Weekly Market Update: Powell keeps markets calm ahead of impending QE taper
Stocks got off to a good start this week, boosted in part by confirmation the FDA removed the emergency use label from the Pfizer Covid vaccine. Concerns about surging Delta variant transmissions and rising hospitalizations in some regions receded as the news offered some hope vaccination rates will rise. The S&P and NASDAQ hit new all-time highs early in the week with the Composite topping 15K for the first time. Also, equity strength was repeatedly pinned, at least partially, on growing doubts Chairman Powell would formally signal the start of tapering Fed asset purchases later in the week. That narrative received further support from the release of the softest August Richmond Fed reading since early last summer. Nevertheless, Fed hawks were out in force calling for the Fed to begin tapering asset purchase this fall in hopes that it will be completed by next spring. Key inflation readings remained elevated here while overseas the Bank of Korea unexpectedly raised rates for the first time since 2018. US Treasury yields drifted steadily higher ahead of Powell’s speech on Friday.
On Thursday, US markets saw a brief bout of equity weakness following initial reports of a suicide bomber attack at the gate of Kabul airport resulting in mass casualties including 13 US servicemen killed. By Friday, much of the focus was back on the Fed. As the market has become accustomed to, Powell’s remarks were significantly more measured then what we have heard from the hawks. He emphasized that, though the threshold of ‘substantial further progress’ has been met on inflation, there is still a ways to go on employment. He added he has yet to see any real signs of rampant wage inflation, while also highlighting some inflation indicators have begun to turn down, notably used car prices. He acknowledged tapering assets purchase could be appropriate this year, but failed to solidify a likely announcement next month as some hawks may have liked. The dollar slipped, stocks added to gains and rates held modestly lower in the wake of his comments. For the week, the S&P rose 1.5%, the DJIA gained 1%, and the Nasdaq surged 2.8%.
In corporate news, Best Buy reported strong Q2 results as US same store sales growth remained north of 20% while also raising its outlook for the year. Reports surfaced that Taiwan Semi is set to raise prices for its most advanced chips by roughly 10% and less advanced chips by 20%. That news sparked speculation that Apple, one of TSMC’s largest customers, iPhone 13 launch coming next month will include significantly higher price tags as management looks to pass along those rising component costs. Homebuilder Toll Brothers reported another quarter of robust results and singled it just put through another nationwide price hike this week. Western Digital was reported to be in late stage merger talks with Japan's Kioxia that could valued at $20B or more. Corporate leaders were emboldened by the FDA’s full approval of the Pfizer vaccine, leading many companies to announce stricter vaccination requirements, including Delta Airlines which will impose $200 monthly increase on health insurance premiums for workers who are not vaccinated.
SUN 8/22 PFE Pfizer-Biontech Covid-19 vaccine granted full US FDA approval in individuals 16 years of age and older; EUA remains for individuals 12 through 15 years of age and for administration of third dose in certain immunocompromised individuals (DE) ECB's Schnabel (Germany): Reiterates stance that expect inflation to keep rising until the end of 2021 especially in Germany, but then see CPI falling "significantly" in 2022 - German press
MON 8/23 (EU) EURO ZONE AUG PRELIMINARY MANUFACTURING PMI: 61.5 V 62.0E (14th month of expansion but lowest reading since Feb 2021) (DE) GERMANY AUG PRELIMINARY MANUFACTURING PMI: 62.7 V 65.0E (14th month of expansion but lowest reading since Feb 2021) (UK) AUG PRELIMINARY MANUFACTURING PMI: 60.1 V 59.5E (15th straight expansion but lowest reading since Mar 2021) (US) JULY EXISTING HOME SALES: 5.99M V 5.83ME
TUES 8/24 (US) AUG RICHMOND FED MANUFACTURING INDEX: 9 V 24E (lowest reading since June 2020) (US) JULY NEW HOME SALES: 708K V 697KE (US) House passes rule adopting $3.5T budget resolution and advancing $1.2T infrastructure package and John Lewis voting rights bill Taiwan Semi: Increasing prices for advanced and mature process technologies by up to 20% [includes ~10% price increase for sub-16nm process manufacturing], effective starting in 2022 - Digitimes BMY Reports Q2 $2.98 v $1.91e, Rev $11.8B v $11.6Be; raises outlook
WEDS 8/25 (DE) GERMANY AUG IFO BUSINESS CLIMATE SURVEY: 99.4 V 100.4E (KR) BANK OF KOREA (BOK) RAISES 7-DAY REPO RATE BY 25BPS TO 0.75%; NOT EXPECTED (1st hike since Nov 2018) DAL Notifies employees that they will face $200 monthly increases on their health insurance premiums starting Nov. 1 if they aren’t vaccinated against Covid-19 - CNBC CRM Reports Q2 $1.48 v $0.91e, Rev $6.34B v $6.23Be; raises outlook
THURS 8/26 (US) Q2 PRELIMINARY GDP ANNUALIZED Q/Q: 6.6% V 6.7%E; PERSONAL CONSUMPTION : 11.9% V 12.2%E Large explosion reported outside of Kabul Airport; Casualties include 13 US servicemen
FRI 8/27 (CN) China said to consider proposing rules in Q4 that bans certain foreign company listings if they have large amounts of sensitive consumer data - financial press (US) JULY PCE DEFLATOR M/M: 0.4% V 0.4%E; Y/Y: 4.2% V 4.1%E (US) Tropical Storm Ida strengthens, passes through Cayman Islands - NHC (US) Fed Chair Powell: Cannot take for granted transitory inflation will fade; Still considerable remaining ground to achieve full employment - Jackson Hole speech (US) National Hurricane Center (NHC): Tropical Storm Ida is now a hurricane, could reach category 3 before making landfall (US) Atlanta Fed GDPNow: Cuts Q3 GDP forecast to 5.1% from 5.7%