Bulls are hoping to build on optimism generated last week by further signs that the labor market is cooling and that the Chinese economy might finally be improving. In case you missed it, the August Employment Report released on Friday showed job gains as expected at +187,000. However, July and June job gains were both revised down by a total of -110,000. The big adjustments bring the 3-month average for non-farm payroll gains to +150,000, down from +181,000 the previous month.
The unemployment rate also ticked up to 3.8%, versus 3.5% in July. Wages are now the only area of the job market that is still running hot and they have been slow to come down. Hourly earnings in August were up +4.3% year-over-year versus +4.4% in July.
Bulls believe the jobs report, coupled with other data showing slowdowns in the labor market, justifies the Fed ending its rate hiking campaign at the September 19-20 meeting and could pull ahead the timeline for rate cuts. Bears, however don't think the report materially moves the needle for the Fed, arguing that officials will want to see further slowdowns in wage gains before declaring an "official" end to interest rate hikes. Meaning even if the Fed keeps rates on hold in September, they will likely keep the possibility of a November hike on the table, depending on September jobs data.
Bears also continue to warn that Wall Street is underestimating the lagging effects of Fed monetary policy and that further and deeper slowdowns across the economy are likely to come. They also remind of the possibility that Fed officials make a policy misstep here at the end of the inflation battle, either not going far enough and keeping inflation alive for longer, or going too far and crushing the job market or creating a financial crisis of some kind.
China's economy is arguably starting to show signs of improvement as economic activity begins responding more positively to all of the recent Chinese government stimulus. The Chinese housing market is starting to rebound on the sizable cuts to mortgage rates.
Here at home, the main economic highlights this week will be ISM Services and the Fed's Beige Book, both due out tomorrow, as well as Consumer Credit on Friday. Factory Orders for July is out today.
On the earnings front, tech bulls are anxious to see C3.ai's results on Wednesday amid the ongoing hype around artificial intelligence. There are only a handful of other earnings this week - American Eagle Outfitters, ChargePoint, and GameStop on Wednesday; and Toro on Thursday.
Shifting to energy markets, Russia and OPEC+ are expected to announce further oil supply cuts at some point this week. Apparently, Russia has agreed to make deeper cuts to its oil exports while Saudi Arabia is expected to extend its voluntary production cut of -1 million barrels per day for a fourth month period. Both moves could obviously put more stress on global oil supplies and keep prices at the pump elevated.
The average price for gasoline right now is around $3.82 per gallon vs. $3.79 a year ago. The average price for diesel is thought to be around $4.45 per gallon vs. $5.07 a year ago. I should also note, Ukraine president Zelensky on Sunday, made the announcement that he was replacing the "Minister of Defense", confirming recent media speculation, in what some are saying could be the biggest shakeup since Russia first launched its invasion. In other words, we might start to see more extreme fireworks and headlines coming from the war between Russia and Ukraine
New Stocks Joining the S&P 500: ABNB (Airbnb) and BX (Blackstone) will be joining the S&P 500 prior to the start of trading on September 18th.
