Report (Premium Edition) 10-11-2021

Key Market Trends

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 500 Sector Trends

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. Following the Supreme Court ruling stopping the eviction moratorium, 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.

Key Drivers for the Week of Oct. 11, 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.

• U.S. jobs report likely met Powell’s “reasonably good” criteria for QE trimming
• Supply constraints, surging prices are slowing growth — dilemma for central bankers
• Monday: Treasuries and Fed closed Columbus Day; Canada Thanksgiving Day
• U.S. data reports: CPI, retail sales, PPI, trade prices, Empire State index, JOLTS
• FOMC minutes ; Fedspeak with 8 voters, focus on VC Clarida and NY’s Williams   
• China releases CPI, PPI, trade; Japan has PPI, core machine orders; BoK on hold
• German ZEW sentiment, HICP, Eurozone production; ECBspeak to be monitored
• UK data on BRC retail sales, unemployment, wages, production, trade data on tap

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: Stagflation or Just Another Slowdown

The U.S. September jobs report likely met Fed Chair Powell’s “reasonably good” test, as the internals more than offset the disappointing 194k increase in payrolls, solidifying market expectations the FOMC will announce QE tapering at the November 2-3 meeting. Many analysts already believe the Fed is behind the curve as inflation pressures continue to climb.

Last week Congress passed a bill that would increase the debt by $480 billion which will give the Treasury Department enough money until December 3rd. Get ready for huge market volatility around that time. Republicans are already saying they won’t help this time although I and most people don’t think they have the political strength not to.

Cathie Wood from ARK talks about the “log jams all over the place in Washington,” including the debt ceiling, government shutdowns, and the infrastructure bill. Wood believes the government probably won’t shut down, as “they play this game every year.” She notes that momentum behind tax increases has slowed significantly as a divide widens between progressive and moderate Democrats.

According to ARK, polling swing states showed non-favorable results for the Democratic party if taxes increased. A decrease in pressure to raise taxes means the stock market will likely continue to be in good health, that is, at least until another shock occurs. Quantitative easing will not slow any time soon, according to Wood. The Fed is keeping most of those purchases on their balance sheet in the form of reserves. “They are kindling for loan growth. If they were to light the kindling… then we might have a boom. That’s not happening actually… we are beginning to see the banks worry about loan growth because of DeFi, decentralized finance in the crypto world.” 

“We [ARK] believe the next big worry is a recession.” Wood thinks that because inventories are so high in households, such as cars, we will begin to see inventories at stores pile up. “There has been a lot of double and triple orders,” Wood says, and combined with a transition from goods to services as the economy reopens, “there will be too much inventory, we believe, on the shelves.” This lack of demand for goods will likely mean retailers and other suppliers stop ordering new inventory altogether. Clorox serves as a visual for inventory backup: due to the pandemic, all of the inventories have been accumulated into households. In effect, Clorox sales have dropped significantly.

Morgan Stanley analysts believe the brunt of the economic slowdown following the Covid pandemic should be in the rearview mirror. According to Morgan Stanley, GDP growth from July to September fell from 6.5% to just 2.9%, stating that, “Growth in the U.S. economy is coming off a torrid pace in the first half of the year as stimulus spending and a reopening-fueled burst of activity cools.” 

Stagflation or Slowdown: We have pointed out for months that the “recovery” is losing steam and rising inflation is here to stay. Investors need to embrace a major market correction and/or a long-term sideways market movement. Commodities will likely increase and investors should reallocate around value more than growth stocks.

The U.S. calendar will be busy with more key data, supply, and events on tap. Trading will be light on Monday, however, with the Treasury market on holiday for Columbus Day. The Fed is also closed, though Wall Street will trade. This week’s data highlights include CPI and retail sales for September that are expected to show elevated prices and weaker sales. Indeed, severe supply chain bottlenecks and soaring prices for energy, cars, and other commodities into the final weeks of Q3 hobbled economic growth, and put the trajectory through Q4 at risk.

