Folks, buckle up because the week ahead is like a championship game in the financial markets, and you don’t want to be on the bench. We’ve got economic indicators, Fed chatter, and market moves that could tip the scales one way or another. And believe me, the stakes are high.
Let’s set the stage. The Fed’s been playing it coy, keeping the markets guessing about their next move. Despite a cacophony of Fed speakers, including the bigwigs Powell and Waller, they didn’t tip their hand on a November rate hike. So, that’s pretty much off the table now.
What’s painting the backdrop, you ask? A sizzling September! The economy’s been putting up LeBron-like numbers with upside surprises in jobs, CPI, and retail sales. With 3Q GDP numbers coming up, Wall Street is as jittery as a cat in a room full of rocking chairs.
But let’s also talk risks. There’s the ever-present sword of Damocles, in the form of potential government shutdowns and financial conditions, hanging over the Fed’s next moves. So, while we could see a December rate hike, don’t bet the farm on it.
Now that you’re all caught up, let’s deep dive into the macro market trends that could make or break your financial playbook.
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Macro Market
Growth Outlook
I’m calling it now: the U.S. economy is in for a soft landing. We’re looking at below-trend growth come 2024, but let’s not get too gloomy—it’s going to stay positive as far as the eye can see. My projections show a 2.0% GDP growth for this year, edging up to 0.7% in 2024 and rallying to 1.8% in 2025. That’s a noticeable jump from my earlier estimates, 0.5pp and 0.7pp higher for 2023 and 2024, respectively.
Inflation Trends
Now, let’s talk about the elephant in the room: inflation. I see PCE inflation taking its time to cool down, settling at around 2.2% y/y by the second half of 2025. For a clearer picture, anticipate a four-quarter change in core PCE inflation at 3.6% for 2023, easing to 2.8% in 2024, and finally hitting 2.2% in 2025.
Federal Reserve Moves
Alright, onto the Fed. After hitting the pause button in September, I predict they’ll continue to sit tight in November. But don’t get too comfortable. With the current strong data, I’m anticipating one more 25bp rate hike in December, targeting a range of 5.50-5.75%. It’s going to be a nail-biter, though. I foresee the first rate cut dropping in June 2024, followed by quarterly 25bp reductions. That tallies up to 75bp of rate cuts in 2024 and a full 100bp in 2025.
The Hot Zones this Week
Each week there are zones where trading can get wild. I call these the hot zones.
Get ready, folks. Next week is teeming with economic releases that could either make Wall Street cheer or jeer. Let’s get straight to the nitty-gritty details, complete with historical context and insider knowledge on what each announcement means for you.
Tuesday, October 24, 2023
- S&P Global US Manufacturing PMI (Oct P)
- Consensus: 49.5, Previous: 49.8
- What You Need to Know: This monthly index, released by S&P Global, serves as a health check on the manufacturing sector. A reading above 50 suggests expansion, while below 50 indicates contraction.
- S&P Global US Services PMI (Oct P)
- Consensus: 49.4, Previous: 50.1
- What You Need to Know: Also a monthly release from S&P Global, this index gauges the vitality of the non-manufacturing sectors like services and construction.
Wednesday, October 25, 2023
- MBA Mortgage Applications (Oct 20)
- Previous: -6.9%
- What You Need to Know: This weekly data, released by the Mortgage Bankers Association, provides a snapshot of the U.S. housing market through mortgage application trends.
- New Home Sales (Sep)
- Consensus: 684k, Previous: 675k
- What You Need to Know: The U.S. Census Bureau releases this monthly data, which tallies the annualized number of brand-new homes that were sold.
Thursday, October 26, 2023
- Initial Jobless Claims (Oct 21)
- Previous: 198k
- What You Need to Know: Published weekly by the U.S. Department of Labor, this statistic counts the number of new unemployment claims filed, serving as a pulse check on the labor market.
- Wholesale Inventories (Sep P)
- Previous: -0.1%
- What You Need to Know: This monthly release from the U.S. Census Bureau quantifies the total value of goods that wholesalers have on hand, a key indicator of economic health.
- GDP (qoq saar) (3Q A)
- Consensus: 4.3%, Previous: 2.1%
- What You Need to Know: This is the big kahuna of economic indicators, folks. Released quarterly by the U.S. Bureau of Economic Analysis, GDP measures the total value of all goods and services produced over a set period of time within the U.S.
