Report (Premium Edition) 08-09-2021

Tip: Use this as a quick guide on the short-term direction (1-2 weeks) of key markets. It is not a signal to buy or sell, just to show the trend. This is a quick cheat sheet to know the trend and help understand what is happening with the markets in the short term. I started making this section years ago because once had a client that would call me nearly every day asking the direction of the markets.

S&P 5004436.510.17%7.424440.824429.07Bull
Crude (WTI)65.761-3.26%-2.21367.97465.129Neutral
10 Year1.283−1.31%−0.01701.3071.272Bear
US Dollar Index92.762−0.02%−0.01792.92192.728Bull

Tip: Use this section to know the performance of various sectors, weight portfolios, or look for trades. Modern portfolio theory stresses the importance of diversification, but recently several sectors like technology have outperformed others like utilities. This is also a way to narrow the sectors to find investment opportunities.

REIT Alert: Due to Covid-19, there is a large percentage of people that have not paid rent or mortgages. We are very worried about the effect it could have on real estate investment trusts’ (REITS) value. Even though the sectors may trending bullish, we believe that REITs could have a significant drop in value.

Sector Name5-Day Return1-Month Return3-Month ReturnYTD ReturnYTD Return vs S&P 5003-Year Return5-Year ReturnTrend
 Basic Materials-0.10%2.40%-3.70%17.60%-1.30%44.50%85.90%Bullish
 Communication Services0.20%-0.10%6.50%21.00%2.10%72.50%63.00%Bullish
 Consumer Cyclical0.50%-0.50%2.50%15.30%-3.60%89.40%166.40%Neutral
 Consumer Defensive-0.70%1.50%0.50%7.10%-11.80%41.00%49.10%Bullish
 Financial Services3.50%4.20%1.10%29.30%10.40%40.60%108.40%Bullish
 Real Estate0.60%3.50%10.80%27.50%8.60%44.60%45.10%Bullish

Key Drivers for the Week of Aug 9, 2021

TIP – This is a 1-minute brief bullet-point summary. It is a tool that gives investors and financial a fast and simple list of what to watch for and talking points for the week.

  • Stellar U.S. jobs report eases fears that virus and bottlenecks slowing growth
  • Solid growth, high inflation moving central banks closer to announcing QE 
  • U.S. CPI and PPI highlight calendar, y/y inflation rates may be peaking
  • Treasury supply heats up: $126 bln Augt refunding with 3-, 10-, 30-year sales
  • Japan on holiday Mon; China CPI, PPI; Philippines central bank seen on hold
  • ECB largely on holiday; decision on PEPP unlikely before December 
  • German ZEW economic sentiment highlights, trade balance, HICP due
  • UK preliminary Q2 GDP, June industrial production and trade reports slated 

Stocks & ETF Watch List

Tip: Use this section to find stocks and ETFs to add value to your portfolio by increasing the alpha (return) and decreasing beta (beta). Our list is updated monthly to help provide our readers with timely insights. Readers should do their own research before making any investment. In order to make our report easier to read, we are now including the stocks as lists for readers in separate posts.

  • Inflation Stock Picks: List of stocks that we think should perform better in a rising inflation environment. Click here
  • Auto Parts Stock Picks: Auto parts companies are likely to see their stocks rise as the average age of cars and light trucks increased from 11.9 years in January 2017 to 12.2 years in January 2021, according to new data from IHS Markit. Below are the top auto parts companies that investors should buy now before the profits roll in. Click here.
  • Solid Picks: This group of stock/ETF picks is likely to experience growth and perform well into the near future. Click here.
  • Dividend Stocks: List of stocks that have excellent dividends and business performance. Click here.
  • Dividend Growth Stocks: List of stocks that have a history of growing dividends. Click here.
  • Dividend ETFs Picks: This list of ETFs is selected for their ability to pay dividends. Click here.
  • Dogs of the Dow: This list of DOW stocks based on H. G. Schneider’s Article in the Journal of Finance in 1951 that used the price-earnings ratio. The general idea is that blue-chip companies that pay a dividend are more likely to withstand an economic downturn. Click here.

