Happy Monday, everyone! It's looking bloody out there, and I believe it could get worse. Let's take a look at what's happening this week and why it matters!
Earnings
We have some key earnings this week. Here's what I have my eye on.
Apparel: EXPR, LULU
Banking/finance: BMO, FUTU
Retail/ecommerce: BBY, CHWY, FLWS
Staples: CPB, HRL
Tech: AI, AVGO, BIDU, CRWD, HCP, HP, HPQ, OKTA, PD, S
Because estimates have been brought down so much by sell-side analysts, we could see some 'beats,' but they aren't necessarily the sort of beats worth celebrating. Something Ayesha has spoken about and she's absolutely right to raise the red flag on this.
What interests me the most in these earnings is any clues we get from these companies regarding their industry, sector, and the broader macro environment. I suspect that many will express concern regarding what they're seeing for the rest of 2022 and the year ahead.
Economic Calendar
This week has a somewhat less intense economic calendar compared to weeks prior. There are no econometrics being released today (Monday), but FOMC Vice Chair Lael Brainard will be speaking this afternoon at 2:15 pm and I would be surprised if she doesn't reiterate the hawkishness from Chair Powell. While she has been seen as a dove in the past, she hasn't been particularly dovish in her recent appearances.
As the week goes on we do get Consumer Confidence and JOLTS on Tuesday, both of these data points are key. Consumer Confidence has been falling, and is expected to rise just slightly from last month's reading of 95.7 to 97.4.
JOLTS is expected to show a drop in job openings from 10.7M to 10.43M. Falling job openings tend to lead a rise in unemployment claims. Both of which are increasingly likely as this recession drags on.
After those data points, FOMC Member Williams will be speaking on Tuesday. Once again, I expect reiteration of Powell's hawkish chatter. The market was content to ignore a consensus among other Fed members prior to Jackson Hole regarding their propensity to keep tightening. It will be curious to see if the market continues to members other than Chair Powell. I don't think that it will.
On Wednesday the day starts off with another Fed speaker, Mester, who was pretty hawkish at Jackson Hole regarding her determination to fight inflation. I suspect more of the same. Then we have ADP Non-Farm Employment. I don't take this number quite as seriously as ADP has a somewhat limited set of data to examine, but it's still worth watching with a build of 310K new jobs expected vs last month's gain of 128K. Nevertheless, strong employment data enhances the Fed's resolve to tighten further.
Then we will have the Chicago PMI coming out, and PMI readings there have been hovering just above contraction, with this latest data point expected to come in at 52.5. Anything below 50 would indicate contraction.
On Thursday we get Unemployment Claims and ISM Manufacturing PMI. Both of which are key for macro watchers who are looking for signs of how healthy the economy is and, in particular, the labor market and manufacturing industry. Like other PMI readings, any measure below 50 would indicate contraction. The consensus is for a reading of 52.1 this time.
Finally, on Friday we have Average Hourly Earnings, Non-Farm Unemployment, and the Unemployment Rate. All of which are key econometrics regarding the labor market's health. An area that the Fed has said remains robust, and quite frankly an area they need to inflict pain upon to achieve policy goals. Until we see that pain truly manifest itself, or unless inflation subsides, I don't believe the Fed will relent in their tightening process.
Treasury Auctions
This week the Treasury auction schedule is extremely light, and that's probably a good thing as the Fed's QT program is set to accelerate to a run rate of up to $95 billion per month come Thursday, that's up to $60 billion in treasury securities being allowed to mature, as well as up to $35 billion in mortgage-backed securities being allowed to mature, sold, or otherwise removed from the balance sheet.
This all comes as the US Treasury has increased Q3 debt issuance 2.5 fold to $444 billion, and is likely set for a similar amount of issuance in Q4. More supply, less demand, not a great thing for the land of long duration risk, which tends to key off US sovereign duration rates and pricing.
In conclusion
It is likely that this will be another volatile week for markets that adjust to a new reality. One where many are reconsidering their appetite for risk and beginning to embrace the timeless mantra, "don't fight the Fed."
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