Happy Labor Day weekend, friends! The holiday-shortened week ahead has a fairly light calendar, but there are some economic events and earnings worth watching.
On Tuesday we have a slew of PMI data to watch. Last month's readings on Services and Composite PMI showed contraction, which is recessionary. Expectations are for a continuation of that theme for August. Meanwhile, ISM Non-Manufacturing PMI is expected to show some level of expansion during August.
On Wednesday we'll get the balance of Balance of Trade data as well as a speech from Vice Chair Brainard. I imagine if she discusses policy she will be taking a more hawkish view, similar to other Fed speakers, but I don't imagine that will be much of a shock to the market.
On Thursday we hear about Initial Jobless Claims, which are expected to rise marginally from the month prior. So far we haven't seen a meaningful increase in unemployment, despite hearing of many companies laying off employees. Part of this may be due to the fact that there's approximately two jobs available for every one person seeking work.
We'll also hear from Chair Powell, who is likely to reiterate what he said at Jackson Hole: more pain to come, the Fed's job isn't over yet, and inflation is the single policy mandate they are concerning themselves with.
On Friday we get Wholesale Inventories, which saw an enormous rise in Q1 and ever since we've seen retail trying to work through them by marking down prices. The surge in inventory building due to supply chain snarls caused a lot of grief in the sector that went from under supplied to overstocked.
Overall, from prior econometric data that we've seen, it's clear that the US economy is seeing signs of slowing, but what isn't clear is just how deep that slowdown will become. A lot of that depends on the Fed and the resiliency of businesses and the consumer.
These economic data readings help to give us a bit more clarity as to what happened, especially if we drill into the data.
We have a very light week of earnings ahead as we wind down earnings season. I think it will be worth keeping an eye on some of these companies, however, as they could have interesting insights to share.
Apparel: AEO — Will seasonality and inventory backlogs be a problem? Something Ayesha has discussed previously that is plaguing apparel companies.
EV: NIO — Subdued demand for EVs has been a quandary during the COVID lockdowns in China, will that headwind hurt Nio's earnings more than expected?
Meme: GME — Are the plans to revitalize this relic of the 90s going anywhere? Will NFTs and a halfhearted attempt to turnaround a legacy company really be enough?
Retail: RH — With home sales slowing and consumer budgets tightening, RH is likely to face increasing pressure. What will their bombastic CEO say about their outlook?
Staples: KR – The grocer has fared pretty well throughout this storm, but staples aren't getting the love they used to as they aren't quite as defensive in an inflationary environment as was suspected. Part of this is due to a lack of pricing power.
Tech: ASAN, DOCU, GTLB, PATH, and ZS – These tech firms are differentiated, but may suffer similar fates with the exception of perhaps ZS. The cybersecurity side of the budget is proving to be more resilient than other tech spending which has slowed meaningfully.
This is a very light week for auctions, with just bills being sold by the Treasury. What's interesting, however, is that the Fed will begin redeeming coupons as a part of their expanded QT.
While I don't expect that to have a meaningful impact on the short end of the curve, it is worth watching nevertheless. I believe the reverse repo market has illustrated that there's plenty of demand for short-term paper for now.