  In today’s market, however, it’s take a massive (and almost impossible) move in that price index to change expected Fed policy, so this number likely won’t move markets.  Other notable events today include New Home Sales (E: 615k) and one Fed Speaker:  Kaplan (10:30 a.m.).

Bottom line, this market remains driven by Treasury yields.  They are over extended to the downside and rose slightly yesterday and that helped stocks – and if we see a further rise in yields today ahead of the Chinese PMIs on Sunday, that could boost markets into the weekend.