The month of July has been a splendid month for investors. The fed funds futures market is pricing in another 100 basis points of rate hikes for the remainder of 2022, with the target range for the fed funds rate topping out at 3.25-3.50% in December, according to the CME’s FedWatch Tool. Then, the fed funds futures market thinks the Fed will cut rates two times in the first half of 2023, leaving the target range at 2.75-3.00% in June 2023. This is good news for investors who have been waiting for the Fed to begin tightening monetary policy. The Personal Income and Spending Report for June was not good. It featured high inflation, weak real spending, a decline in real disposable personal income, and a drop in the personal savings rate. However, July’s strong stock market performance has more than offset these weak economic data points. The S&P 500 is up 6% so in July and is on track to post its best monthly gain since February 2020. Investors are betting that ongoing progress on vaccines and stimulus will help to support a strong economic recovery in the second half of the year. So far, July has been a splendid month for investors. Let’s hope that this trend continues for the rest of the year.
The Hot Zones this Week
Each week there are zones where trading can get wild. I call these the hot zones.
- Non Farm Payroll
- Unemployment rate
There is good news on the unemployment front: rates decreased in all 50 states and the District of Columbia from June 2021 to June 2022. The largest decreases occurred in California (−3.7 percentage points) and Rhode Island (−3.5 percentage points). Nationally, the unemployment rate of 3.6 percent was 2.3 percentage points lower than in June 2021.
These decreases are a welcome relief after the widespread job losses of the past year. However, it is important to remember that the job market is still not back to where it was pre-pandemic. In some states, unemployment rates are still higher than they were a year ago. And even in states where rates have declined, many people are still struggling to find work.
The good news is that the trend seems to be headed in the right direction. As more businesses reopen and more people get vaccinated, we can hope that the job market will continue to improve.
Global Spotlight
The first shipment under the Russia-Ukraine grain deal. According to the office of Ukrainian President Volodymyr Zelensky, the first shipment under the Russia-Ukraine grain deal is likely to commence next week. The Russia-Ukraine grain deal was struck on July 22, and under the terms of the deal, Ukraine will export grain from a Ukrainian Black Sea port. Zelensky attended the loading of the first ship set to export grain from the port of Chornomorsk on July 29. The Russia-Ukraine grain deal is a significant development for both countries. For Ukraine, the deal provides an opportunity to export grain to Russia, a market that has been traditionally closed to Ukrainian grain exports. For Russia, the deal provides an opportunity to import grain from Ukraine, a country with a surplus of grain. The Russia-Ukraine grain deal is a win-win for both countries.
Senegalese legislative elections. The main opposition coalition in Senegal, Yewwi Askan Wi, will attempt to win a legislative majority in elections on July 31. This will be a challenge, as President Macky Sall’s ruling party currently holds the majority. Tensions have been running high in Senegal since the country’s Constitutional Council banned a list of opposition candidates from participating in the election. This decision led to protests and violence between protesters and police in mid-June, which resulted in three deaths. The ban on opposition candidates has caused many people to question the fairness of the upcoming election. However, it is still unclear how this will impact the final results. The outcome of the election will be closely watched by observers both within and outside of Senegal.
Erdogan meets Putin in Sochi. Turkish President Recep Tayyip Erdogan on Aug. 5 will visit Russian President Vladimir Putin in Sochi, Russia. The two leaders will likely discuss a number of topics of mutual interest, including the grain deal to bring Black Sea wheat back onto the world market and possible future Russian investments in Turkey. Additionally, they may also discuss the sale of Turkish drones to Russia, which Moscow has expressed interest in after their combat performance in Syria, Libya and Ukraine against Russian or Russian-backed forces. Ultimately, this meeting is just one example of Turkey’s balancing act between its allies in the West and Russia. By maintaining good relations with both sides, Turkey is able to maximize its influence and pursue its own interests more effectively.
Pelosi’s Asia trip begins. U.S. Speaker of the House Nancy Pelosi will leave on a tour of Asia on July 29, with stops in Japan, Singapore and Indonesia. She has yet to confirm whether she will visit Taiwan, a stop that could prompt diplomatic tensions between China and the United States, and even a military show of force. Experts say that Pelosi’s tour could have major implications for financial markets in the region. For example, if she visits Taiwan, China could respond by selling U.S. Treasury bonds, which could lead to higher interest rates and a weaker dollar. Pelosi’s tour will thus be closely watched by investors around the world.
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.
Earnings
Analysts are expecting strong earnings growth in the first quarter of 2022, with an overall estimate of 11.3% growth year-over-year. Excluding the energy sector, which is prone to fluctuating prices, the earnings growth estimate is a more modest but still healthy 5.2%. So far, of the 495 companies in the S&P 500 that have reported earnings, an impressive 77.4% have beat analyst estimates. This is well above the long-term average of 66% and also higher than the prior four quarter average of 83.1%. With only a handful of companies left to report earnings for the week, it’s expected that this trend will continue. As a result, investors can expect strong earnings growth for the first quarter of next year.
Aggregate Estimates and Revisions
- 22Q1 Y/Y earnings are expected to be 11.3%. Excluding the energy sector, the Y/Y earnings estimate is 5.2%.
- Of the 495 companies in the S&P 500 that have reported earnings to date for 22Q1, 77.4% have reported earnings above analyst estimates. This compares to a long-term average of 66% and prior four quarter average of 83.1%.
- During the week of Jun. 6, 3 S&P 500 companies are expected to report quarterly earnings.
Source I/B/E/S data from Refinitiv