Week Ahead: Moving Toward Normalization… Inflation?


The U.S. jobs report was stellar on every front with a stronger than expected climb in July nonfarm payrolls, big upward revisions to May and June, a hefty increase in earnings, and solid hours worked. Treasury yields reacted bearishly as expected as the data keep the FOMC on course to announce a QE taper later in the year. The wi 30-year cheapened 8.5 bps to 1.965%, while the wi 10-year rose 7 bps to 1.320%, with the 2-year yield up 1 bp to 0.208%. Fed funds futures declined. Wall Street was mixed. Reflation trades picked up steam again, sending the Dow and S&P 500 to fresh all-time highs, while the rise in rates weighed on the tech-heavy NASDAQ.

The economy has recovered significantly since the end of the pandemic, but it still falls a little short of the “substantial further progress” criteria and that will keep the FOMC sidelined for now. Payrolls have reclaimed 75% of the March-April 2020 job losses, while hours worked have recouped 84% of the drop. Meanwhile, the pick-up in GDP through Q21 has recovered 108% of the Q1-Q2 2020 drop.

The labor force participation rate improved to 61.7%, off its 60.2% April 2020 low but is below the 63.4% peak from January 2020. Though Governor Waller suggested a QE tapering announcement could be made in September, we suspect Chair Powell will take a more cautious approach and will want a little more data. And the August numbers should be impacted by the Delta variant and its repercussions.

We still believe November is the earliest the Fed would announce trimming asset purchases, which would begin in January 2022 and extend through the year, with the first-rate hike in 2023. And although the first-rate hike likely is still more than a year away, Fed funds futures declined. Rate hike bets were moved up into the earlier part of 2023 from mid-to later 2023.

That being said, the 10Year took a jump up last week to 1.30% in what we think is in anticipation of a hawkish Fed. Looking at the chart, we see that it sitting on the 200 day moving average. If it goes above, expect the bullish trend to continue.

In case you missed it, the CDC extended the eviction moratorium despite the fact it was ruled unconstitutional. Reading between the lines, the Biden administration is playing the court game and fully expects it to be overruled again but will give them a few months.

Investors should be watching real estate investments such as REITs that have exposure to a dip in the real estate market. I think it could hit as early as February.

The “Infrastructure Bill” continues to make its way through the Senate with the support of both sides. There appears to be a huge gap in spending between the House (which is out for roughly 5 weeks) that wants $6 trillion and the Senate’s $1 trillion.

The debt ceiling has officially been past and Janet Yellen, Treasury Secretary, has been lobbying Congress to increase it before a government shutdown.

I think we are likely going to see a massive increase in spending and infrastructure bill pass in the name of “urgency” and to avoid a “shutdown” when the House finally returns. Inflation worries will be cast aside as the political left stuff the Infrastructure Bill with trillions of unfunded spending.

As a Capitalist and classical economist, I don’t agree with the policy, but I have learned I can’t change it. The increased spending will cause another wave of rising inflation.

JPMorgan’s Jamie Dimon this week echoed that sentiment, saying, “I do not agree with the Fed’s view that inflation is temporary. I think there’s a lot of stimulus that hasn’t been spent and a lot more stimulus coming. Having a fiscal deficit that big is unprecedented. That almost has to be inflationary.” Dimon warned that if inflation runs too high next year that the Fed may be forced to “jam their foot on the brakes,” and hike interest rates which could cause a recession.

This is a risk that El-Erian has also warned about for months. Dimon didn’t appear to be overly concerned about how the Fed is backing itself into a corner on inflation, rates, and the downsides. He did, however, put the situation into proper context: “No one has ever seen this kind of fiscal and monetary stimulus. And so we’ll be writing books about this for a hundred years.”