And these factors will present a major dilemma for the FOMC heading into the November meeting as it contemplates QE tapering. The markets will also monitor supply as $120 bln in 3-, 10-, and 30-year auctions are slated. Fedspeak is on tap too with 8 of the current voters scheduled. The minutes to the September 21-22 FOMC are due too. Another earnings season kicks off with the big banks.

September CPI (Wednesday) headlines and we expect a 0.3% increase overall and a 0.2% rise in the core, following respective August gains of 0.3% and 0.1%. Such figures would result in a 5.2% y/y headline pace, slowing fractionally from the prior 5.3% clip and just shy of the 13-year high of 5.4% in June and July. Core prices should hold steady at a 4.0% y/y clip, though slipping from the 29-year high of 4.5% in June. Widespread production bottlenecks are lifting all the inflation metrics this year. The Fed continues to interpret the inflation spike as “transitory.” However, the jury is still out whether commodity price pressure will abate much into year-end given that supply chain problems seem to be getting worse and could last well into 2022.

September retail sales (Friday) are projected to fall -0.3%, with a 0.2% ex-auto increase, softening measurably following respective August jumps of 0.7% and 1.8%. The weakening is expected to come from declining vehicle sales, due to lack of supply, along with a continued unwind of the lift from Q1 stimulus. Unit vehicle sales plunged -6.4% to a 17-month low of 12.2 mln as the ongoing semiconductor shortages and delayed unloading at ports weighed on production. Vehicle sales were at a 16-year high of 18.3 mln in April. Other economic reports this week include JOLTS (Tuesday), PPI (Thursday), along with trade prices, the Empire State manufacturing index, and consumer sentiment (all Friday).

Supply hits the bond market again this week with $120 bln in coupon auctions, including $58 bln in 3-year notes (Tuesday), $38 bln in reopened 10-year notes, and $24 bln in reopened 30-year bonds. They will provide interesting insight into the demand for Treasuries. Auction results over the last couple of months have shown good to decent buying thanks to safe-haven demand and a grab for yield.

The likelihood the Treasury cuts auction volumes with the November refunding may support ongoing demand too. And yields have cheapened significantly. The wi 3-, 10-, and 30-year rates extended higher on Friday, leaving the short note at 0.318%, the highest since March 2020. The 10-year note rose to 1.620%, with the bond at 2.170%. However, such yields may not be attractive enough considering the possibility of a Fed tapering next month, as well as another debt limit debacle and default threat redux into early December.

Fedspeak will be closely monitored to further gauge QE tapering risks. As many as 8 current voters are on tap early in the week. Also, the FOMC minutes (Wednesday) to the September 21-22 meeting may shed some additional light too. The dovish Evans gives opening remarks at an awards ceremony (late Monday), though no comments on policy are expected. VC Clarida speaks at the IIF annual meeting (Tuesday). Bostic will also highlight (Tuesday) as he discusses inflation at the Peterson Institute.

He has supported the start of tapering this year. Barkin, a voter, is interviewed for in an NPR broadcast. Governor Brainard is at a Fed Listens event (Wednesday), while Governor Bowman (Wednesday) will speak on monetary policy and the economy. Bostic and Barkin are back up (Thursday), with the former taking part in a panel on inclusive growth, while the latter speaks at the Cornell Club. Daly, a voter (Thursday) speaks at a conference on small business. Harker, not a voter this year or 2022, will outline his thoughts on the economic outlook (Thursday). And importantly, Williams, takes part in a panel discussion on monetary policy in a Bank of France event (Friday). The BoE’s Bailey and the PBoC’s Yi Gang (Saturday) are on a panel on “Global Economy: Managing Uncertainty” at a G30 International Banking seminar.

Another earnings season is upon us. Fastenal starts the week Tuesday, but the focus will be on the big banks Wednesday with JP Morgan Chase, Goldman Sachs, BlackRock, and First Republic, along with Infosys, Progressive, Wipro, and Delta Airlines. UnitedHealth, Bank of America, Wells Fargo, Morgan Stanley, Citigroup, U.S. Bancorp, Walgreens Boots, and Domino’s Pizza follow Thursday, with J.B. Hunt, Prologis, PNC Financial, and Truist Financial on Friday.

