Here is this week’s schedule:
Tuesday:
Wednesday:
Thursday:
Friday:
We don’t have any notable earnings reports this week aside from Oracle & Adobe, each of which are not significant for the bigger picture of the US economy. I will be interested to see Oracle’s growth from its NetSuite business services business, as the growth they report, or lack thereof will help us better understand business spending budgets as we move deeper into recession. While I do not have an opinion as to where Oracle’s growth is headed, I do believe that business spend on marketing and cloud related services could come to a significant slowdown in the coming months.
What will be important this week is how the euro and the pound trade against the dollar. Last week, a surprise 75 bps rate hike from the ECB served as a catalyst for a sharp rally in EURUSD. The pound sterling also saw significant gains against the dollar on the news of the death of Queen Elizabeth. To me, it is more likely the euro continues to gain against the dollar here, as the ECB seems much more committed now to combatting inflation, although they still remain incredibly behind the curve on inflation. The CPI inflation data has been coming in very strong in the UK as well in recent months, and if that trend continues we could see the dollar fall against the pound on more rate hike bets coming from the Bank of England (BOE). The ECB and the BOE have been further behind the inflation fighting curve than the Fed has been to this point, but that may change as we move further into the fall season, and as the US economy heads further into recession…only time will tell which central banks will win the race to beating inflation.
If the pound and euro do sustain the rallies against the dollar that started late last week, we could see a rise this week in the price of gold. This might also let US risk assets rise, but stock prices will be determined more by the action in the bond market. As mentioned in the last edit, the stock market should follow the Fed’s lead in its QT program and thus should follow the action in the bond market. If there continues to be more sellers than buyers in the bond market this week, I think stocks will follow the bond market lower. On Tuesday afternoon we have a bond auction that I will keep a close eye on to see foreign investor demand to own Treasuries with the risk of the Fed becoming a major seller.
While there are no notable earnings this week, as you can see above there is a lot of economic data to be released in the coming days. The markets were relatively quiet in the month of August as they typically tend to be, but action and volatility seem to be picking up as we enter the fall season. This is always an interesting time of year, because usually certain consumer spending dies down in some areas, but picks up extensively in other areas. The vacation season is over, but travel should see some better numbers this fall in comparison with fall 2021 and 2020. There are a lot of conferences during this time of year that did not occur due to Covid-19 in the prior two years. Wedding season is also entering its busiest stages, and soon enough holiday spending will take full effect.
I have to say, I think Wall Street has gotten a bit too bearish on earnings this coming fall. There are definitely some analysts who expect corporate earnings to hold up, but the small majority of opinion seems to be that earnings will miss for most businesses. I actually think earnings will hold up relatively well, mostly because I think that consumer credit conditions remain far too loose for demand to decline enough to stop inflation. As long as consumer credit numbers continue to pickup each month at the pace they have been, businesses will be able to continue to push price increases through. The latest major corporation to announce future price increases in the fall is Unilever, the multinational consumer staples company. The company continues to experience cost pressures, and sees more room to increase prices without losing sales volume. Kroger CEO Rodney McMullen made similar comments on his CNBC interview last week.
Lastly, the increased likelihood of having a somewhat weaker dollar on foreign exchange markets should relieve some recent pressures on the oil markets. While oil has been very resilient despite the resorting of the US to using the strategic petroleum reserve, oil has been in a bit of a slide over the past few weeks. As I’m writing this, oil is trading around $85 per barrel. If the dollar starts to fall, the price of oil should simultaneously rise. While oil and the dollar don’t always trade in direct negative correlation with one another, a stronger dollar means that oil can be purchased for less dollars. Oil is priced in US dollars all over the world, and a declining dollar may allow for oil to start trading back to new highs sometime in the next several months. One way or another, even at current oil prices, all of the energy companies remain trading at extremely cheap prices and could still make for great hedges against inflation for investors. Even if oil stays around current prices, these companies are going to remain extremely profitable, will be able to continue to raise their dividends and increase their share buyback programs, while continuing to pay down debt:
Here are some of my favorites:
CVX
XOM
OXY
SHEL
Even if oil stays around current prices, these companies are going to remain extremely profitable, will be able to continue to raise their dividends and increase their share buyback programs, while continuing to pay down debt.
TGIM
Best,
Ryan Garzone
True North Market Research, LLC
truenorthinternationalpartners@gmail.com