Every Friday, Brian Jacobsen provides perspective on key events and topics of the current week and his thoughts about what the week ahead may hold. Here’s his report for the week of October 9–15, 2021.

The week that was

·         Earnings reporting season began. Before reports began rolling in, according to Factset, the consensus was looking for average earnings-per-share (EPS) growth of 27.20% year over year for companies within the S&P 500 Index. The consensus was also looking for 14.75% sales growth. Big banks dominated the reports so far, exceeding expectations especially with trading revenue. The commentary for executives suggested that consumer balance sheets are really healthy. So far, S&P 500 EPS are coming in at a 29.3% growth rate with sales growth of 14.83%, but only 7.52% of companies have reported results.

·         Consumer prices rose 0.4% month over month (+5.4% year over year) in September, according to the Bureau of Labor Statistics. That was slightly more than the Bloomberg consensus. Used-car prices finally fell—at least a bit. The year-over-year increases are still jarring, though they have been rising since March. Gasoline prices are up 42.1%. Used-car prices are up 24.4%. New-vehicle prices are up 8.7%. Food prices are up 4.6%. Even shelter costs are rising quickly, up 3.2% year over year.

o   If there’s any consolation, it’s that the month-over-month changes are beginning to slow. On a month-over-month basis, inflation probably peaked at +0.9% in June. It slowed to 0.5% in July, 0.3% in August, and 0.4% in September. This inflationary pressure, too, shall pass.

o   As a result of the inflation, Social Security recipients will receive a 5.9% increase in their benefits. That’s the largest increase in 40 years.

·         Minutes from the last Federal Open Market Committee (FOMC) meeting indicated the Federal Reserve (Fed) intends to start scaling back its asset purchases either in mid-November or in December. Right now, the Fed is buying $80 billion per month in Treasury securities and $40 billion per month in mortgage-backed securities. It’s quite likely the Fed will reduce those purchases by $10 billion and $5 billion per month, respectively, until the purchases hit zero in June or July of 2022.

 

Economics:

·         The Bank of Korea kept its policy rate unchanged but signaled it will want to hike in November to control inflation and reduce incentives for households to take on more debt.

·         The Fed announced that Randal Quarles will no longer serve as vice chair for supervision, a key role in the oversight of banks. His term expired on Wednesday. As of now, he will continue to sit on the Fed’s bank supervision committee and the Board of Governors of the Federal Reserve. His term on the Board is up in 2032. He’s also chairman of the Financial Stability Board—at least until his term is up there in December 2021. There could be some significant changes to the composition of the FOMC (the Fed’s monetary policymaking body) in 2022.

o   There’s one vacancy on the Board of Governors, and all Board members are voting members of the Fed.

o   Fed Chair Powell’s term is up in February 2022 although his term on the Board does not expire until January 31, 2028.

o   Vice Chair Richard Clarida’s appointment to the Board expires January 31, 2022.

o   Fed regional bank presidents rotate through as voting members of the FOMC. The Dallas Fed and Boston Fed will be getting new leadership, but the Dallas Fed president doesn’t vote on the FOMC until 2023. The Boston Fed president has a voting role in 2022.

·         The International Monetary Fund (IMF) slightly downgraded its guess at what global growth will be for 2021. Due to supply-chain disruptions and continued COVID-19 issues, the IMF nudged its forecast from 6.0% growth to 5.9% growth. You can tell the IMF has a sense of humor since decimal places were used with these projections. It’s difficult to measure growth after it’s happened to that degree of precision, let alone to forecast it with that type of precision. Regardless, the IMF messaging around the change in forecast is important. The IMF highlights that there are lingering supply-chain issues and that inflation may be an unwelcome guest for a little longer than the IMF originally thought.

·         The Central Bank of Chile hiked rates by 1.25 percentage points to 2.75%, surprising markets.

 

Politics:

·         Austria’s chancellor, Sebastian Kurz, resigned after allegations surfaced that he used public money to buy positive media coverage.

·         Supreme Leader of North Korea Kim Jong-un vowed to build an “invincible military.” The economic situation in North Korea is dire—as it has been for a while—with food and energy shortages.

·         Turkey’s President Recep Tayyip Erdogan sacked three members of the government’s monetary policy committee. The Turkish lira fell in value relative to the dollar.

·         The U.S. is opening its border to fully vaccinated travelers from Mexico and Canada for nonessential travel.

The week to come

·         Over the weekend, China will be releasing its third-quarter gross domestic product numbers along with September retail sales and industrial production data.

·         On Monday, U.S. industrial production data for September are to be released. We will also get an October reading of homebuilder sentiment.

·         On Tuesday, September housing-starts data are to be released while on Thursday we get existing-home sales data for September.

·         Friday is a big day: Survey results from purchasing managers will give an indication of the health of global businesses.

Thanks for reading, stay informed!

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