In other words, rising inflation is not temporary. We will likely see hyperinflation followed by stagflation if the US follows the current fiscal policy.

This week’s thin data slate is highlighted by July CPI (Wednesday) and PPI (Thursday). The numbers shouldn’t have much impact on the markets as it appears the prices are decelerating somewhat. Indeed, the y/y rates may be peaking. We expect gains of 0.3% for both the CPI headline and core, following June gains of 0.9% for both. As-expected July figures would result in a 5.1% headline y/y pace, slowing from the 5.4% rate in June. Core prices should show a 4.2% y/y clip, down from 4.5% y/y in June.

We also forecast 0.3% increases for July PPI headline and core, following gains of 1.0% for both in June. As expected readings would result in a dip for the y/y headline PPI metric to 6.9% from 7.3% in June, with the y/y core rate slipping to 5.4% from 5.6% in June. Other data this week include June JOLTS (Monday), Q2 productivity and costs (Tuesday), jobless claims (Thursday), trade prices, and consumer sentiment.

Supply heats up again with the $126 bln August refunding auctions on tap. The offerings kick off with the $58 bln 3-year sale (Tuesday), followed by the $41 bln 10-year sale (Wednesday), and the $27 bln 30-year (Thursday). The selloff on Friday cheapened the issues measurably. The wi 3-year rose 3.5 bps to 0.435%, with the wi 10-year 7 bps higher at 1.320%, while the wi 30-year surged 8.5 bps to 1.965%. For the 3-year, this would be the cheapest stop in over a year.

The Fedspeak will be monitored closely now that tapering is more in view. Bostic and Barkin, both current voters, speak (Monday) with the latter discussing the economic outlook. Mester, a 2022 voter, speaks on inflation risks (Tuesday). George will be at the annual NABE Economic Measurement Seminar (Wednesday).

The earnings slate thins appreciably after the hectic pace of the last two weeks. Leading off are BioNTech, Air Products, Trade Desk, Barrick Gold, Nutrien, Tyson Foods, and DISH Network on Monday. Tuesday has Coinbase Global, Sysco, Transdigm, Unity Software, and McAfee. NIO, eBay, Franco-Nevada, Royalty Pharma, and come out Wednesday. Walt Disney, Applied Materials, Brookfield Asset Management, Airbnb, NetEase, Baidu, Palantir, SoFi Technologies, and GoodRX are slated for Thursday. Friday has Berkshire Hathaway.

Canada will be quiet this week with nothing on it data or events calendars. There is nothing scheduled from the Bank of Canada until the Senior Loan Officer Survey on August 16. The next policy announcement is on September 8. Our base case policy outlook remains for further reduction in QE to C$1.0 bln by the end of this year. However, the disappointing July employment report and uncertainty surrounding the rise of the delta variant has diminished the odds that there will be another cut in QE at the September announcement.


Rapidly expanding Covid cases and the Delta variant coursing through Asia continue to raise questions over economic growth in the coming weeks and months. It appears the largely low-vaccinated region may be in for further restrictions and lockdowns in the coming weeks. Malaysia, Indonesia and Vietnam continue to be hard-hit by the virus, while Japan, and to a lesser extent China, will feel the impact of Covid on their economies. A recent Reuters poll suggested Japan’s Q2 GDP (due next week) will struggle to post positive growth in the quarter, largely as domestic consumption remains constrained by Covid restrictions. This week’s economic calendar is quite light. Japan is on holiday Monday for Mountain Day. There is not much data with just current account and PPI figures. China CPI and PPI are on deck. Elsewhere in the region, there is a smattering of production, growth and unemployment data. The only central bank meeting on the docket is the Philippines central bank, where rates are expected unchanged at 2.00%.

