- Fed rate path in focus as Waller signals patience
- August jobs report blows past expectations, lifting hike odds
- Iran conflict pushes oil back above $90
- AVGO caps a blockbuster earnings season
- Markets finish flat as inflation concerns offset strong earnings
This Week
The two big themes this week were the rate path for the Federal Reserve and the Iran conflict.
For the Fed, there were two notable developments:
- Fed Governor Chris Waller said he was open to leaving rates unchanged if recent disinflation continues, or, as he put it, “to paraphrase John Lennon… give disinflation a chance.”
- The economy added 162,000 jobs in August, supporting Chair Kevin Warsh’s view last Friday that inflation is the Fed’s focus. That job gain was nearly triple expectations for 55,000 jobs added, and the previous two months were revised up, flipping July’s job change into positive territory. So, in the last week, market expectations for Fed hikes this year have increased to nearly 40 basis points (bp) from under 30bp.
Of course, the Iran conflict isn’t doing the Fed any favors on the inflation front.
In the last week, U.S. oil prices are up over $5 to move back above $90 per barrel – near three-month highs. That’s because hopes for any kind of near-term ceasefire seem increasingly remote after the U.S. and Iran continued to exchange strikes and more oil tankers were attacked in the Strait of Hormuz. There were also reports that the Trump administration would not accept a return to the expired Memorandum of Understanding and would require an agreement covering both the Strait of Hormuz and Iran’s nuclear program.
Elsewhere, second-quarter earnings season wrapped up with mega-cap AVGO beating earnings estimates with nearly 100% per annum (p.a.) growth, helping the Nasdaq-100® finish the quarter with almost 80% p.a. earnings growth.
Despite the (very) strong earnings growth, concerns about inflation and rate hikes weighed on markets with the Nasdaq-100® finishing the week flat, while 10-year Treasury yields are up about 5bp to 4.8%.
Next Week
Here are the top events I’m watching next week:
- Tuesday: NFIB Small Business Optimism (Aug.)
- Thursday: Producer Price Inflation (Aug.), Jobless Claims (week ending Sept. 5)
- Friday: CPI Inflation (Aug.), Consumer Sentiment (Sept. Prelim.)