Fed Signals More Hikes, All Eyes on CPI (July 8 Market Recap)

July 9, 2022

Fed Signals More Hikes, All Eyes on CPI (July 8 Market Recap)

Indices

Dow 31,388 +291 or +0.93%

Nasdaq 11,635 +508 or +4.5%

S&P 3,899 +74 or +1.9%

USD10Y 3.101% +21.2bp or +7.3%

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Fed Signals More Hikes

The FOMC (Federal Open Market Committee) June meeting minutes were released on Wednesday and suggested that the Fed will continue to raise rates until inflation moderates to an annual rate of 2%. Expectations for the hike to come during July’s end of the month meeting were set for between 50 and 75 basis points. The market, oddly enough, seemed to appreciate the tough talk and perhaps took solace in the fact that the Central Bank believes the economy and especially the labor market are strong enough to withstand such hawkish policy.

All Eyes on June’s Consumer Price Index (CPI)

Despite the beginning of an onslaught of earnings reports to come this week, all eyes will be focused on June’s CPI report that will be published on Wednesday. Expectations are for another hot report; +8.8% Year over Year (YoY), +1.1% Month over Month (MoM), Core YoY +5.7%, and Core MoM +0.5%. Meeting those numbers or exceeding those expectations will absolutely cement what is already most likely going to be a 75-basis point hike when the Fed meets July 26-27. Wednesday’s CPI report will be the last major data point the Fed considers prior to their meeting. The all-important June PCE report will not be released until July 29.

Economic Data Last Week

The economic data was better on balance this week.

Positive

June S&P Global Services Index (Final) beat expectations.
June ISM Services Index beat expectations
May JOLTS (Job Openings and Labor Turnover Survey) increased.
June Non-Farm Payrolls were better than expected.
June’s Unemployment rate remained unchanged at 3.6%.

Negative

WTI (West Texas Intermediate) Crude fell 3.36% this week on recession fears.
The FOMC minutes from their last meeting signaled more rate hikes in July and in September.
Jobless claims printed at 235,000 claims, the highest print since January.
Continuing claims rose again to 1.375 million.
The U.S. 10-Year and 2-Year yields inverted again. Historically, (click this link for a super wonky explanation) this has been an accurate forecast of an oncoming recession (or click this link for the layman’s explanation).

Next Week

While earnings will be in focus next week as the reporting season finally kicks off, all eyes will be on Wednesday’s Consumer Price Index number. On the earnings front, the money center banks will officially kick off the second quarter reporting season starting on Thursday.

Economic Calendar

Monday – N/A.
Tuesday – Earnings: Pepsi (PEP).
Wednesday – June Core CPI. Earnings: Delta Air Lines (DAL).
Thursday – Initial Jobless Claims, June Final Producer Price Index (PPI). Earnings: JPMorgan Chase (JPM), Morgan Stanley (MS), Taiwan Semiconductor (TSM).
Friday – June Retail Sales, July Empire State Manufacturing, July University of Michigan Consumer Sentiment (prelim). Earnings: Wells Fargo (WFC), Citigroup (C).

July 8 Daily Trading Recap…

Monday – Market Closed in Observance of Independence Day.

Tuesday – Dow (129) to 30,967, Nasdaq +194 to 11,322, S&P +6 to 3,831, USD10Y (8.0bp) to 2.809%.

Eight of eleven S&P sectors traded down today, led lower by Energy, Utilities, and Materials. Communication Services, Consumer Discretionary, and Technology were the three winners today.
The U.S. Ten Year Treasury Yield continued to fall, down 8bp today to close at 2.809%. This gave rise to increased recession fears but powered growth stocks to gains on the day.
Crude fell precipitously, down more than 8% to close at $99.50/bbl. This is the first close below $100 (WTI) since May 11.

Wednesday – Dow +70 to 31,037, Nasdaq +39 to 11,361, S&P +13 to 3,845, USD10Y +10.4bp to 2.913%.

Eight of eleven S&P sectors traded up today, led by Utilities, Technology, and Healthcare. Energy was the worst performer, down 1.74%.
June S&P Global Services Index (Final) beat expectations at 52.7 vs 51.4 expected and last month’s 51.6 number.
June ISM Services Index also beat expectations at 55.3% vs 54% expected and last month’s 55.9%.
May JOLTS (Job Openings and Labor Turnover Survey) was 11.3 million vs 11.1 million expected and last month’s 11.7 million print.
The July FOMC meeting minutes were released suggesting that the Fed will continue to combat inflation with increasing rate hikes until which time inflation retreats to the 2% level.

Thursday – Dow +346 to 31,384, Nasdaq +259 to 11,621, S&P +57 to 3,902, USD10Y +9.5bp to 3.008%

Ten of eleven S&P sectors traded higher today, led by Energy, Consumer Discretionary and Technology.
Jobless claims printed at 235,000 claims vs 230,000 expected and last week’s slightly unrevised higher 231,000 print. Today’s number was the highest since January 15. Continuing claims rose again to 1.375 million.

Friday – Dow (46) to 31,388, Nasdaq +13 to 11,635, S&P (3) to 3,899, USD10Y +9.3bp to 3.101%.

Nine of eleven S&P sectors traded down led lower by Materials, Real Estate, and Industrials.
June Non-Farm Payrolls were better than expected with 372,000 jobs added in the month vs expectations of 250,000 and just shy of last month’s 384,000 additions.
June’s Unemployment rate remained at 3.6%.
June Labor Participation Rate declined month over month from 62.3% to 62.2%.
Elon Musk announced he was backing out of his purchase agreement with Twitter (TWTR). TWTR is suing to enforce the purchase @ $54.20/share. TWTR closed Friday at $36.81.

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