Wall Street is Raising Quarterly Profit Forecasts for the First Time in Two Years: After nearly two years of concerns about a recession, growing optimism about the economy is starting to filter down into Wall Street’s expectations for individual companies’ quarterly results, with analysts growing more upbeat about corporate profit in the months ahead. While expectations for those quarterly results usually trend lower as earnings season arrives, analysts over the past two months have actually nudged their profit forecasts higher for the first time in two years, according to a FactSet report released Friday. Holdouts against that optimism aren’t hard to find, but during July and August, Wall Street analysts increased their third-quarter earnings per share estimates for the 500 companies in the S&P 500 Index SPX, the report said. In fact, this quarter marked the first increase in the bottom-up EPS estimate over the first two months of a quarter since Q3 2021, FactSet Senior Earnings Analyst John Butters said in the report. Estimates for third-quarter earnings per share rose by 0.4% from June 30 to Aug. 31, he said. Fourth-quarter estimates also increased by 0.6% over that period. Source MarketWatch
Exxon is Actively Exploring the Lithium Market as EV Demand Grows: Exxon CEO Darren Woods gave the strongest confirmation yet of the company's interest in lithium as electric vehicles boost demand. Multiple U.S. oil companies see extraction and processing meshing with their skill sets and now the most powerful player is among them. Woods said that lithium is really an extension of a lot of the current capabilities that we have as it requires a good understanding of the subsurface, requires a good understanding of reservoir management, requires drilling and injections. Woods also argued Exxon can bring cost advantages and environmental ones to bear, contrasting what they're exploring to "open mining" in other nations. And Exxon's not commenting on a WSJ report that it plans to build one of the world's largest processing plants there. Chevron CEO Mike Wirth recently told Axios that his company may venture into lithium. It's worth noting that lithium demand tripled between 2017 and 2022, per International Energy Agency data, with lots more to come. Lithium remains tiny compared to the fossil fuel sector, but demand may get too big for Big Oil to ignore Source Axios
Low US Heating Oil Stockpiles a Concern Ahead of Winter: Americans could face a sticker shock with their heating bills this winter, especially if it is a chilly one, due to unusually low U.S. stockpiles of distillate fuels following OPEC+ crude supply cuts and higher demand from Europe, analysts said. Distillate inventories, which include diesel and heating oil, were by late August about -15% below the five-year average for this time of year, according to the Energy Information Administration. At below 118 million barrels, stocks represented around 31 days of supply. Refiners have failed to build sizable stocks ahead of the seasonal surge in demand due to tight supplies of medium and heavy crude oil grades that are distillate-rich. In addition, U.S. exports have helped to deplete stockpiles of the fuel amid strong demand from Europe after Russia's invasion of Ukraine last year led to sanctions on Moscow's energy trade. U.S. refineries are also due for heavy maintenance through autumn and analysts say seasonal overhauls could take out around -2 million bpd of the country's 18.1 million bpd refining capacity. Source Reuters
Kim Jong-un and Putin Plan to Meet in Russia to Discuss Weapons: Kim Jong-un, the leader of North Korea, plans to travel to Russia this month to meet with President Vladimir V. Putin to discuss the possibility of supplying Russia with more weaponry for its war in Ukraine and other military cooperation, according to American and allied officials. Mr. Putin wants Mr. Kim to agree to send Russia artillery shells and antitank missiles, and Mr. Kim would like Russia to provide North Korea with advanced technology for satellites and nuclear-powered submarines, the officials said. Mr. Kim is also seeking food aid for his impoverished nation. On Wednesday, the White House warned that Mr. Putin and Mr. Kim had exchanged letters discussing a possible arms deal, citing declassified intelligence. However, the new information about a planned meeting between the two leaders goes far beyond the previous warning. The intelligence relating to the plans has not been declassified or downgraded by the United States, and the officials describing it were not authorized to discuss it. They declined to provide details on how spy agencies had collected the information. Source NYT
Freight Rates Soar as Mississippi River Levels Drop: The cost to transport America’s harvest from the Midwest to the rest of the world is soaring as shrinking water levels on the Mississippi River drive up barge freight rates — and the forecast for below-than-average rainfall offers no relief. Barge spot rates as of Aug. 29 in St. Louis are up +49% from last week and +42% from last year at $23.34 a ton. That’s up +85% from the past 3-year average, according to data from the Department of Agriculture. The data comes just as the U.S. prepares to begin its soybean and corn harvest, signaling another tough year for U.S. farmers who already are struggling with drought and fierce competition from Brazil and Russia. Last year, extremely low water levels on the Mississippi River stranded more than 2,000 barges, crippling commerce on the vital waterway. Water levels on the river, which carries more than 45% of U.S. agricultural exports, have been dropping since June, restricting the amount of grain allowed on each barge. Low water levels in some locations are creating delays of up to two days and St. Louis loading drafts are approximately 15% below normal capacity, the American Commercial Barge Line said on its website. Source Feedstuffs
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