Top Three Things to Watch this Week (Including Fed in Review)

FED in Review


On Wednesday, the Fed left the federal funds rate unchanged at 0-0.25%. Monetary policy remains accommodative with $80bn/month in treasury and $40bn/month in MBS purchases. While the environment will stay accommodative until substantial further progress has been made toward maximum employment and price stability, the Fed acknowledges that “the economy has made progress toward these goals, and the Committee will continue to assess progress in coming meetings.” The most adversely affected parts of the economy have not fully recovered(instead of “remain weak” — language from the prior policy meeting.) The Fed’s stance on the economy “continues to depend - “will depend significantly” at the prior meeting - on the path of the virus. The central bank maintains its 2% average inflation goal, which means the committee is willing to see some above-average inflation figures “for some time” and continue an “accommodative stance”.

Statement Regarding Repurchase Agreement Arrangements

Press Conference Comments:

Jay Powell mentioned that the Committee doesn’t expect a substantial impact from the delta variant, has seen inflation running well above 2% for a few months, and expects inflation to remain above 2% for a few months before returning to the Fed’s average inflation target.

Fed Funds are now pricing in a 59% chance of higher rates in December 2022. Up until the Fed’s November 2022 meeting, the market’s expectations for zero rates remain at 61.6%+ and above. Check out the CME’s Fed Watch Tool

Bottom line:

Taper is nearing, but further progress needs to be seen on maximum employment. Inflation is higher and seen higher over the next few months. The Fed will monitor: Public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments.





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Nonfarm Payrolls


At 7:30 am CT on Friday, markets expect 900k jobs added to the payroll in July; 750k in the private sector. Average hourly earnings are expected to have increased at 0.3% MoM (0.3% prev.) and 3.9% YoY (3.6% prev.). Unemployment is expected to decrease to 5.7% (5.9% prev.). Given the Fed’s mandate of maximum employment, job numbers will be interpreted through the lens of the central bank. On the back of 850k jobs added and an unemployment rate at 5.9% in June, service (+830,000 jobs in June) as well as leisure and hospitality (+286,200 jobs in June) will be of particular interest as we monitor the economic recovery.


As businesses across the country provide increased incentives to hire staff, the question will be two-fold: how many jobs (NFP) for how much (hourly earnings)? Chipotle reacted with a $15/hour wage for its employees and raised menu prices by 3.5% to 4%. To what degree are businesses willing and able to hire labor, and how much spillover into end-user prices will we see?


EIA


On Wednesday at 9:30 am CT, energy markets will turn to another read of EIA inventories to quantify fossil fuel demand in the real economy.

Last time, crude stocks drew down by 4 million barrels after a 2 million barrel build a week earlier. Instead of producing an EIA write-up, we thought that some graphs that visualize the current energy market landscape would serve you best.

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TSA checkpoints in the United State from January 2019 to June 2021


Total Vehicle Miles Traveled in the U.S.


Earnings

NXP Semiconductor after the bell on Monday:

  • Consensus: EPS est. $2.31; Revenue est. $2.57bn

  • As 44% of NXP’s end-market exposure is automotive, any comments will be watched by auto manufacturers and investors

  • Qualcomm expects “material improvement in supply by the end of the year”, while Apple talked about chip shortages impacting its iPhone and iPad divisions to a greater extent

  • Tesla rewrote some of its own firmware in order to cope with chip shortages; CEO; Elon Musk said: “It does seem like it’s getting better, but it’s hard to predict.”

  • NXP’s exposure to Industrial & IoT (Internet of Things) as well as Communication Infrastructure could give clues for the cloud SaaS companies, 5G infrastructure industrials, and the wireless service providers (capex within in the space)

OXY Petroleum after the close on Tuesday:

  • Consensuses: est. $0.00; Revenue est. $5.56bn

  • Oxy’s cash flow changes ~$215 million for every $1 change in oil prices when oil stays above $60/barrel

  • The company’s goals include

  • Current focus

  • Maintain Production Base

  • Debt Reduction

  • Medium Term

  • Sustainable Dividend

  • Growth Capital

  • Long Term

  • Repurchase Shares

  • Retire Preferred Equity

  • With activist involvement in the stock, doors are open in terms of how value creation could unfold

UBER after the close on Wednesday:

  • Consensus: EPS est. ($0.54); Revenue est. $3.73bn

  • As mobility recovers, investors are watching the interplay between ride-hailing and the company’s food delivery services

  • Path to profitability watched widely amongst investors


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