China July inflation data (Monday) headline this week. CPI is expected unchanged at the 1.1% y/y June rate, but slowing from the 1.3% y/y in May. Indeed, consumer prices have been generally decelerating since the 5.4% y/y clip from January 2020, which was the fastest since October 2011. PPI is projected to post a steady 8.8% y/y clip. Producer prices emerged from 11 straight months of deflation in January with a 0.3% y/y pace and has been picking up steam since, hitting 9.0% y/y in May. Japan is on holiday Monday, in observance of Mountain Day. The June current account (Tuesday) should see the surplus widen slightly to JPY 2,000.0 bln from JPY 1,979.7 bln. July bank loans are due Tuesday as well. July PPI (Thursday) is penciled in at an unchanged 5.0%.

In Malaysia, June industrial production (Monday) is penciled in slowing to a 7.0% y/y from 26.0% previously. It surged to a 50.1% y/y rate in April. Q2 GPD (Friday) should emerge from recession and rebound to a 5.0% y/y pace from -0.5% in Q1. Growth had contracted at a -17.2% rate in Q2 2020. The Q2 current account is seen widening slightly to MYR 13.0 bln from MYR 12.29 bln. Philippines Q2 GDP (Tuesday) is expected to pop to a 13.0% y/y clip from -4.2%. This would break a string of 5 quarters of contraction from Q1 2020 through Q1 2021, bottoming at -17.0%y/y in Q2 2020. The central bank meets Thursday, with no change to its 2.00% overnight borrowing rate anticipated. The rate was trimmed by 25 bps in November 2020 following a 50 bp slashing in June 2020 to 2.25% from 2.75% in April 2020. The index began 2020 with a 4.00% rate before the Covid easing of 25 bps in February 2020.


Eurozone: the ECB is essentially on holiday now and most of this week’s round of data is unlikely to have a significant impact on the tapering debate, which we expect to start intensifying in the fall. September will bring another set of forecasts from ECB staffers, but it will likely be too early to judge the impact of the latest virus wave and the true state of labor markets. The final decision on the future of PEPP, which is currently set to end in March next year, is unlikely to be taken before December, but monthly purchase volumes will be under discussion again. Virus developments over the summer will likely play as much of a role in the debate as data releases until then.

The most forward-looking number this week will be German ZEW Economic Sentiment data for August. The reading reflects investor sentiment, rather than real sector views and with that in mind is likely to correct further against the background of virus jitters and China worries. However, given that this has also led to a marked decline in yields and a reversal of tapering trades, stock markets at least have been pretty buoyant, which should keep a floor under readings that remain at high levels. Our forecast for a drop to 60 is, therefore, a bit less pessimistic than the Bloomberg consensus, which is 56.

The rest of the calendar is pretty backward-looking. The German trade balance (Monday) is likely to show a narrower surplus as rising import prices lift the nominal import bill, while capacity constraints hit deliveries. The same is true for Eurozone trade data on Friday. Given that Q2 GDP was already released, the numbers will add background information and give clarity on the composition of growth, but shouldn’t really change the overall picture. Eurozone industrial production (Thursday) could disappoint, after the unexpected contraction in German production that month, which we expect was mainly a reflection of capacity constraints and staff shortages, with backorders continuing to pile up.

The likely temporary mismatch between supply and demand has also pushed up input price inflation, which together with other base effects has been driving headline inflation numbers sharply higher. This week’s round of final CPI readings for July is unlikely to bring major revisions, which should leave German HICP inflation on Wednesday at 3.1% y/y, the wider national CPI rate at 3.8%. The main question for central banks will be whether there are second-round effects and that will depend on the state of the labor market, which remains propped up by wage support measures.

