In the buzzing world of finance, everyone’s got their eyes on the Federal Reserve. Think of them as the DJ at a massive party, and right now, they’re deciding whether to slow down the beats. Word on the street is they’re wrapping up their rate hikes, with the last one possibly dropping in November. So far, so good. Prices aren’t skyrocketing as fast, and businesses are buzzing with activity. But here’s the tricky part: the Fed’s got to make sure they don’t hit the brakes too hard and kill the vibe.
Now, let’s chat about this recent report that’s got everyone talking: the August ISM services report. Historically, it’s been like that quiet person at the party who keeps to themselves. But this time, they’ve burst onto the dance floor, surprising everyone. The report’s numbers are looking good, and it’s got the market’s attention, big time. You can see it in the way Treasury yields are moving.
But wait, there’s more. The overall economic picture is looking pretty rosy. We’re seeing some solid growth, especially when you peek at the GDP numbers for the third quarter. And hey, for those of you stressing about student loans (I feel you!), there’s some good news. It seems many are getting ahead of the game and paying down their loans before the repayment freeze thaws in October. As we groove through these beats, let’s slide into the next segment and see what all this means for the bigger financial dance floor.
It’s hard to believe that it’s been years since that fateful day when the world stood still. 9/11 wasn’t just a date on the calendar; it became a moment forever etched in our collective memory. Skyscrapers that once touched the heavens crumbled, and heroes emerged from the ashes. For many, it was a day of loss, for others, a stark reminder of the world’s fragility. But amidst the heartbreak, there was unity. Neighbors, strangers, entire nations – we all came together, proving that hope and humanity shine brightest in the darkest hours. Today, we remember, reflect, and honor all those affected by 9/11. Never forget.
As we continue to provide you with valuable insights and market updates, we’re also working to extend the reach of our “Week Ahead” blog post to help more investors stay informed. Growing our readership is a shared journey, and we value your part in it. If you find our analysis helpful, we would be incredibly grateful if you could share this with a friend or a colleague. Your support in broadening our community is greatly appreciated. Together, we can help more investors make informed decisions in these dynamic markets. Thank you for your ongoing support!
Macro Market
Growth
I’ve adjusted my perspective on the US economy, anticipating a soft landing where growth will dip below the trend in 2024 but will stay positive throughout the projected period. I predict the US GDP growth to be 1.9% (4Q/4Q) this year, 0.7% in 2024, and 1.8% in 2025. These figures are approximately 0.4pp and 0.7pp higher for 2023 and 2024 than my previous estimates.
Inflation
I now project PCE inflation to drop to 2.1% y/y in the second half of 2025, which is about two quarters later than what I had anticipated in my earlier mild recession baseline. I anticipate the four-quarter change in core PCE inflation to be 3.7% in 2023, 2.8% in 2024, and 2.2% in 2025.
Federal Reserve
I now foresee an additional 25bp rate increase in November, aiming for a terminal target range of 5.50-5.75%. I anticipate the initial rate decrease in June 2024, followed by quarterly 25bp reductions in the policy rate, amounting to 75bp of rate reductions in 2024 and 100bp in 2025.
Economic Calendar
Briefing.com has a good U.S. economic calendar for the week. Here are the main U.S. releases.
Briefing.com
Last Week’s Numbers
The S&P 500 ended positively on Friday, breaking its three-day downward trend. Even with Friday’s uptick, the index saw a 1.29% decline over the past week. Currently, it boasts a 16.56% increase for the year but remains 7.07% short of its all-time high recorded on January 3, 2022. Graph provided by Jennifer Nash.
A brief overview of the index’s performance in the last 5 days:
Earnings
Source I/B/E/S data from Refinitiv
Aggregate Estimates and Revisions
- 23Q2 Y/Y earnings are expected to be -2.9%. Excluding the energy sector, the Y/Y earnings estimate is 3.6%.
- Of the 498 companies in the S&P 500 that have reported earnings to date for 23Q2, 78.7% have reported earnings above analyst estimates. This compares to a long-term average of 66.4% and prior four quarter average of 73.4%.
- During the week of September. 11, four S&P 500 companies are expected to report quarterly earnings.
Global Spotlight
LNG Strikes Impact Global Markets
The potential escalation of strikes at Chevron’s Gorgon and Wheatstone liquefied natural gas (LNG) facilities in Australia could have significant economic repercussions. The facilities, which account for approximately 7% of the global LNG supply, have already seen limited work stoppages, causing concerns over disruptions to the global LNG supply chain. While Europe doesn’t heavily rely on Australian LNG, any disruption forces Asian buyers to seek alternative sources, intensifying competition with Europe in the global spot market. If the strikes continue for two weeks, the removal of about 1 million tons of LNG could further tighten supply, leading to increased price pressures.
Biden’s Vietnam Visit: Economic Ties Strengthened
U.S. President Joe Biden’s visit to Vietnam signifies a potential upgrade in bilateral relations, emphasizing economic and trade ties. The anticipated “comprehensive strategic partnership” would elevate the U.S. to the same diplomatic level as China, Russia, India, and South Korea in Vietnam’s eyes. This partnership is expected to enhance trade, investment, technology, and training ties. The U.S. could benefit from Vietnam’s emerging semiconductor industry, positioning it as a reliable supply chain alternative amidst tech competition with China. Additionally, the U.S.’s support for Vietnam’s green energy initiatives and maritime defense capacities underscores the economic and strategic importance of the relationship.
Automaker Negotiations: Consumer Impact Looms
The ongoing labor negotiations between the United Auto Workers (UAW) and Detroit’s Big Three automakers are reaching a critical point. The UAW’s demands, which include significant wage increases and a return to traditional pension schemes, come with potential economic consequences. While an immediate strike might not destabilize the U.S. economy, it could advantage foreign automakers and nonunionized plants domestically. Furthermore, if the Big Three accede to the UAW’s demands to avert or end a strike, the resultant cost implications could be transferred to consumers. This might hinder the pace of the U.S.’s transition to electric vehicles.
Senate’s AI Forum: State-Level Regulations Ahead
The U.S. Senate’s initiation of the AI Insight Forum indicates growing legislative interest in artificial intelligence (AI) regulations. As Senate Majority Leader Chuck Schumer spearheads this series of closed-door hearings, the aim is to educate policymakers about AI’s potential benefits and risks. While federal AI regulation efforts are in their infancy, with some contentious measures proposed, the pace of federal action is expected to be gradual. This suggests that, in the near term, AI regulations in the U.S. are more likely to be implemented at the state level, reflecting the decentralized nature of the country’s regulatory landscape.
Stratfor.com
Should you find value in our posts, we encourage you to share them within your investment circles. Your sharing helps us reach and assist more members of the investment community. Additionally, if there’s any specific information you’d like us to cover or any feedback you wish to share, please don’t hesitate to reach out. We’re always looking to tailor our content to better meet your needs.
