Weekly | Permanent inflationary shocks?

Your weekly summary with the most important news for your investments.
Sproutfi Weekly

Your weekly summary with the most important news for your investments:

  • Results of the main stock market indexes.

  • External shocks that could affect monetary policies.

  • Work stoppage in U.S. automotive unions.

  • Opinions on the Fed's possible decision.

Regardless of the successful initial placement, last Thursday, of the technology company Arm, a subsidiary of Softbank, where it would seem that the primary IPO market would be unblocking after almost a year of paralysis, the main US stock indexes have accumulated falls so far in September, not only due to the confusing inflation data that was published, but also to the additional external shocks that the monetary authorities will have to deal with for the rest of the year, the work stoppage imposed by the automotive unions in the United States and the extraordinary rise in the price of oil in recent weeks. It is under this environment that:

  • The Dow has given up -0.3% in the month.

  • The S&P 500 accumulated a mismatch of -1.3%.

  • The Nasdaq -2.3% so far in September.

However, it will be the announcements to be made by the Federal Reserve (FED), the Bank of England (BOE) and the Brazilian monetary authorities during the week that will set the trend where developed countries continue to try to control inflation while regional authorities (Brazil and Chile) are already adopting pro-cyclical monetary measures. 

Let's start with the U.S. inflation data released last week where the headline figure rose to 3.7% (from 3.2%) while the core reading, that which excludes food and energy prices, eased to 4.3% (from 4.7%). The general producer figure closed the month at 1.6% (from 0.8%), a rather pronounced jump, while the underlying reading remained at 2.2%. In terms of economic dynamics, industrial production expanded slightly by 0.2% (from 0%) year-over-year while retail sales expanded by 2.5% (from 2.6%) led largely by the auto industry. Even so, according to the Atlanta Fed, through its GDP Now projection, it estimates that the country's economic growth during the third quarter is close to 5%. 

It is in this environment that market agents are assigning a very low probability that the FED will choose to change the monetary policy rate this Wednesday, September 20, outlining, through its macroeconomic projections, the possibility of a hike of more than +25 basis points in the remainder of the year, if external inflationary shocks have an impact on the general inflation data. However, there will be those who are concerned about the wage dynamics that are generating "sticky" inflation that will be difficult to anchor in the short term if the rate does not continue to rise above the current 5.5%.

But here is the first of the external shocks that could change the scenario predicted by the Fed, and it has to do with the strike decreed by the largest US auto union (United Auto Workers (UAW)) that could completely paralyze the three main automakers in the country, Ford, GM and Stellantis. The union's current request is for a +46% wage increase over the next 4 years and to reduce hours worked to 32 while maintaining the wage structure. The UAW has determined a strategy of progressively shutting down work in an unstructured manner so that the companies cannot plan their production, further complicating the scenario. With this, the Biden administration has sent a group of emissaries seeking to find a way to negotiate so that the labor strike can come to an end as soon as possible. For now, whatever the path, a long strike or the wage increase demanded, will have an impact on the economy and inflation. 

Meanwhile, we are all feeling again, directly or indirectly, the rebound in the price of oil, which as of this morning is at US$91.50 per barrel as measured by WTI. Already during the weekend there were a number of articles related to the adverse impact it will have not only on consumption but also on inflation, since the price of oil has accumulated an increase of +13.3% during the year and is above the levels recorded a year ago. 

The problem facing the Biden administration today is that, apart from the cut in oil supply adopted and prolonged by OPEC + Russia, the US government has now had to go out and buy oil to increase the country's strategic reserves, thus adding to the imbalance between demand and supply. All it will take is for a hurricane to generate an additional disruption in oil production and/or distribution and the country will see gasoline prices at US$4 a gallon again. Thus creating another headache for the FED. What we should not do is to think, as we did two years ago, that these oil price shocks are transitory, because if they remain high for a quarter we will see them being incorporated back into the base scenario as permanent.

Finally, this week the BOE is expected to raise its monetary policy rate to 5.5% (+25 basis points) while the Brazilian authorities are expected to lower their rate to 12.75% (-50 basis points). For now and as previously mentioned, it is expected that the FED will keep its rate at 5.5% after the European Central Bank left its rate at 4.5% (+25 basis points) last week. 

On the corporate side, Fedex will be reporting its quarterly results and tomorrow everyone will be waiting for Instacart's IPO, a company that is seeking a valuation of US$10 billion. In the meantime, we will see how the price of the automaker Tesla reacts to the prolonged automotive crisis in the country without having to negotiate with the unions. 

In conclusion, the FED will have two external shocks on its hands entering the fourth quarter of the year arising from the labor/wage front and the price of oil, seeking to determine whether these are permanent or transitory, whose forecasts in the past have not been the best.

This Week

Monday (September 18)

Quarterly Reports

  • Ennis, Inc.

  • Stitch Fix, Inc.

  • Atlas Lithium Corporation

  • Fonar Corporation

  • Odyssey Marine Exploration, Inc.

Tuesday (September 19)

Quarterly Reports

  • AutoZone, Inc.

  • Steelcase Inc.

  • EVI Industries, Inc.

  • Yatra Online, Inc.

  • Vintage Wine Estates, Inc.

Economic Reports

  • Preliminary Building Permits Report

Wednesday (September 20)

Quarterly Reports

  • FedEx Corporation

  • General Mills, Inc.

  • Lifezone Metals Limited

  • Tupperware Brands Corporation

  • Bullfrog AI Holdings, Inc.

Economic Reports

  • FED's New Monetary Policy Decision Making

  • New Monetary Policy Conference, FED.

  • Federal Open Market Committee forecasts.

Thursday (September 21)

Quarterly Reports

  • FactSet Research Systems Inc.

  • Darden Restaurants, Inc.

  • Mitek Systems, Inc.

  • Smith-Midland Corporation

  • Minim, Inc.

Economic Reports

  • Philadelphia Manufacturing Index Report

  • Initial Jobless Claims Report

Friday (September 22)

Quarterly Reports

  • Rave Restaurant Group, Inc.

  • NetSol Technologies Inc.

  • Trio-Tech International

  • Moving iMage Technologies, Inc.

  • InMed Pharmaceuticals Inc.

Now you have more information about your investments. See you next week with more news.

*This is an illustrative example and does not represent an investment recommendation.