U.K.: the UK economy has remained on an expanding path, and last week the BoE put in some groundwork to prepare the way for a tightening in Q3 next year, stating that should the economy evolve broadly in line with central projections, modest tightening of monetary policy would likely be necessary over the three-year forecast period. The BoE is forecasting UK Q2 GDP at 5%, and at 3% in Q3 while anticipating that the economy will return to pre-pandemic by the end of Q4. Headline CPI is expected to return to the BoE’s mandated target rate of 2% y/y once base effects and global supply chain bottlenecks are shaken out, though not before scaling to 4% before the end of this year. The BoE repeated that it will hike the repo rate before reducing the stock of purchased assets under the QE program, but reduced the level that the repo rate would need to be before doing so to 0.50% (currently 0.10%) from 1.50%. For the economy “to evolve broadly in line with central projections” would mean that the Covid situation remains manageable and that no further lockdowns are needed.

The UK calendar this week is highlighted by the release of June production and trade data, alongside the release of preliminary Q2 GDP data (all due on Thursday). June industrial production is expected to rise 08% m/m in June, while June GDP is seen expanding by 0.9% m/m. Q2 GDP is expected to show a sharp rebound from the acute contraction seen during Q1 to reflect the reopening of the economy from lockdown measures. Growth is anticipated at 4.8% q/q after contracting 1.6% q/q in Q1. The y/y figure is forecast to rebound by 22.2% after Q1’s -6.1%.

Switzerland: The calendar is quiet, features the latest unemployment and PPI data.

Data Week of August 9

The July inflation metrics are scheduled for the second week of August. We expect firm CPI and PPI headline and core price gains, though monthly increases should moderate, while y/y gains subside thanks to diminishing base effects. We expect big trade price gains, though again with moderating increases following particularly big gains through the first half of the year. The week will include the first round of Q2 productivity figures, where we expect a solid productivity rise but a restrained unit labor cost gain. We expect a July Michigan sentiment down-tick.

Week of August 9

The July jobs report beat estimates on every front, with big upward revisions in the major components that reversed hours-worked weakness in the June data. The data suggest some upside risk for our 7.0% Q3 GDP estimate, following an assumed boost in Q2 GDP growth to 6.7% from 6.5%. Yet, we see the Q2 GDP growth figures are reflecting the effective “speed limit” for our capacity constrained economy, and this cap should provide similar resistance for growth in excess of this pace in Q3. The solid payroll gains over the last two months of 943k in July and 938k in June, if sustained, would suggest GDP growth of 8%+ if sustained, but we expect more moderate gains to materialize starting in August in the 650k area.

Government education jobs added 231k to the July payroll gain, as fewer teachers entered summer recess than the seasonal factors anticipate. This seasonal distortion will be partly reversed in September and October, leaving a headwind for payroll growth. We expect goods consumption to subside through Q3 as service sector spending climbs, allowing a pull-back in retail sales. Real consumption growth should moderate to a more trend-like 3.3% trajectory starting in Q3. Overall, we assume that the stimulus-induced “boom” in growth will begin to taper quickly as we approach Q4, with more historically normal GDP growth rates by 2022.

Productivity, Q2 Preliminary: 2.5%

The GDP data imply Q2 productivity growth of 2.5%, following an assumed 5.3% (was 5.4%) Q1 gain. We expect BLS output growth of 7.9% in Q2, after an 8.5% (was 8.6%) Q1 pace. We expect hours-worked growth of 5.4% in Q2, after a 3.0% Q1 clip. We expect Q2 unit labor cost (ULC) growth rate of 1.5%, after a -2.5% (was 1.7%) Q1 pace, which reflects projected hourly compensation growth of 4.0% in Q2 after a 2.9% (was 7.2%) Q1 clip. The annual productivity gains in 2019 and 2020 mark the strongest increases since 2010, and annual revisions appear unlikely to provide more than modest tweaks to these figures. We’re on track for another big productivity gain in 2021.

CPI/Core: 0.3%/0.3%

We expect July gains of 0.3% for both the CPI headline and core, following June gains of 0.9% for both. CPI gasoline prices look poised to rise 2.3% in July. As-expected July figures would result in a 5.1% headline y/y increase, following a 5.4% pace in June. Core prices should show a 4.2% y/y rise, down from 4.5% y/y in June. Widespread production bottlenecks are lifting all the broad inflation metrics in 2021, such as PPI and the trade price indexes, alongside a Q2 boost to the y/y figures from base effects that should allow peak-gains over the May-July period for the headline and core. We expect respective PCE y/y chain price gains of 4.0% and 3.5%. The Fed continues to interpret the Q2 inflation spike as transitory, though it’s unclear if upward commodity price pressure will abate much in late-2021.

