Markets Prepare for CPI
Markets to Move Higher...
KR Opinion
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Last week's market action was remarkable, especially following the previous Friday's sell-off in response to the unemployment numbers. The reaction to these figures seemed exaggerated, suggesting that many market participants were actively seeking reasons to short the market. This strategy paid off on Monday when the Nikkei plummeted 12%, and the Japanese yen strengthened significantly.
Financial media outlets were awash with dire predictions during this tumultuous period, claiming that the Japanese yen's movements could potentially destabilize global markets. Such alarmist rhetoric often emerges when markets are near all-time highs, as analysts and investors search for potential catalysts for a major sell-off.
Indeed, we witnessed a substantial decline, with the NASDAQ dropping over 10% from its all-time highs at one point. This led some commentators to declare that we had entered a correction phase. The narrative quickly shifted to discussions about the "Magnificent 7" stocks and other factors that could drive markets lower.
However, as noted in our reports last Wednesday and Thursday, we were approaching major support levels, from which a bounce was likely. The current market configuration and sentiment suggest we may see further recovery following last week's reversal, ultimately leaving markets nearly flat.
It's worth noting that the substantial selling pressure and negativity promoted by financial and general media did not fully materialize. There often seems to be a coordinated narrative across various media outlets, potentially aimed at influencing market algorithms to generate buying or selling activity. By week's end, many of these pessimistic predictions proved unfounded, and the narrative began to shift.
Despite attempts by some market participants to paint a negative picture of the economy, suggesting it was stalling or coming to an abrupt end, economic indicators told a different story. The Atlanta Fed's GDPNow model raised its Q3 real GDP growth estimate to 2.9% from 2.5%. Additionally, both continuing claims and weekly jobless claims numbers showed improvement, contradicting the pessimistic outlook.
This week, with the release of CPI and PPI data, is likely to remain volatile. While I don't anticipate major moves around these releases, market participants may seek reasons to justify potential Fed rate cuts. However, it's important to remember that the Federal Reserve primarily focuses on labor markets and inflation, not equity market movements.
As mentioned in our recent YouTube video (link below), it would likely take a market decline of 15-20% or more before the Fed would consider intervening based on market action alone. The central bank is expected to maintain its focus on labor and inflation data as it formulates monetary policy going forward.
YouTube"Will the Market Collapse?"
Looking back on Thursday, Action
Last week saw significant volatility in financial markets, ultimately closing with minimal changes across major U.S. indices. The S&P 500 ended fractionally lower, the Nasdaq Composite declined 0.2%, the Dow Jones Industrial Average settled 0.6% lower, and the Russell 2000 underperformed, dropping 1.4%.
The week began with a continuation of the previous week's global sell-off, driven by concerns about U.S. economic growth. Japan's Nikkei plummeted 12% on Monday, sparking a substantial sell-off in U.S. equities. This downturn was largely attributed to the unwinding of the yen carry trade as the Japanese currency strengthened against the dollar.
By Monday's close, the S&P 500 was approaching correction territory, defined as a 10% decline from its recent high. Tuesday brought some relief as the Nikkei rebounded over 10%, coinciding with a weakening yen.
Despite the midweek recovery, investors remained cautious due to several factors: potential further unwinding of carry trades, fears of a faster-than-expected U.S. economic slowdown, and concerns about Federal Reserve policy. Some questioned the decision to maintain the current federal funds rate target range of 5.25-5.50%.
As the week progressed, indicators emerged suggesting recession fears might be overblown. The Atlanta Fed GDPNow model raised its Q3 real GDP growth estimate to 2.9%, up from 2.5% on August 1. Weekly jobless claims decreased by 17,000 to 233,000, indicating a resilient job market. Market rates also increased, with the 10-year Treasury yield rising 15 basis points to 3.94% and the 2-year yield jumping 18 basis points to 4.05%.
Sector performance varied, with energy and industrials leading gains at 1.2% each. Communication services and financials followed with increases of 0.8% and 0.6%, respectively. The materials sector was the worst performer, dropping 1.7%, followed by the consumer discretionary and utilities sectors, declining 1.0% and 0.9%, respectively.
Eli Lilly (LLY) stood out in earnings news, surging 10.8% after reporting strong results and providing positive guidance.
Investors should monitor developments in global currency markets, especially the yen. Upcoming economic data releases will be crucial for assessing U.S. economic health, and Federal Reserve communications will be closely watched for indications of future monetary policy.
