You’re telling me inflation may be transitory?
What the Market - Aug 16, 2021
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What the Market?
Mr. Market is factoring in that inflation may actually be more transitory in nature than some analysts thought after last week’s CPI reading. Mr. Market is eagerly awaiting the Fed’s minutes this week to understand how the Central Bank sees the economy progressing. For now, he can only adjust his models in anticipation of potential earlier-than-expected monetary policy adjustments.
What’s driving the market?
Could it be that media used this whole inflation kerfuffle to sell panic? Maybe? Although it is waaaay too early to tell, last month’s 5.4% YoY Consumer Price Index reading may suggest that the ongoing inflationary drive is more transitory than what some media outlets suggested. As inflation readings start winding down across specific sectors globally (see the slowdown in commodity and producer prices) and the economy shows signs of substantial recovery, analysts are adjusting their models ahead of the Fed’s Jackson Hole meeting. Remember that the Fed’s dual mandate covers price stability and full employment. If prices start stabilizing in the short-run, it seems that the labor market will be the focus of the Fed’s strategy. Remember that the jobs market has been showing signs of strength with lower than expected jobless claims (and some states at pre-pandemic levels) and over 10 million job openings nationwide. Although it is early to tell, the Fed may soon run out of excuses not to start adjusting its dovish policy approach to recovery.
What’s an investor to do?
Equity markets worldwide are adjusting to the Delta variant’s short-term impact in the midst of overall positive economic data in the US. Stay attentive to arising new information globally that will likely shape Mr. Market’s short-term directionality. Be cautious of media outlets as they start adjusting their storylines looking to find the new headlines that will drive traffic.
Markets are still processing last week’s data and this week’s retail sales. Expect the Fed minutes to generate more erratic behavior across indices. As always, don’t fret and trust your positions. Panic selling or profit-taking may not be the wisest of calls if you’re going for the long-haul. However, these situations typically generate healthy entry-points for new positions or to double down on those you felt were a bit pricey.
Once again, a little caveat on China: the Communist Party is cracking down on financial markets and intermediaries and Asian equities are being dragged along. For those considering this news short-term noise, there may be some interesting opportunities out there.
Keep an eye on the economy
Retail sales: A slowdown in retail sales is expected after last month’s jump, particularly driven by online sales triggered by Amazon’s Prime day and the lowering consumer confidence depressed by the Delta variant’s potential impact on recovery. As government aid starts to disappear, consumer habits are expected to return to normal and supply bottlenecks to slowly dilute. New normal ahead? Still too early to tell.
FOMC minutes: The release of the July 28 meeting will be the belle of the ball this week. In their last statement, the Fed stated that the economy had made progress towards its goals. We’ll get some more depth into what they meant by that this week. Analysts will look to learn more about the Council’s position on tapering, and expect tapering to be officially discussed in the Jackson Hole meeting at the end of the month.
Reopening: TJX, Target, Lowe’s, Walmart, Home Depot, Krispy Kreme, Target, Victoria’s Secret, Estee Lauder, Macy’s, Foot Locker
Tech: NVIDIA, Applied Materials
Communications / Gaming: Roblox
Financial Services: Robin Hood
Monday: Chinese retail sales, Japanese GDP
Tuesday: Eurozone GDP, UK unemployment rate, US retail sales, industrial production and redbook index
Wednesday: Japanese trade balance, UK CPI, PPI and Retail PI, US housing data, FOMC Minutes
Thursday: US jobless claims, Philly Fed Manufacturing Index
Friday: UK consumer confidence, PBoC interest rate decision, UK retail sales
If you didn’t know, now you know
The Taliban effectively sealed their control of Afghanistan on Sunday, pouring into the capital, Kabul, and meeting little resistance as President Ashraf Ghani fled the country, the government collapsed, and chaos and fear gripped the city, with tens of thousands of people trying to escape.
This summary only covers the surface of the conflict. To read more, click here.
What we’re vibing:
Rejection Proof by Jia Jiang: A story of overcoming rejection both in business and in general. Jia learned that even the most preposterous wish may be granted if you ask in the right way, and shares the secret of successful asking, how to pick targets, and how to tell when an initial no can be converted into something positive.
The Sirens of Titan by Kurt Vonnegut: The Sirens of Titan is an outrageous romp through space, time, and morality. The richest, most depraved man on Earth, Malachi Constant, is offered a chance to take a space journey to distant worlds with a beautiful woman at his side. Of course there's a catch to the invitation and a prophetic vision about the purpose of human life that only Vonnegut has the courage to tell.
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