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Two “Smart Market” Recession Signals to Watch For

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Two “Smart Market” Recession Signals to Watch For: Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • Follow-Up Thoughts on the Yield Curve Reversion Process – Two Signals to Watch For
  • PPI Takeaways – Will Falling Inflation Flip from a Tailwind to a Headwind?
  • NFIB Small Business Optimism Index Echoes HD Sales Concerns

U.S. stock futures are flat as traders digest yesterday’s sizeable rally ahead of today’s critical CPI release.

Overseas, the Reserve Bank of New Zealand unexpectedly cut rates overnight citing recession concerns in H2’24 while the EU GDP Flash met estimates at 0.6% y/y helping push back on imminent recession fears.

Today, market focus will be on the key U.S. inflation data due ahead of the bell: CPI (E: 0.2% m/m, 3.0% y/y), Core CPI (E: 0.2% m/m, 3.2% y/y). A “cool” release will be welcomed and likely support an extension of the week-to-date gains while a “hot” print would be negative for risk assets.

There are no Fed speakers today, however there is a 4-Week Treasury Bill auction at 11:30 a.m. ET which normally wouldn’t pique investors interest, but this one lines up with the September Fed meeting and could shed light on the market’s policy rate expectations.

Finally, earnings season continues to wind down with a few noteworthy companies reporting today including: CAH (E: $1.72), UBS (E: $0.12), TCEHY (E: $0.61), CSCO (E: $0.85).

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The Growth Scare Is Here (What It Means for Markets)

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The Growth Scare Is Here (What It Means for Markets): Start a free trial of The Sevens Report.

What’s in Today’s Report:

  • The Growth Scare Is Here (What It Means for Markets)
  • Weekly Market Preview:  How Far Can This Pullback Go?
  • Weekly Economic Cheat Sheet:  Important Growth Report Today

Futures are plunging globally on snowballing concerns about economic growth following Friday’s soft jobs report.

Global growth concerns are the main reason behind the stock weakness but technical factors are majorly at play, as the Nikkei fell 12% on Monday (not a typo) despite no real, negative news (other than a continued yen rally).

Economically, actual data was solid overnight as both the EU and UK Composite PMIs slightly best estimates but that’s being ignored in the global selloff.

Today the key number is the ISM Services PMI (E: 51.0) and this number needs to print back above 50 (and ideally above expectations) to help stocks stabilize.  If we see another sub-50 number or it’s worse than last month, expect growth concerns to intensify and for this selloff to worsen.

For the Fed, there is one speaker today, Daly at 5:00 p.m. ET, but she shouldn’t move markets.

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What Is the Yen Carry Trade?

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What’s in Today’s Report:

  • What Is the Yen Carry Trade and Why Does it Matter to Markets?
  • Manheim Used Car Index Takeaways
  • S&P 500 Chart – Summer Uptrend Has Been Violated

Markets are risk-off this morning thanks to soft Chinese economic data, disappointing UPS earnings and guidance (shares are down over 6% in the premarket), and negative banking sector news in the U.S. and Europe.

Economically, Chinese exports fell -14.5% vs. (E) -12.6% in July, the steepest drop since the pandemic while imports also fell much more than expected which raises further concerns about the health of the Chinese economy, which was supposed to be a major source of global growth this year.

A surprise windfall tax on bank profits announced by the Italian government paired with Moody’s downgrading 10 smaller U.S. banks is weighing heavily on financials this morning and acting as a headwind on the broader equity indices as well.

Looking into today’s session, there is one economic report to watch: International Trade in Goods and Services (E: -$65.4B) and two Fed speakers: Harker (8:15 a.m. ET) and Barkin (8:30 a.m. ET), all scheduled for before the opening bell. The trade data shouldn’t move markets but if Harker and/or Barkin strike a more hawkish than anticipated tone today, that could send bond yields higher and weigh on equities.

Finally the Treasury will hold a 3-Yr Note auction at 1:00 p.m. ET and any meaningful moves in yields (higher or lower) could influence equity market trading this afternoon.

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.”