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Navigating the Week Ahead: September 12th 2022

Updated: Sep 12, 2022

We hope everyone's having a great weekend! The week ahead promises to be quite busy, especially in terms of the economic events and Treasury auctions, but there are a few key earnings to watch as well.

Economic Calendar

Tuesday brings us CPI, which tends to move the market. The year-over-year consensus is 8.1% for the month of August. Markets expect a month-over-month reading of -0.1%. Last month we saw a year-over-year increase of 8.5% and month-over-month reading of 0.0% for July's reading, which gave rise to a powerful rally as the 'peak inflation' narrative hit a fever pitch.

Most of the decrease in the last month-over-month CPI reading had to do with volatility in energy prices. That seems to have somewhat stabilized during August, though we have seen gasoline prices continue to decline.

On Wednesday we have PPI. Last month we had a month-over-month reading of -0.5%. This month the consensus is -0.1%. Similar to CPI, PPI saw a mildly negative reading that was largely predicated on volatility within energy prices. Nevertheless, that negative reading did help to provide additional momentum for the equity market rally we saw follow.

Thursday brings us retail sales, which is particularly key to the XRT retail sector ETF, but has an impact on the market as a whole because consumer participation in the economy is about 66% of US GDP. Last month we saw a month-over-month reading of 0% for July, and that is the consensus for August's reading as well.

Finally, on Friday, we get Michigan Consumer sentiment. This data set has been near historic lows as consumers have been justifiably concerned about the toxic brew of inflation and economic weakness. The last reading was 58.2, with a consensus of 60 for the September preliminary data set.

We'll also have what is likely to be a rather significant triple witching expiration on Friday. This is generally a volatility driver, and because volatility product expiration (VIXperation) comes the following Wednesday, some forms of hedging are likely to be more difficult, and that could amplify tail risk on the left side.

Earnings Calendar

We have a light week of earnings ahead, but I think it's important to keep a close eye on Oracle and Adobe. They are both significant and differentiated technology companies with insights in to their respective businesses and the macro environment they see.

I suspect Oracle will do well, but Adobe is more of a wildcard. I'm looking for Oracle's cost cutting and business optimization, as well as increasing focus on cloud services to prove rewarding.

Adobe, however, is less certain to me. I believe that their business model faces a bit more risk in a constrained spending environment.

Treasury Auctions

Next week brings $187 billion of Treasury auctions. This will be a key test as it's the biggest auction week so far in September, as the Federal Reserve's quantitative tightening (QT) program kicks in to full gear to a run rate of up to $95 billion per month. With up to $60 billion in Treasuries and $35 billion in mortgage-backed securities rolling off of the Fed's balance sheet.

This means there will be less non-competitive demand at Treasury auctions at the same time that the Treasury has already upscaled their Q3 debt issuance 2.5 fold to $444 billion.

This increase in supply and decrease in demand from the Fed could create some additional upward pressure on rates and add to the volatility in multiple markets, including bonds, equities, and currencies, as liquidity is further reduced.

In conclusion

The week ahead could prove to be more volatile than usual, with less liquidity, many significant economic events, a large amount of Treasury auctions, two key tech earnings, and triple witching.

Be nimble! Smaller position sizes and disciplined risk management will be key. Stepping aside on Friday isn't a bad idea for inexperienced traders.


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