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Key Levels to Watch: S&P 500, 10Y, Gold, VIX

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Key Levels to Watch: S&P 500, 10Y, Gold, VIX: Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • CPI Technical Preview: S&P 500, 10Y, Gold, VIX
  • Trading Color – The “Chase” Higher Continued Yesterday
  • PPI Takeaways: Downside Revisions Spark Dovish Money Flows

Futures are flat while European stocks are modestly higher thanks to market-friendly economic data overnight ahead of today’s U.S. CPI report.

GME and AMC are both notably up another 10%+ in pre-market trading suggesting the meme-stock frenzy is poised to continued today.

Economically, French CPI met estimates at 2.2% y/y while Eurozone Industrial Production was up 0.6% vs. (E) -0.5% helping to ease lingering worries about the threat of global stagflation.

Today, focus will be acutely on economic data in the premarket with CPI (E: 0.3% m/m, 3.4% y/y) and Core CPI (E: 0.3% m/m, 3.6% y/y) the most important release to watch. Downside revisions to March like we saw in yesterday’s PPI report and a goldilocks headline should see stocks extend gains and test or break through current records.

However, in order for the equity rally to continue it is important that Retail Sales (E: 0.4%), the Empire State Manufacturing Index (E: -10.0), and the Housing Market Index (E: 51.0) don’t offer and negative surprises as there is a tentative and complacent feel to the current test of the all-time-highs.

After the economic data is digested, there are two Fed officials scheduled to speak today: Kashkari (12:00 p.m. ET) and Bowman (3:20 p.m. ET). Investors have become comfortable with the higher-for-longer tone recently, but any mention of hikes could pressure markets here.

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Explaining Current Market Risks to Clients (And Prospects)

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What’s in Today’s Report:

  • How to Explain Risks in This Market to Clients/Prospects
  • Mannheim Used Vehicle Value Index Takeaways (Chart)

Futures are slightly higher while most international markets rallied overnight thanks to news of more Chinese government support for the property sector and steady EU inflation data.

German CPI met estimates of 0.3% m/m and 6.4% y/y in June, both unchanged from May, while the ZEW Survey was inline with expectations on the headline but Economic Sentiment deteriorated to -14.7 vs. (E) -10.2.

Domestically, the NFIB Small Business Optimism Index came in at 91.0 vs. (E) 89.8 in June which is helping bolster investor sentiment in the premarket.

There are no additional economic reports today and just one Fed speaker on the calendar: Bullard (9:00 a.m. ET) which will leave investors looking ahead to tomorrow’s critical CPI report.

Four Debt Ceiling Deal Takeaways

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What’s in Today’s Report:

  • What the Debt Ceiling Deal Means for Markets (Four Takeaways)
  • Case-Shiller Home Price Index Comes in Hotter than Expected
  • Chart: Growth Breaks Out Over Value

Stock futures are modestly lower this morning as soft Composite PMI data in China overshadowed easing inflation numbers in Europe overnight while traders await a House vote on the new debt-limit bill.

China’s Composite PMI fell to 52.9 in May down from 54.4 in April which confirmed that the economic recovery in the world’s second largest economy is underwhelming investor expectations which were admittedly lofty coming into the year.

In Europe, French CPI dropped to 5.1% vs. (E) 5.7% y/y in May and PPI plunged to 7.0% vs. (E) 12.8% which is driving some less-hawkish money flows this morning, supporting a bid in global bond markets.

Looking into today’s session, there are two economic reports to watch: Chicago PMI (E: 47.0) and JOLTS (E: 9.35 million). Investors will want to see some moderation in the data but still not a sharp drop-off in either growth or employment as that would rekindle worries of a hard landing and weigh on risk assets.

There are also multiple Fed speakers including: Collins (8:50 a.m. ET, 12:20 p.m. ET), Harker (1:30 p.m. ET) and Jefferson (1:30 p.m. ET). And given the hawkish shift in Fed rate hike odds over the last few days, a more dovish leaning tone from any of the policy makers would be well received.

Finally, the House is set to vote on the debt limit bill today and Republican Representatives have said this morning that they have the votes to pass it. If that comes to fruition, that should remove a headwind from risk assets and open the door to a continued move higher in equity markets.

Tom Essaye Quoted in MarketWatch on May 22nd, 2023

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Stocks may take a hit by June if the dollar keeps rising, analyst says

The U.S. dollar, which rallied to a two-month high last week, is demonstrating a bullish signal from a technical perspective and has the potential to trend up in the coming months. The greenback’s strength will weigh on equities, starting by the beginning of June, noted Tom Essaye, founder of Sevens Report Research. Click here to read the full article.

Why Are Regional Banks Still Causing Market Declines? (It’s Not Contagion)

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What’s in Today’s Report:

  • Why Are Regional Banks Still Causing Market Declines (It’s Not Contagion)
  • What the 1.5 Year High in Jobless Claims Means for the Economy

Futures are modestly higher following some potentially small progress on debt ceiling negotiations.

The debt ceiling meeting today was postponed to early next week as staffers needed more time to work on potential areas of compromise, and that’s being taken as a mild sign of progress.

Economically, UK manufacturing was stronger than expected (0.7% vs. (E) -0.1%) but that’s not moving markets.

Today focus will be on the University of Michigan Inflation Expectations Survey, and specifically the five-year inflation expectations.  The farther they fall from 3.0%, the better for markets as it reinforces inflation is not yet a longer-term problem.  There are also three Fed speakers today: Daly (2:20 p.m. ET), Bullard & Jefferson (7:45 p.m. ET), but even if they’re hawkish they shouldn’t move markets.

