Next week: Powell’s Jackson Hole speech has raised the importance of the job market data, which is seen as the key factor in the Fed’s taper timing decision. Payroll growth figures for June (+938,000) and July (+943,000) were inflated by a seasonal quirk in education (which added about 270,000 in both months). Payrolls are likely to have risen at a strong pace in August, but well below the headline numbers that we saw in the two previous months. ISM surveys may reflect a modest impact from the delta surge, but we should also see further evidence of bottleneck pressures and supply issues.
Investors have become increasingly concerned about the outlook for economic growth; the flash August PMIs gave a first glimpse of economic activity at the end of the summer, and despite some modest deceleration, continue to signal the pace of economic activity remains solid. At the same time, although durable goods orders missed estimates, they still increased ex-transportation and importantly, unfilled orders continue to move higher. One highlight of both the PMI and durable goods data is that supply backlogs are ongoing, as the ratios of new orders-to-inventories and unfilled durable goods orders-to-shipments both remain above their long-term averages of 1.2x and 6.1x, respectively. This suggests that an inventory rebuild could act as a tailwind for growth over the coming quarters. Turning to the demand side of the equation, consumer balance sheets remain solid, as personal income rose 1.1% in the month of July and the savings rate remained elevated at 9.6%; this dynamic should support a continued rotation in consumption away from goods and toward services. Although prolonged supply chain constraints along with strong demand may lead inflation to be stickier than expected, a less concentrated recovery should support above-trend economic growth over the next 12 months. For investors, an extended period of above-trend growth should provide support for value relative to growth, particularly given that long-term rates have yet to move higher from extraordinary low levels.
–JP Morgan
Happy Monday. Good Luck out there this week.
Global Spotlight
A regional summit in Baghdad. The Iraqi government will host the Baghdad Conference for Cooperation and Partnership on Aug. 28 in Baghdad’s Green Zone. High-level representatives from Saudi Arabia, Iran, Qatar, the United Arab Emirates, Kuwait, Jordan, Turkey and Egypt were invited to attend.
The deadline for a full U.S. withdrawal from Afghanistan. U.S. President Joe Biden has said he remains committed to the complete withdrawal of troops from Afghanistan by Aug. 31. There is a high risk for additional terrorist attacks against U.S. forces by the Islamic State, which is capitalizing on the confusion at the Kabul airport and the political sensitivity around the withdrawal.
Ukraine’s president meets with Biden. Ukrainian President Volodymyr Zelensky will visit Washington on Aug. 30 for a long-awaited meeting with U.S. President Joe Biden. There are several points of contention between the two sides, including the recent U.S. deal allowing Germany to complete its Nord Stream 2 pipeline with Russia.
South Korea’s defense chief visits Egypt and Oman. This will mark the first visit of a South Korean defense minister to Egypt, and follows Seoul’s decision earlier this year to designate Egypt as an ODA priority partner country for 2021-25.
A potential U.S.-China meeting on climate issues. Following his Aug. 31 trip to Japan, U.S. Climate Envoy John Kerry is expected to visit China from Sept. 1-3 ahead of the November U.N. Climate Conference.
Stratfor.com
Economic Calendar
Briefing.com has a good U.S. economic calendar for the week. Here are the main U.S. releases.
Briefing.com
Last Weeks Numbers
Review Last weeks numbers here.
In his Jackson Hole speech, Fed Chair Powell said that the “substantial further progress” test has been met on inflation, although the labor market is not quite there. The delta variant is a wildcard, but he and most other Federal Open Market Committee (FOMC) participants believe that “if the economy evolved broadly as anticipated, it could be appropriate to start reducing the pace of asset purchases this year.” Powell stressed that “the timing and pace of the coming reduction in asset purchases will not be intended to carry a direct signal regarding the timing of interest rate liftoff.”
Real GDP rose at a 6.6% annual rate in the second estimate for 2Q21, with very minor component revisions. Personal income rose 1.1% in July (+2.7% y/y), led by a 1.0% rise in private-sector wage and salary income (11.2% y/y). Child tax credit payments more than offset declines in unemployment benefits. Consumer spending rose 0.3% (12.1% y/y) as a 1.0% increase in services more than offset a 2.3% drop in consumer durables. The PCE Price Index rose 0.4% (+4.2% y/y), up 0.3% (+3.6% y/y) ex-food and energy. Durable goods orders edged down 0.1% in July, held back by a 48.9% drop in civilian aircraft orders. Ex-transportation, orders rose 0.7%. Orders for nondefense capital goods ex-aircraft, a rough proxy for business fixed investment, were flat, but that followed exceptionally strong gains in recent months.
-Scott Brown Raymond James
Earnings
Source I/B/E/S data from Refinitiv
Aggregate Estimates and Revisions
- 21Q2 Y/Y earnings are expected to be up 95.4%. Excluding the energy sector, the Y/Y earnings estimate is 79.9%.
- Of the 489 companies in the S&P 500 that have reported earnings to date for 21Q2, 87.7% have reported earnings above analyst estimates. This compares to a long-term average of 65.6% and prior four quarter average of 83.4%.
- 21Q2 Y/Y revenue is expected to be 24.9%. Excluding the energy sector, the growth estimate is 20.8%.
- During the week of August 30, 9 S&P 500 companies are expected to report quarterly earnings.
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