- Personal Consumption (qoq saar) (3Q A)
- Consensus: 3.6%, Previous: 0.8%
- What You Need to Know: Also a quarterly release, this data from the U.S. Bureau of Economic Analysis measures the total value of all goods and services consumed by households. It’s a direct line into consumer behavior.
- Advance Goods Trade Balance (Sep)
- Previous: -$88.5bn
- What You Need to Know: Released monthly by the U.S. Census Bureau, this data point indicates the country’s trade balance by measuring the difference between exports and imports of goods.
- Durable Goods Orders (Sep P)
- Consensus: 1.1%, Previous: 0.1%
- What You Need to Know: This monthly indicator, courtesy of the U.S. Census Bureau, shows new orders placed for U.S.-manufactured durable goods. It’s a reliable gauge of future manufacturing activity.
- Pending Home Sales (Sep)
- Previous: -7.1%
- What You Need to Know: Released by the National Association of Realtors, this monthly data provides early insights into the number of homes that are under contract but haven’t yet closed.
Friday, October 27, 2023
- Personal Income (Sep)
- Previous: 0.4%
- What You Need to Know: This monthly data from the U.S. Bureau of Economic Analysis tallies up the total income received by individuals, offering insights into potential consumer spending.
- Personal Spending (Sep)
- Previous: 0.4%
- What You Need to Know: Also from the U.S. Bureau of Economic Analysis, this monthly data shows how much individuals are actually spending, giving you a read on consumer confidence.
- U. of Michigan Sentiment (Oct F)
- Previous: 63.0
- What You Need to Know: This is a monthly survey from the University of Michigan that measures the level of consumer confidence in the U.S. economy.
So, there you have it. A jam-packed week of economic data that could shake up markets and influence your investment strategies. Whether you’re a Wall Street veteran or a casual observer, this is a week you won’t want to miss. Ready to dive deeper? Your take could be the decoder ring for these economic puzzles.
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 1.1%. Excluding the energy sector, the Y/Y earnings estimate is 5.7%.
- Of the 86 companies in the S&P 500 that have reported earnings to date for 23Q3, 77.9% 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. 23, 158 S&P 500 companies are expected to report quarterly earnings.
Global Spotlight
Israel’s Inevitable Gaza Invasion
Israel is gearing up for an unavoidable military invasion of the Gaza Strip. High-ranking officials from across the Arab world, Europe, Turkey, and even U.N. Secretary-General Antonio Guterres, are convening in Cairo to address the ongoing hostilities between Israel and Hamas. However, Israel’s war Cabinet has already authorized the invasion, leaving the “when” to military strategists. The invasion aims to fundamentally alter Gaza’s political and security landscape, adding layers of complexity like potential hostage situations, civilian casualties, and the risk of regional escalation involving Hezbollah and Iran.
Argentina’s Presidential Roulette
Argentina is on the brink of a pivotal presidential election. The first round of voting takes place on October 22, and if no candidate secures a significant lead, a second round will follow on November 19. Libertarian Javier Milei is emerging as a strong contender, riding a wave of anti-establishment sentiment. His radical plans include ditching the Argentine peso for the U.S. dollar, slashing public spending, and shifting geopolitical alliances towards the U.S. and Israel. If he proceeds with his aggressive agenda, the country may witness further devaluation of its currency and increased civil unrest.
EU’s Global Gateway Gamble
The European Union is doubling down on its ambitious infrastructure strategy, known as Global Gateway. A summit scheduled for October 25-26 aims to galvanize public-private partnerships in emerging countries, focusing on sectors like digital technology, energy, transport, healthcare, and education. The initiative plans to disburse 300 billion euros by 2027, with nearly half earmarked for African projects. Although Global Gateway is designed as a counterweight to China’s Belt and Road Initiative, it’s worth noting that the EU’s financial commitment pales in comparison to China’s trillion-dollar investment over the past decade.
Japan’s Electoral Uncertainty
Japan is entering a crucial electoral phase, with two by-elections scheduled for October 22. One for the upper house in Shikoku and another for a lower house seat in Nagasaki’s No. 4 district. With voter indecision hovering around 40% in both races, the outcome remains unpredictable. Meanwhile, Prime Minister Fumio Kishida is set to unveil key economic stimulus measures on October 23, which could potentially revitalize his flagging approval ratings and that of his party, the Liberal Democratic Party (LDP). If these events swing in Kishida’s favor, it might just tip the scales toward a snap election, although that remains unlikely until at least the end of 2023.
Stratfor.com
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