Canada’s markets are closed Monday for the Thanksgiving holiday. A sparse calendar is on offer during the shortened week. The August manufacturing report (Thursday) is expected to reveal a 0.5% gain in shipment values after the -1.5% drop in July. Wholesale shipment values (Friday) are projected rebounding 0.5% in August following the -2.1% tumble in July. The existing home sales report for September is slated for Friday.

ASIA

This week’s slim regional calendars will feature several key data releases, including inflation, trade, and production. A lot of the price data will show the highest rates going back months, years, and decades. China reports September CPI, PPI, and trade numbers. Japan also has September producer price prices. India’s slate is busy with CPI, trade, and production. South Korea’s BoK is the only central bank meeting scheduled, though it no surprises are expected as it should leave its current policy setting on hold with rates at 0.75%.

China September trade (Wednesday) should see the surplus narrow to $45.0 bln from $58.3 bln previously. Port backlogs due to covid restrictions and supply chain disruptions around the world are expected to have crimped exports. A lot of attention will also be on September inflation numbers (Thursday). CPI is projected to remain an unchanged at August’s 0.8% y/y rate. It has been decelerating from the 1.3% pace in May. PPI is expected to pick up to a 10.0% y/y clip from 9.5%. It has generally been accelerating on a monthly basis since -2.1% y/y in September/October 2020, with the 9.5% from August the fastest since the 10.1% y/y rate from August 2008.

Japan September PPI (Tuesday) is penciled in decelerating to a 4.6% y/y clip versus 5.5% in August and 5.6% in July as lumber and petroleum prices recede. July’s jump was the fastest since September 2008. August core machinery orders (Wednesday) should rise 0.7% m/m following the 0.9% July rebound from June’s -1.5% tumble. Core orders have plied a very choppy range this year, so far registering 4 monthly gains out of the last 7 months as the state of emergency and supply chain disruptions remain drags. Revised August industrial production (Thursday) is likely to improve only marginally versus the -3.2% plunge due to supply shortages and as global demand wanes. The August tertiary industry index (Friday) should dip -0.2% lower versus the prior -0.6% drop.

South Korea’s BoK meets (Tuesday) and is expected to keep its 0.75% repo rate unchanged. The Bank hiked rates by 25 basis points from 0.50% at its August meeting, and was the first major economy to do so since the start of the pandemic amid firming inflation, decent growth, and worrisome financial imbalances. September unemployment (Wednesday) is estimated to have fallen to 2.7% from 2.8% previously. The 5.4% rate from January was the highest going back to the 5.5% from October 1999. India September trade (Tuesday) should see the deficit widen to -$15.0 bln from -$13.8 bln. September CPI (Tuesday) is forecast to have cooled to 5.0% y/y from 5.3%, having slipped from the 6.3% y/y rate in May. August industrial production (Tuesday) is expected little changed at 11.6% y/y from 11.5% in July, and has plunged from 133.5% in April. September WPI (Thursday) should tick up to 11.5% y/y from 11.4%. Price pressures have picked up from the -0.25% pace in July 2020, and hit a record peak of 13.1% in May.

Malaysia’s August industrial production (Tuesday) is seen at a -4.5% y/y rate as the contraction slows a bit from the -5.2% in July. Indonesia September trade surplus (Thursday) should narrow to $4.0 bln from $4.7 bln. Singapore advance Q3 GDP is expected to slow to 8.8% y/y from 14.7% in Q2. Philippines’ August trade deficit (Tuesday) is expected to widen slightly to $3.5 bln from -$3.3 bln.

Australia’s docket is light this week, though features the September employment report. We look for a 50k increase in jobs, while the unemployment rate is likely to remain steady at 4.5%. Covid lockdowns in the country have resulted in layoff through the past few months. There are no RBA events this week. New Zealand’s calendar is empty, and the RBNZ is quiet this week as well.