Updated Market Outlook (Volatility isn’t Automatically Bearish)

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What’s in Today’s Report:

  • Updated Market Outlook – Increased Volatility Isn’t Automatically Bearish
  • Weekly Market Preview:  Do We Get More Hints of Stagflation?
  • Weekly Economic Cheat Sheet:  Friday’s Flash PMIs are Key.

Futures are modestly lower following disappointing Chinese economic data.

Chinese economic data joined recent U.S. data in hinting at a possible plateauing recovery and building inflation pressures.  Industrial Production rose 9.8% vs. (E) 10.0% while Retail Sales gained 17.7% vs. (E) 25%.  Housing Prices, meanwhile, rose 0.48% vs. (E) 0.41%.

Today the Empire Manufacturing Survey (E: 25) is the key report and markets will want to see solid data and stable prices indices.  We also get the Housing Market Index (E: 83) but that shouldn’t move markets.

From a Fed standpoint, Clarida (10:05 am ET) is the headliner today while Bostic (10:00 a.m. ET) will also provide comments.

An Important Week for the Markets

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What’s in Today’s Report:

  • Weekly Market Preview: An Important Week for the Markets
  • Weekly Economic Cheat Sheet: Focus on the Fed

U.S. equity futures are tracking international shares higher this morning as investors digest mostly positive economic data and a stable bond market while the market focus is already turning ahead to this week’s Fed meeting.

Economically, Chinese Industrial Output and Retail Sales both beat expectations in the first two months of the year with the headlines jumping 35.1% and 33.8%, respectively, however, the unemployment rate edged up 0.1% to 5.5%.

Looking into today’s session, there is just one economic report due out ahead of the bell: Empire State Manufacturing Index (E: 14.8). Investors will be looking for a good number but if the report is too strong and causes the 10-year yield to extend Friday’s rise, that would likely weigh on stocks.

There are no other major catalysts on the calendar today and markets will begin to look ahead to this week’s Fed meeting (which begins tomorrow) however the 10-year yield will remain a key influence on equities as a continued move higher will act as a strengthening headwind for equities, especially for tech stocks.

Harder to Rally?

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What’s in Today’s Report:

  • Harder to Rally?
  • Weekly Market Preview:  All About Rising Yields (and Central Bank Reaction)
  • Weekly Economic Cheat Sheet:  A Busy and Important Week of Data, and Powell Q&A on Thursday

Futures are sharply higher thanks to falling bond yields combined with progress on stimulus and vaccine distribution.

The Reserve Bank of Australia surprised markets and announced it was buying $3 billion of longer-dated bonds as global central banks ramp up the response to rising yields, and that is the main reason we’re seeing global bond yields (including Treasuries) lower this morning.

On stimulus, the House passed the $1.9 trillion stimulus bill while the FDA approved JNJ’s single-dose COVID vaccine.  Both events were already priced into stocks, however, so they aren’t causing this morning’s rally (again that’s based on falling bond yields).

Today focus will be on data and Fed speak, as we get the  ISM Manufacturing PMI (E: 58.9) and two Fed speakers this morning: Williams (9:00 a.m. ET) and Brainard (9:05 a.m. ET).  As was the case last week, expect stocks to move inversely to yields, and if the data is solid (but not too good) and the Fed speakers dovish, expect yields to fall further and an extension of this morning’s rally.  

Updated Market Outlook (Factoring in Rising Yields)

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What’s in Today’s Report:

  • Updated Market Outlook (Factoring in Rising Yields)
  • Weekly Market Preview:  All About Powell and Treasury Yields
  • Weekly Economic Cheat Sheet:  Key Inflation Report and Jobless Claims

Futures are moderately lower as Treasury yields resumed their rise early Monday morning.

The 10 year Treasury yield rose as high as 1.39% earlier this morning and that’s weighing on futures as the rise in yields continues from last week.

Economic data was sparse overnight as the only notable number was the German Ifo Business Expectations survey which beat estimates (94.2 vs. (E) 91.8).

There was no notable news regarding stimulus or vaccines over the weekend, and the market still expects the JNJ vaccine to be approved this Friday (2/26) and for the stimulus bill to pass the House around the same time (with Biden signing the bill sometime in mid-March/early April).

Today there are no notable economic reports nor any Fed speakers (Powell speaks tomorrow), so the focus today will be on Treasury yields.  If they continue to rise, I’d expect modest to moderate pressure on stocks ahead of Powell’s testimony tomorrow (where markets will want some comfort that the Fed isn’t worried about yields).

Too Much of a Good Thing?

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What’s in Today’s Report:

  • Can There Be Too Much Of A Good Thing in Markets?
  • Weekly Market Preview:  Stimulus Expectations and Vaccine Optimism Remain the Two Drivers of Stocks
  • Weekly Economic Cheat Sheet:  Inflation

Futures are modestly higher following a quiet weekend of news as global markets rose on momentum from last week’s rally.

The stimulus process continued as Democrats passed procedural votes on Friday and a $1.5-$1.9 trillion stimulus bill is expected to become law sometime in the next 4-6 weeks (this expectation remains the single biggest driver of the stock rally).

Economically, the only notable report was German Industrial Production, which slightly missed estimates (but that’s not moving markets).

Today there are no economic reports and only one Fed speaker, Mester at 12:00 PM ET, so markets will continue to be driven by stimulus headlines and vaccine optimism, and as long as there aren’t any material disappointments on either front, the path of least resistance for stocks remains higher.