Chair Powell’s Jackson Hole speech lasted around 8 minutes, and in it, he delivered a more straightforward message with less opportunity for mistakes in interpretation. In short, interest rates will continue to go up as Fed officials are planning to take actions that will bring the economy down to a manageable level and reduce inflationary pressure. Meanwhile, recent data show that the economy is accelerating again, and the labor market remains historically tight. Following a strong 305k August employment report next week, this could bring a 75bps rate hike in September, although core inflation will be dampened by used cars and released on September 13 with persistently good details.
The Hot Zones this Week
Each week there are zones where trading can get wild. I call these the hot zones. This week i found Citi’s Calls on the economic data that we observe.
- Nonfarm Payrolls – Citi: 305k, median: 300k, prior: 528k
- Private Payrolls – Citi: 285k, median: 300k, prior: 471k
- Manufacturing Payrolls – Citi: 15k, median: 18k, prior: 30k
- Unemployment Rate – Citi: 3.4%, median: 3.5%, prior: 3.5%
Global Spotlight
The Artemis I mission, which is being launched by NASA, will be the first to visit the moon. On Aug. 29, NASA plans to launch its first major project under its Artemis lunar exploration program. The goal of the Artemis I expedition is to assess how well the Space Launch System, a new U.S. space agency rocket that is currently under development and planning for a test flight in 2018, and the Orion spacecraft perform in preparation for future crewed missions. In addition to restoring America’s ability to send astronauts back to the moon for the first time in five decades, the United States is working toward establishing rules for future space exploration and resource development by having other countries that want to join the ambitious Artemis program sign bilateral deals with NASA. Washington aims to persuade its vision of how space should be governed through these accords and push back against China and Russia’s own interpretation of space law.
The German chancellor is expected to offer his vision for the future of Europe during a speech in Bratislava, Slovakia on August 29. The Czech Republic (which holds the European Union’s rotational presidency) will see German Chancellor Olaf Scholz speak on August 29. The Ukraine invasion led Germany to have to change its view of Russia, including canceling the Nord Stream 2 pipeline and delivering weapons to Ukraine. Although Scholz has given a short-term response, he has yet to give a comprehensive plan for Berlin’s foreign policy or EU policy in the long term. The continuing energy crisis is set to be the major discourse at Scholz’s speech, which will take place just hours after President of Ukraine Petro Poroshenko delivers a similar address in The Hague. While Russia faces international fury over its actions in Ukraine and elsewhere, Scholz is expected to propose solutions for diversifying away from Russian oil and gas supplies while also enhancing EU self-reliance and lowering carbon emissions. His speech will also discuss EU expansion and include proposals for European Union defense and security integration (in keeping with Scholz’s earlier plan to raise military spending).
The leaders of Armenia and Azerbaijan are set to meet in Brussels for talks led by the European Union on Aug. 31. This news arrives as Azerbaijani forces take control of the Lachin Corridor per the two countries’ 2020 cease-fire agreement. Soon, an alternative road between Armenia and Nagorno-Karabakh that bypasses Lachin will be operational. While it is unclear what will come of the meeting, its purpose likely is to chart a course for completion of the remaining stipulations of the 2020 cease-fire and to avoid any violent flare-ups that would threaten negotiations on a comprehensive peace settlement. One possible outcome of the meeting may be further clarity regarding when Armenian forces stationed in Nagorno-Karabakh will withdraw from the region – something officials have said they would do as early September.
The Chinese government has announced plans to implement data export restrictions. On Sept. 1, China’s data export security examination measures will come into force. These provisions describe how the Cyberspace Administration of China (CAC) will distinguish between foreign companies that require or don’t require a security assessment before releasing information from China. Although overseas businesses are anxious about the new changes, many details are still ambiguous and leave room for interpretation. This lack of clarity surrounding what data practices will be most closely monitored leaves companies in a vulnerable position. The Chinese government has demanded enforcement discretion when it comes to safeguarding its ideas of national security and data sovereignty.
Stratfor.com
Economic Calendar
The most important data points to look at before the September FOMC are the jobs report released this Friday, and CPI for August on September 13.
We expect a more modest but still solid increase of 305,000 in August, following a significant upside surprise in nonfarm payrolls in July. Perhaps more crucial for the inflation picture is average hourly earnings, which we anticipate rising by 0.4 percent. While this is lower than the 0.5 percent MoM advance seen in July, it would nonetheless track along with stronger readings from the Atlanta Fed wage tracker and employment cost index. The unemployment rate should come down to 3.4%, reflecting additional job creation in the household survey.
Overall, we anticipate this report to reveal a still quite tight labor market, which will keep the Fed on edge about strong underlying inflationary pressures.
We are predicting that the ISM Manufacturing Index will print a score of 50.8 for August on Thursday, with some components potentially being in contractionary territory. With this combined51.3 PMI Manufacturing Index for August, it seems to be signaling a large slowing down of manufacturing rather than a full-on contraction.
On Tuesday, the Conference Board Consumer Confidence Index is expected to rebound to 98.2 from 95.7 over months of declines. We anticipate residential construction to decrease by 1.1% in July, owing to lower housing demand and slowing home prices.
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
Aggregate Estimates and Revisions
- 22Q2 Y/Y earnings are expected to be 8.5%. Excluding the energy sector, the Y/Y earnings estimate is -2.2%.
- Of the 486 companies in the S&P 500 that have reported earnings to date for 22Q2, 78.0% have reported earnings above analyst estimates. This compares to a long-term average of 66.1% and prior four quarter average of 80.6%.
- During the week of Aug. 29, 10 S&P 500 companies are expected to report quarterly earnings.
Source I/B/E/S data from Refinitiv
