Today, we are seeing sharp corrections across asset classes as Draghi and the ECB disappointed investors’ very high expectations for substantially more easing.
And as a result, financial professionals around the country are being asked by nervous clients:
Why are the markets so volatile this morning?
Our subscribers to the full, paid edition of The Sevens Report knew exactly what to look for in the ECB report and more importantly how it would affect client portfolios thanks to our ECB Preview yesterday and have been able to confidently relay that information to their clients today.
In that preview we stated:
Hawkish If: The ECB chooses to ease via one or two channels as opposed to three. What I mean is the ECB chooses to just increase the QE program, just extend the length of the program, or just cut the deposit rate. So, to meet market expectations and not be taken as hawkish, all three ways of additional easing need to be implemented. Likely Market Reaction: Substantially more easing is priced into markets so this would be a shock. The euro would surge (easily up 1% and maybe 2%), the dollar would drop sharply (which the Fed would love), European stocks would drop sharply and German bund yields would surge (which would likely send Treasury yields higher also).
The Euro Surged more than 2% after Draghi and the ECB disappointed the market.
So as stocks are down 1% for the second day in a row, our subscribers know exactly what is driving the markets and have since yesterday morning at 7am which allows them to easily field phone calls and calm their nervous clients, showing them that they are in control.
Not only do our subscribers project confidence, they have the track record to back them up.
An advisor recently wrote in saying “Thanks for your continued insight; it has saved my clients over $2M USD this year… Keep up the great work!”
And while the markets have already moved substantially today…
- The biggest data point of the week is still to come as the November Jobs Report looms tomorrow morning.
Our subscribers, received our jobs report preview this morning in a very similar format to the ECB preview we provided them with yesterday morning, and we are confident they are prepared for any possible outcome in tomorrow’s official employment number.
We all know that the multi-year bull market is at a tipping point, one that very well may still be resolved before year end, and that process continues tomorrow with the jobs report.
Understanding, in real time, what the economic data means for the market is vitally important as we near the first rate hike in almost 10 years, because if the number surprises it will have implications for the Fed and that will affect client portfolios.
We deliver the paid version of The Sevens Report to subscribers every day at 7 AM EST because in today’s macro dominated global economy, it is essential to have clear, concise coverage of all markets that cuts through the noise and tells you what you need to know about risks and opportunities in stocks, bonds, currency and commodities.
Specifically, we take complex macro-economic concepts like Chinese economic developments, FOMC Statements, Manufacturing PMIs, Japanese and European QE outlooks and tell you:
1) What you need to know,
2) What will move markets, and
3) What will make those events positive or negative for stocks and other asset classes: Commodities, Currencies, and Bonds.
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Our subscriber base, which includes hundreds of wire house and independent advisors, asset management professionals, hedge funds and institutional trading desks, always know what to look for in releases such as the ECB and official government jobs reports.
As a courtesy, we provided an excerpt from today’s Sevens Report that contains our standard “Jobs Report Preview” that we provide to subscribers every month during jobs week so they are fully prepared for the market reaction to any potential data print.
Jobs Report Preview (Sevens Report Excerpt)
The key for this jobs report near term is obviously whether it solidifies a December rate hike. It most likely will, because the window for this jobs report to be “just right” is pretty wide, with “just right” meaning a December hike, and then no second hike until June 2016.
“Too Hot” Scenario (December hike and second hike before June 2016)
· > 250k Job Adds, < 5.0% Unemployment Rate, > 2.5% YOY wage increase. A second consecutive blowout jobs number wouldn’t alter expectations for December (the Fed would still hike 25 bps) but a number this strong would likely start to pull forward the second hike from June to perhaps March, and that would weigh on stocks. Remember, a “one-and-done” policy from the Fed is the best possible outcome for stocks over the medium term (through Q1/Q2 2016). If that idea is challenged it will have an impact on stocks near term. Additionally, while not nearly as important as the headline job adds, if we see the unemployment rate drop below 5% or wage inflation accelerate further that will strongly imply higher inflation is coming, which will be fodder for the hawks in early 2016.
Likely Market Reaction: Dollar up (big), everything else down. Stocks, bonds and commodities would drop sharply as this is not at all priced into stocks.
“Just Right” Scenario (December hike and a second hike in June 2016
· 150k—250k Job Adds, 5.0% Unemployment Rate, 2.1% – 2.5% YOY wage increase. There is a pretty large sweet spot for this number to meet market expectations, which are a 25-basis-point hike in December and then a long wait till the second hike (ideally, the market would like to see a second hike in June 2016).
Likely Market Reaction: Stocks flat (markets shouldn’t react too much, perhaps a small short-term rally), the dollar declines modestly on a sell-the-news reaction. Bonds should decline (yields rise) and commodities should trade flat. Bonds and the dollar should exhibit the most volatility if the number falls in this range.
“Too Cold” Scenario (no hike in 2015)
· < 140k Job Adds. This is going to have to be a pretty poor number to sway the Fed from hiking in December, although the soft November manufacturing PMI probably upped this level from 100k to around 150k (we are going with 140k).
Likely Market Reaction: The Fed has done a very good job of forecasting a rate hike, so this would be a shock. Bonds would surge, stocks will drop after an initial dovish pop (remember Fed certainty is the key to a sustainable rally medium/longer term), commodities would surge and the dollar would collapse (probably down close to 2% depending on what happens this morning with the ECB).
What we did not include in this email is when these volatile catalysts will become investment opportunities.
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