PPI/Core: 0.3%/0.3%

We expect a 0.3% July PPI gains for the headline and core, following gains of 1.0% for both in June. As expected readings would result in a dip for the y/y headline PPI metric to 6.9% from 7.3% in June, though we expect a dip in the y/y core measure to 5.4% from 5.6% in June. The y/y headline PPI gain of 7.3% in June, as well as the core y/y gain of 5.6% likely represented the peak for this metric. The massive PPI climb since the start of 2021 has exceeded the uptrend in headline and core CPI data, and both sets of gains are chasing outsized increases in the trade price measures, alongside ongoing supply constraints that have provided a powerful lift for the inflation indexes.

Initial Jobless Claims: 370k

Initial jobless claims are expected to fall -15k to 370k, after a drop to 385k from 399k, versus a 368k cycle-low in both late-June and early-July. Claims likely tightened into the July 4th holiday but widened since then due to a counter-swing relative to the auto retooling seasonal pattern, which likely didn’t occur much this year due to semiconductor shortages. Claims averaged 392k in July, after averages of 394k in June, 428k in May, and 582k in April. The 424k July BLS survey week reading slightly overshot last month’s reading of 418k, but was an improvement against the 444k in May, 566k in April, 765k in March, and 847k in February. We assume a 650k August payroll rise, following a 943k July gain.

Continuing claims fell by -386k to 2,930k in the week of July 24, following an upwardly revised 3,296k figure. We expect continuing claims to rise 70k to 3,000k for the week ending July 31. The downtrend in the continuing claims data has moderated since March, just as the drop in initial claims has picked up steam. Continuing claims fell -116k between the June and July BLS survey weeks, after drops of -199k in June, -42k in May, -188k in April, -628k in March, -409k in February, -555k in January, and -705k in December.

Import/Export Price Index: 0.7%/0.8%

Import and export prices are expected to rise 0.7% and 0.8% respectively in July, after June gains of 1.0% for imports and 1.2% for exports. Ex-petroleum import prices are expected to grow 0.6%, while ex-agriculture export prices grow 0.8%. Oil prices rose sharply into early July in the face of booming global demand and tight inventories, alongside a wide array of broader commodity price gains due to global capacity constraints and supply chain disruptions, though these upward pressures were partly reversed into late-July by fears over the delta variant. A downtrend in the value of the dollar into 2021 also aggravated the outsized trade price climb since December. Trade price gains have contributed to the shift in market focus toward upside inflation risk in the first half of 2021, though these fears will likely diminish into 2022 as some price overshoots with supply chain distortions are reversed.

Michigan Sentiment, Advance: 81.0

We expect the advance Michigan sentiment report to reveal an August down-tick to 81.0 from 81.2 in July, versus an 88.3 cycle-high in April and a 6-month low of 76.8 in February. We expect current conditions to rise to 84.7 from 84.5 in July, following a 97.2 cycle-high in April and a 4-month low of 86.2 in February. Expectations are expected to slip to 78.7 from 79.0 in July and an 83.5 cycle-high in June, versus a 3-month low of 70.7 in February. The 1-year inflation index is expected to slip to 4.6% from a 13-year high of 4.7% in July, versus a prior 13-year high of 4.6% in May that matched highs in April and March of 2011. The 5-10 year inflation measure is pegged at 2.9%, versus 2.8% in June and July, and a 10-year high of 3.0% in May that was last seen in 2013. The confidence updraft with Q1 stimulus checks and vaccines peaked in Q2 for all major measures, aside from a July peak for the Conference Board index.

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