EUROPE

Eurozone: ECB officials are doing their best to keep tightening speculation under control and play down the spike in inflation numbers, which they insist is largely due to temporary factors, related to the re-opening of the economy. However, the risk is of course that the global economy will take much longer to catch up with energy supply and deliveries of raw materials and intermediate goods than they initially expected. At the same time, the labour market may have experienced a structural shift that could lead to a lasting shift higher in wages. In our view the risks to the medium term inflation outlook are increasingly tilted to the upside but it is becoming increasingly clear that central bankers are more focused on trying to keep refinancing costs low and spreads in and against that background, bond buying is unlikely to end any time soon, even if PEPP will be phased out on time in March next year.

Eurozone data releases this week include German ZEW investor sentiment, which we expect to show further declines in both current conditions and future expectations readings as Germany’s mighty auto industry is struggling with the global chip shortages. The sharp rise in natural gas prices is also having knock on effects, while wider market sentiment is weighed down by China angst and tapering concerns. Readings continue to signal, however, that optimists outnumber pessimists.

Final inflation data for Germany and France meanwhile are not expected to bring major revisions and confirm the German HICP rate at a whopping 4.1% y/y and the French rate at 2.7% y/y. Sharply higher energy prices continue to play a key role and are now feeding through the product chain, with developments in gas prices across Europe suggesting further pain ahead.

Events include a number of ECB speakers, which will have ample chance to make their case on the future of asset buying ahead of the decision on PEPP at the December meeting.

U.K.: the BoE already laid the ground for rate hikes at its previous meetings and speculation that the central bank could move before the end of the year has risen sharply last week, against the background of supply chain disruptions at national level, staff shortages in key sectors and spiraling energy prices. The BoE’s new chief economist flagged the risk that inflation could turn out to be more protracted than previously though and given that PM Johnson has urged businesses to up wages in order to address staff shortages that actually threaten to disrupt public life, it is no surprise that the Gilt-Bund spread continues to widen and the pound continues to rise against the EUR.

Data releases ahead will add to the overall picture ahead of the next BoE meeting as they include the latest labour market report and monthly GDP numbers. Wage data remains distorted by virus developments, as are indeed headline employment numbers, although anecdotal evidence suggests that the end of the furlough scheme has had less of an impact than feared. If confirmed in subsequent data it would add a key piece to the argument in favour of a rate hike. Backward revisions to Q2 GDP numbers meanwhile have left the economy on a higher trajectory than previously thought and while July data were somewhat disappointing, there should be at least a slight acceleration in monthly GDP. However, supply chain disruptions and the spike in natural gas prices are creating some problems, which could weigh on overall output in Q3 and into Q4, if surveys are anything to go by. Those problems, however, would only be exacerbated by an overall expansionary monetary policy that continues to fuel demand.

Switzerland: The calendar has is very quiet, but includes data on producer and import price inflation.

Data Week of Oct. 11, 2021

The economic release schedule is back-loaded in this holiday-shortened week, culminating with an expected September retail sales drop thanks to a supply-induced vehicle sales decline. Business inventories are expected to continue climbing, though port bottlenecks are limiting the bounce. The September inflation reports should reveal moderate CPI and PPI gains, and solid import and export price increases after an August lull. The Empire State and Philly Fed indexes should moderate to still-high levels after surprising August rebounds.

Week of October 11

Despite the September payroll shortfall that left a restrained 194k jobs rise in September, though after 169k in upward revisions, the rest of the report outpaced low expectations, and capped some of the damage to growth prospects following a 3-week stretch of forecast downgrades since the September FOMC meeting. We nevertheless still assume a remarkably lean 3.1% GDP gain in Q3 that sits well below the 5.6% figure we were estimating when the Fed’s SEP projections were released. Severe supply chain bottlenecks and soaring prices for energy, cars, and other commodities into the final weeks of Q3 have hobbled economic growth, and put the trajectory through Q4 at risk.

