Happy Sunday! We've got a busy week ahead, especially in the economic calendar. Let's dive into what's worth watching, why, and how it may matter for the markets and economy.
Earnings calendar
As we approach the end of earnings season, we have a number of key companies reporting in the week ahead from various industries. Retail being a key theme, but we also have some important tech companies reporting.
On the retail side, I am watching America's Cart Mart, Bath and Body Works, BJ's, Foot Locker, Home Depot, Kohl's, Lowe's, Ross, Target, TJX, and Walmart. Retail earnings will give us a sense of how healthy consumers are, as well as what the industry is doing with pent up inventory, particularly on the discretionary spending side.
We'll also get a sense as to whether home owners are continuing the trend of home improvements we saw post COVID from Home Depot and Lowe's. Given that HELOC rates are rising, and consumer pocketbooks as have risen over the last quarter, I would imagine this spend has slowed.
In tech and growth world we have Analog Devices, Applied Materials, Bill.com, Cisco, Global-e, NetEase Games, and Sea Limited. These earnings will be important to gauge whether the rally in semiconductors, cloud, ecommerce, and other tech is supported by the some of the fundamentals of key players. Of course this fundamental data is backward looking, but if we see things like sequential quarter-over-quarter slowdowns as we have in the likes of Amazon, Google, Tesla, and others, it may be additional cause for concern.
Other notables include Estée Lauder, John Deere, Weber, Zim, and Zip Recruiter. I'm interested in all of these as they each offer insights into other key areas of the economy, such as discretionary spending with Estée Lauder, agriculture with John Deere, whether Weber is seeing decreased discretionary spending during a key time when grilling season is starting to ramp up, how the shipping and cargo industry looks through Zim's lens, and what we hear about hiring trends from Zip Recruiter.
Economic calendar
The economic calendar is full of fun, kicking off with the Empire State Manufacturing Index (expected at 5.0), which gives us a glimpse in to industrial activity in New York, as well as the NAHB Housing Market Index (expected at 54), which helps to give us a sense as to the health of demand for homes, all on Monday. The last Empire State Manufacturing Index read showed expected conditions deteriorating markedly. Should this trend continue and if current conditions weaken further that would be a rather negative sign.
On Tuesday we have Building Permits, Housing Starts, Industrial Production, and Mortgage Delinquencies. All of these data points are important to watch. Housing tends to lag other financial assets because real estate isn't nearly as liquid. Purchasing and settlement take much longer than assets like stocks or bonds. As a result if we see continued slowness in housing, especially as rates are dropping, that will be further confirmation that consumers are putting off larger purchases and that near record low home buyer sentiment is a driving factor due to inflation and a weakening economy.
On Wednesday we have retail sales, which is especially insightful during a week full of retail earnings. We'll also have FOMC minutes, business inventories, and crude oil inventories, all of which will be very important to watch.
For retail sales the expectation is just 0.2%, so it's set rather low and may be beaten, but the broader trend in real terms is that retail sales have been sideways to lower since May of 2021.
FOMC minutes are pivotal for market sentiment, as we may see some more clarity on what members were thinking during the 75 bps rate hike, whether they see more to come (some have signaled that they do), and whether the "data dependent" view that Powell has expressed is something that others share. When doves like Kashkari and Daly have come out expressing concern about how the market may be mispricing the Fed's policy trajectory, I think confirmation of that view from the minutes would be a potential negative catalyst.
Business inventories are expected to have risen by 1.4% month over month, but this may soften somewhat as we're seeing a fair amount of discounting. Inventories grew significantly in Q1 of 2022 as a result of supply chain constraints causing businesses to over order in order to try to avoid those bottlenecks. This has created a big overhang that we may see expressed in earnings and outlooks once again.
Thursday brings us Philly Fed Manufacturing and Unemployment Claims. Philly Fed Manufacturing is another important metric to watch in terms of industrial activity, expected to come in at -4.5. Unemployment Claims are expected to rise 265K for the month of July. Any number higher than that will probably give some tailwinds to the "Fed Pivot" narrative, but I don't think it will matter for the Fed unless we start seeing much, much higher claims.
Options expiration calendar
On Wednesday we have volatility production expiration (VIXperation) and on Friday we have the monthly options expiration.
These both tend to be drivers of volatility, and as we toward the end of the week we will see Vanna flows begin to dry up, which tends to amplify the potential for leptokurtic risk distribution intraday as we're already in a rather illiquid market.
Treasury auctions calendar
We've got a number of bill auctions on Monday and Thursday, as well as a 20-year auction on Wednesday and a 30-year TIP auction on Friday. These auctions aren't quite as big as last week, but it will be very interesting to see the demand for the 20-year and 30-year auctions.
In conclusion
Next week has no shortage of event volatility catalysts, from earnings, to economic data, VIXperation, options expiration, and the longer dated Treasury auctions. Keep yourself prepared for larger than normal moves, particularly toward the end of the week. That doesn't mean they will happen, but it does mean that they're more likely.