S&P 500: +11.5% YTD
Nasdaq Composite:+11.0% YTD
S&P Midcap 400: +5.6% YTD
Dow Jones Industrial Average: +4.7% YTD
Russell 2000: +2.8% YTD
August 13
06:00 ET: NFIB Small Business Optimism
For: Jul | Trading Impact: Low
KR Forecast: NA | KR Cons: NA | Prior: 91.5
08:30 ET: Core PPI
For: Jul | Trading Impact: High
KR Forecast: 0.2% | KR Cons: 0.2% | Prior: 0.4%
08:30 ET: PPI
For: Jul | Trading Impact: High
KR Forecast: 0.1% | KR Cons: 0.1% | Prior: 0.2%
14:00 ET: Treasury Budget
For: Jul | Trading Impact: Low
KR Forecast: NA | KR Cons: NA | Prior: -$66.0B
August 14
07:00 ET: MBA Mortgage Applications Index
For: 08/10 | Trading Impact: Low
KR Forecast: NA | KR Cons: NA | Prior: 6.9%
08:30 ET: Core CPI
For: Jul | Trading Impact: High
KR Forecast: 0.2% | KR Cons: 0.2% | Prior: 0.1%
08:30 ET: CPI
For: Jul | Trading Impact: High
KR Forecast: 0.3% | KR Cons: 0.2% | Prior: -0.1%
10:30 ET: EIA Crude Oil Inventories
For: 08/10 | Trading Impact: High
KR Forecast: NA | KR Cons: NA | Prior: -3.73M
August 15
08:30 ET: Retail Sales
For: Jul | Trading Impact: High
KR Forecast: 0.4% | KR Cons: 0.3% | Prior: 0.0%
08:30 ET: Retail Sales ex-auto
For: Jul | Trading Impact: High
KR Forecast: 0.3% | KR Cons: 0.2% | Prior: 0.4%
08:30 ET: Initial Claims
For: 08/10 | Trading Impact: High
KR Forecast: 235K | KR Cons: 232K | Prior: 233K
08:30 ET: Continuing Claims
For: 08/03 | Trading Impact: High
KR Forecast: NA | KR Cons: NA | Prior: 1875K
08:30 ET: Import Prices
For: Jul | Trading Impact: Low
KR Forecast: NA | KR Cons: NA | Prior: 0.0%
08:30 ET: Import Prices ex-oil
For: Jul | Trading Impact: Low
KR Forecast: NA | KR Cons: NA | Prior: 0.2%
08:30 ET: Export Prices
For: Jul | Trading Impact: Low
KR Forecast: NA | KR Cons: NA | Prior: -0.5%
08:30 ET: Export Prices ex-ag.
For: Jul | Trading Impact: Low
KR Forecast: NA | KR Cons: NA | Prior: -0.6%
08:30 ET: NY Fed Empire State Manufacturing
For: Aug | Trading Impact: Low
KR Forecast: NA | KR Cons: NA | Prior: -6.6
09:15 ET: Capacity Utilization
For: Jul | Trading Impact: Medium
KR Forecast: 78.6% | KR Cons: 78.6% | Prior: 78.8%
09:15 ET: Industrial Production
For: Jul | Trading Impact: Medium
KR Forecast: 0.1% | KR Cons: 0.1% | Prior: 0.6%
10:00 ET: Business Inventories
For: Jun | Trading Impact: Low
KR Forecast: 0.1% | KR Cons: 0.2% | Prior: 0.5%
10:00 ET: NAHB Housing Market Index
For: Aug | Trading Impact: Low
KR Forecast: 43 | KR Cons: 43 | Prior: 42
10:30 ET: EIA Natural Gas Inventories
For: 08/10 | Trading Impact: Low
KR Forecast: NA | KR Cons: NA | Prior: +21 bcf
16:00 ET: Net Long-Term TIC Flows
For: Jun | Trading Impact: Low
KR Forecast: NA | KR Cons: NA | Prior: -$54.6B
August 16
08:30 ET: Building Permits
For: Jul | Trading Impact: High
KR Forecast: 1430K | KR Cons: 1440K | Prior: 1446K
08:30 ET: Housing Starts
For: Jul | Trading Impact: High
KR Forecast: 1340K | KR Cons: 1350K | Prior: 1353K
10:00 ET: Univ. of Michigan Consumer Sentiment - Prelim
For: Aug | Trading Impact: High
KR Forecast: 66.9 | KR Cons: 66.7 | Prior: 66.4
Significant Earning Reports this week
1. Home Depot (HD)
- Date: Tuesday, August 13
- Time: Before Market Open
2. Nvidia (NVDA)
- Date: Wednesday, August 14
- Time: After Market Close
3. Cisco Systems (CSCO)
- Date: Wednesday, August 14
- Time: After Market Close
4. Walmart (WMT)
- Date: Thursday, August 15
- Time: Before Market Open
5. Alibaba Group (BABA)
- Date: Thursday, August 15
- Time: Before Market Open
WaveTech Database
