TheBRRR’s Thoughts

GM.

The newsletter is going on break through the end of the month - I’ll be out of town and away from screens on my honeymoon.

Risk assets are in a fine place ahead of the election with the Fed set to cut rates imminently, Japan backing off from its tightening plan and China set to stimulate its economy.

We’ll get some key economic data before the month ends - starting with CPI this Wednesday where markets expect to see 3.0% y/y.

A print too low or too high would spook markets, indicating that the Fed has lost control, but anything between 2.8% and 3.2% should be digested cleanly and set the table for a 50 basis point cut at the September FOMC meeting.

PPI and jobless claims hit the tape premarket on Tuesday and Thursday, respectively.

We’ll be back just before the Labor Day holiday and will send an update then.

I’ve given a free month to all paid subscribers, let me know if there are any issues.

-Frank

Previewing Big Week Of Macro Data

WHAT’S HAPPENING

This week is packed with significant macroeconomic events, with the spotlight on U.S. inflation data:

• Tuesday: PPI data for July, with expectations for a 0.2% MoM increase.

• Wednesday: July CPI report, expected to show a 0.2% rise in both headline and core CPI, keeping annual CPI steady at 3.0% and core CPI slightly down to 3.2%.

• Thursday: Retail sales data for July, forecasted to increase by 0.4%, along with industrial production data, expected to shrink by 0.3%.

In addition to these data releases, several Fed officials, including Bostic, Musalem, Harker, and Goolsbee, will be speaking throughout the week. Their comments could give insights into the Fed’s current stance on rate cuts, especially ahead of the Jackson Hole symposium next week.

WHY IT MATTERS

• Fed’s Next Move: The inflation data will be crucial in determining whether the Fed feels confident enough to signal a potential rate cut in the upcoming September meeting. Although inflation is easing, it remains above the Fed's 2% target, with some Fed officials still cautious about cutting rates too soon.

• Market Impact: Markets are currently pricing in 101bps of rate cuts by year-end, but this remains contingent on economic data. With fears of a U.S. recession growing, the Fed's response to these data points could swing market sentiment.

• Consumer Health: Earnings from Home Depot and Walmart, coupled with retail sales data, will provide a clearer picture of U.S. consumer strength as Q3 progresses.

KEY DATA TO WATCH

• PPI (Tuesday): Indicates producer-side inflation, could influence Fed’s view on inflationary pressures.

• CPI (Wednesday): The most watched inflation metric, any surprise here could jolt markets.

• Retail Sales (Thursday): A critical gauge of consumer spending, with potential implications for GDP growth.

EARNINGS SEASON WRAP-UP

• Key Reports:

  • Tuesday: Home Depot’s earnings will shed light on the home improvement sector and broader consumer spending trends.

  • Thursday: Walmart’s earnings will be crucial for understanding retail dynamics and consumer health. Walmart’s performance often reflects broader economic conditions due to its vast market presence.

MARKETS AND ECONOMIC PROJECTIONS

• Fed Funds Futures: Market pricing currently reflects 101bps of cuts by year-end, down from 138bps last week amid market stress. The likelihood of such cuts hinges on the upcoming data—if the economy doesn’t slow materially, this pricing could be overly optimistic.

• GDP Projections: The Atlanta Fed’s GDPNow estimates a solid 2.9% growth for Q3, highlighting the U.S. economy’s resilience despite recent recession fears. This stands in contrast to Europe, where economic growth is more sluggish.

Zerohedge

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The BRRR is meant for informational purposes only. It is not investment advice. Please consult with your investment, tax, or legal advisor before making any investment decisions.ll