Welcome to another edition of “The Week Ahead,” where we decode the complex tapestry of economic, political, and global events shaping our world. As we venture into the week starting October 16, 2023, there’s a whirlwind of activity to track, from the economic indicators flashing on Wall Street’s big boards to the geopolitical maneuvers that could redraw maps.
The U.S. Economic Pulse
Here at home, the U.S. economy is showing its resilience. We’re set for what experts are calling a “soft landing”—a scenario where growth remains positive even as it slows down. According to updated forecasts, GDP growth is expected to clock in at 2.0% this year, dip slightly to 0.7% in 2024, and then bounce back to a healthy 1.8% in 2025. In short, the U.S. economy isn’t just holding up; it’s exhibiting signs of balanced, sustainable growth.
Taming the Inflation Dragon
When it comes to inflation, the outlook is cautiously optimistic. While the numbers are set to fluctuate in the short term, the long-term trajectory indicates a return to stability. By the second half of 2025, PCE inflation is expected to ease down to 2.2%, providing a much-needed respite to both consumers and policymakers.
The Federal Reserve’s Tightrope Walk
Navigating this economic landscape also involves some calculated moves by the Federal Reserve. A modest rate hike is on the cards for November, aimed at maintaining a stable economic environment. And don’t be surprised when rate cuts make their comeback in June 2024, signaling a balanced approach to monetary policy.
Global Flashpoints
On the international front, we’re keeping a close eye on potential ground invasions in Gaza, pivotal elections in Poland and Ecuador, and a politically charged atmosphere in New Zealand. Each of these situations carries far-reaching implications, not just for the regions involved, but for the global community.
As we navigate the week ahead, these are the narratives to watch, the stories that will shape markets, influence policies, and impact lives. Stay tuned as we delve deeper into each of these threads, unwrapping their complexities and understanding their broader implications.
So, fasten your seat belts. The week ahead promises to be a roller coaster of significant economic indicators and geopolitical events. Whether you’re an investor, a policy wonk, or just someone keen to understand the forces shaping our world, you’re in the right place. Let’s dive in.
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The Hot Zones this Week
Each week there are zones where trading can get wild. I call these the hot zones.
Monday, October 16, 2023:
Monday kicks off with the Empire Manufacturing report at 8:30 AM, serving as a singular focal point for the day. This indicator takes the pulse of manufacturing conditions in New York State. The consensus is set at 6.0, but there’s no previous data for context. A relatively quiet day, but don’t underestimate the weight of this lone indicator.
Tuesday, October 17, 2023:
Tuesday is the epicenter of this week’s economic activity. Starting at 8:30 AM, Advance Retail Sales for September comes into play. This metric offers insights into the health of consumer spending, with a consensus of a 0.3% increase and a previous month figure at 0.6%. Hot on its heels is the Retail Sales Less Autos indicator, also for September, penciling in a 0.2% increase according to consensus, compared to a 0.6% previous figure. But that’s not all. We have Retail Sales Less Autos and Gas, Core Control, Industrial Production, Manufacturing Production, and Capacity Utilization—each adding another layer to the complex economic landscape. Capacity Utilization deserves a special mention, with a consensus of 79.5% and a previous mark at 79.7%. The day wraps up with Business Inventories, adding yet another variable to the equation.
Wednesday, October 18, 2023:
Wednesday sets the stage at 7:00 AM with MBA Mortgage Applications for October 13. This serves as an indicator for the housing market’s vitality, with a consensus of 10. Following this, at 8:30 AM, is the release of Building Permits. Unfortunately, the consensus and previous data for this metric are not provided in the document, but its significance in gauging construction activity is undeniable.
Thursday, October 19, 2023:
Thursday maintains the momentum, initiating with the Philadelphia Fed Business Outlook at 8:30 AM. This report measures manufacturing activity in the Philadelphia region, with a consensus of 6.0. Following this, at 10:00 AM, are the Leading Indicators for September, with a consensus indicating a 0.4% increase, and Existing Home Sales, though the document lacks consensus and previous data for the latter.
Macro Market
U.S. Economic Resilience
When it comes to the U.S. economy, the horizon looks promising. We’re not just cruising; we’re set for a soft landing, with growth dipping but staying firmly in the green. The numbers back this up—U.S. GDP growth is projected to be a robust 2.0% for this year. And even when the pace slows down a bit in 2024 to 0.7%, it revs back up to 1.8% in 2025. Notably, these forecasts are brighter than previous assumptions for both 2023 and 2024.
Inflation Outlook: A Gentle Descent
On the inflation front, the future is far from grim. PCE inflation is anticipated to ease to a more manageable 2.2% by the second half of 2025. That’s just two quarters later than initially thought. As for the core PCE inflation, it’s expected to be at 3.8% in 2023 before gradually settling down to 2.8% in 2024 and finally 2.2% in 2025. The trend is clear—things are cooling off, but in a measured way.
Federal Reserve: Calculated Adjustments
The Federal Reserve is also navigating these economic waters with finesse. Post the September pause, the plan is to go for a modest 25bp rate hike in November, aiming for a target range of 5.50-5.75%. The real kicker? The first rate cut is expected as soon as June 2024, followed by consistent quarterly reductions.
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
Review Last week’s numbers here.
Earnings
Source I/B/E/S data from Refinitiv
Aggregate Estimates and Revisions
- 23Q3 Y/Y earnings are expected to be 2.2%. Excluding the energy sector, the Y/Y earnings estimate is 7.2%.
- Of the 32 companies in the S&P 500 that have reported earnings to date for 23Q3, 87.5% have reported earnings above analyst estimates. This compares to a long-term average of 66.5% and prior four quarter average of 73.6%.
- During the week of October. 16, 56 S&P 500 companies are expected to report quarterly earnings.
Global Spotlight
Stratfor.com
Imminent Gaza Invasion
Israel’s signals for a ground invasion into Gaza are becoming increasingly clear, with evacuation orders affecting nearly a million residents in the north. This invasion isn’t just a military move; it has far-reaching implications. It threatens to escalate tensions in the region, potentially drawing in other players like Hezbollah and Iran, who have been ambiguous about their involvement. The situation also risks sparking global unrest, with emotions running high and the potential for radicalization increasing.
Poland’s Political Crossroads
Poland is gearing up for a high-stakes parliamentary election on October 15. The battle lines are drawn between the incumbent Law and Justice party and the main opposition, the Civic Coalition. Polls hint at a tight race, making the outcome uncertain. The right-wing Confederation party could play kingmaker, depending on alliances. The situation is so fluid that there’s a real possibility of no party gaining enough traction to form a government, forcing the country back to the polls.
Ecuador’s Decisive Runoff
Ecuadorians are heading to the ballot box on October 15 for a presidential runoff election. The race is between Luisa Gonzalez of the left-wing Citizen Revolution Movement and Daniel Noboa from the center-right National Democratic Action. This election aims to break the political stalemate that’s plagued the country under current President Guillermo Lasso. Whoever emerges victorious will face monumental challenges, from tackling gang violence to navigating a fragile economy, all within a short presidential term that ends in 2025.
New Zealand’s Electoral Landscape
New Zealand is also in the election season, with general elections slated for October 14. Polls show a conservative coalition leading, but forming a government could be a protracted affair. Policy shifts are expected to focus on domestic issues like tax cuts and cost-of-living adjustments. Both major parties are keen on strengthening trade ties with China while bolstering security cooperation within the Pacific. The Green Party’s projected gains could also up the ante for more aggressive emissions reduction policies.
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