The markets are likely to remain choppy but subdued into next week’s FOMC meeting. We see little risk that the Committee announces QE tapering at this point given various uncertainties. The spread of the Delta variance and ongoing supply constraints are weighing on growth. Additionally, Chair Powell believes there is “significant slack” in the labor market which means the employment conditions have not been met.
The markets are also focused on fiscal policy as Congress gets back to work to negotiate and work up the massive spending bills. Wall Street bounced yesterday, taking as dip buyers stepped in. Treasury yields cheapened on the increase in risk appetite, but yields finished off the day’s highs. Other key events:
- The White House was said to be ready to distribute up to 20 million doses Pfizer’s COVID-19 vaccine to children aged 5-11 if approved by BioNTech.
- Jamie Dimon CEO of JPMorgan said he believes global supply-chain problems are at their peak and that he doesn’t anticipate them becoming a problem in the next year.
- Investors are waiting for the Bureau of Labor Statistics Job Openings and Labor Turnover Survey (“JOLTS”) to get an update on domestic employment availability.
- Domestic coronavirus vaccinations rose to over 401.8 million through yesterday with more than 56.4% of Americans being fully vaccinated.
Oil prices have eased slightly, with the front end WTI future back below the USD 73 per barrel mark after spiking in the wake of EIA inventory data yesterday which showed a higher than expected decline in crude stocks.
U.S. production remains hampered by hurricane-related rig shutdowns in the Gulf of Mexico, which is likely to keep markets underpinned, despite today’s modest correction. Bloomberg highlighted that Brent call option volumes were the highest since July yesterday, with fourteen of the most active options changing hands calls and the premium of Brent puts over bullish options was the smallest since April.
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Today’s data calendar will be closely tracked, though none of the report should impact the outlook on near-term Fed policy. The August retail sales report is the highlight. Sales are expected to fall -0.8% overall after dropping -1.1% in July, and slide -0.2% from -0.4% on an ex-auto basis.
Weekly jobless claims are expected to see initial claims tick up 5k to 325k, and continuing claims to fall -43k to 2.740 mln. The September Philly Fed index is forecast to have dipped to 19.0 from 19.4. July business inventories should rise 0.5% versus the previous 0.9% increase. July TIC flow figures are also due. The Treasury announces 10-year notes, and 20-year bonds.