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Navigating the Week Ahead: September 26th, 2022

We're approaching the last week of September, and you know what that means, right? It's the end of the third quarter! That means we're not too far from the next earnings season and we're also going to see the end of quarter rebalancing flows potentially impact markets. Let's dig in!

Economic Calendar

We might as well close the markets next week and just let all these Fed speakers jabber on. There's so many of them!

While I don't expect their speeches will have an enormous impact on markets, they could still have some effect on price discovery given that many are keen to hear just how aggressive this Fed is going to be after a dot plot that suggests a 4.4% Fed Funds rate before 2022 ends!

We have a fair amount of important economic data, including Durable Goods, New Home Sales, Wholesale Inventories, Retail Inventories, CB Consumer Confidence, Initial Jobless Claims, GDP, PCE, and final University of Michigan Consumer Sentiment. All of which are worth watching closely to get a sense of how the economy is doing.

The most closely watched will likely be PCE, and particularly Core PCE, as that's the Fed's favorite measure of inflation, which they target for a 2% y/y rate. Something we're not likely to see until at least 2024, if at all.

Earnings Calendar

Earnings will be pretty light next week. The ones that interest me are Car Max, Carnival, Jeffries, Micron, Nike, Rite Aid, and TD Synnex. Each gives me a slightly different view of the economy.

Questions I have that each earnings call may help to answer --

Car Max: Is the used car market showing any signs of life as car prices fall back to Earth?

Carnival: Is discretionary spending for travel showing further signs of contraction as consumers pull back?

Jefferies: Investment banking is seeing a significant slow down in deals made and IPOs issued, it will be interesting to see how we see Jefferies fairing in this environment, and what insights they may have about their industry as we approach Q3 earnings season, with other major financial institutions kicking it off.

Micron: A leader in DRAM and flash memory, the company has its finger on the pulse of the hardware side of the technology industry. A slowdown is likely to continue in PC sales, but just how deep? Micron could shed light on that.

Rite Aid: The blend of having exposure to durable health care product demand with being a retail store makes Rite Aid interesting to watch. We're seeing more fulfillment of prescriptions and other health care product needs by ecommerce, as well as consumers in the bottom segments of income earners more likely to defer costs wherever possible. How does Rite Aid and its ilk fair in this environment?

TD Synnex: A wholesale distributor of technology hardware, services, and software, TD Synnex has interesting insights working with thousands of IT companies directly all over the planet. The demand (or lack thereof) that they see could be helpful for seeing just how robust business IT spending has been and is going to be moving forward. Will we see companies start to pull back?

Treasury Auctions

This week we have $241 billion in Treasury auctions, with $123 billion in 2-to-7-year notes on Monday, Tuesday, and Wednesday. After rates on the shorter to middle end of the curve have risen so much, I think we'll see healthy demand for Treasuries, but these auctions are worth watching closely, because if any were to go poorly it would not help the mood of the equity market.

Other Notes

Because this is the last week of the quarter, we are likely to see some level of end of quarter rebalancing flows. Bonds underperformed stocks, so it's likely we see some buying, particularly of longer dated maturities.

We're also nearing the end of the month so I suspect we will see Vanna flows come back to support the market early in the trading day, but they are likely to be fairly subdued with put skew so low.


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