We continue to assume that some bottlenecks clear up somewhat before year-end, allowing a bounce in GDP growth to the 5.8% area in Q4. Yet this remains a conjecture, and the risk is that 2021 GDP growth not only undershoots the Fed’s new downwardly revised 5.8%-6.0% central tendency, but also undershoots the full 5.5%-6.3% range. Similarly, the 2021 PCE chain price gains will soar well above the Fed’s forecast ranges, as supply chain issues prompt large divergent misses for the Fed’s dual objectives of fueling faster economic growth while containing inflation. Adding to the list of quagmires, the European energy price surge has reached catastrophic proportions, and the shock to output and prices globally may prove an additional moving part in the U.S., even though the American energy price shock is less severe.

The financial markets will face a cluster of challenges as we approach December. The supply chain issues for output and prices globally will likely still be in play, while the U.S. reaches the December 3 deadline for the stop-gap measure that raises the specter of another government shutdown. The debt ceiling debate will come to a head as well, and pressure will mount on Democrats to add the debt ceiling to a trimmed down reconciliation package. It has yet to be seen if the split between Democrats and Republicans, as well as the split between moderate and extremist Democrats, is now so toxic that a majority of elected officials would prefer the cluster of a government default, shutdown, and a massive 2022 fiscal cliff to make their positions clear ahead of the midterms, rather than simply fall back to compromise legislation.

Though the financial markets have simply assumed that the fed will announce a taper at the November 2-3 FOMC meeting, we suspect the Fed’s confidence at the September meeting has been rattled significantly by massive growth downgrades, soaring prices, the energy crisis in Europe, and mounting U.S. political dysfunction with the distinct possibility of an eminent default and government shutdown. Given this backdrop, we think it would be prudent for the Fed to wait until the December meeting, when uncertainty will be significantly downgraded.

CPI/Core: 0.3%/0.2%

We expect September gains of 0.3% for the CPI headline and 0.2% for the core, following August gains of 0.3% for the headline and 0.1% for the core. CPI gasoline prices look poised to rise 1.5% in September. As-expected September figures would result in a 5.2% headline y/y increase, following a 5.3% pace in August and a 13-year high of 5.4% in June and July. Core prices should show a 4.0% y/y rise, steady from August, versus a 29-year high of 4.5% in June. Widespread production bottlenecks are lifting all the inflation metrics in 2021, such as PPI and the trade price indexes, alongside a boost to the y/y figures from base effects that should unwind into year-end for the headline and core. We expect respective PCE y/y chain price gains of 4.4% and 3.7%. The Fed continues to interpret the inflation spike as transitory, though it’s unclear if upward commodity price pressure will abate much into year-end given that supply chain problems may be getting worse.

Initial Jobless Claims: 325k

Initial jobless claims are expected to tick down to 325k, after a drop to 326k from 364k on October 2, leaving the measure still above the 312k cycle-low at the start of September. The end of extended federal benefits on September 6 may be prompting a rise in initial claims. Claims are poised to average 322k in October from 341k in September, 352k in August, and 394k in July. A 351k BLS survey week reading in September topped the 349k August survey week figure, but undershot prior readings of 424k in July and 418k in June. We assume a 380k October payroll rise, following gains of 194k in September and 366k August gain.

Continuing claims fell by -97k to a 2,714k new cycle-low in the week of September 25, following an upwardly revised 2,811k figure. We expect continuing claims to decline to 2,680k for the week ending October 2. Continuing claims have fallen sharply since late-July, though we’ve seen a flattening in this steep downtrend since then. Continuing claims fell by -97k between the August and September BLS survey weeks, after drops of -388k in August, -116k in July, -199k in June, -42k in May, and -188k in April.

PPI/Core: 0.3%/0.5%

We expect a 0.3% September PPI headline rise with a 0.5% core price gain, following respective gains of 0.7% and 0.6% in August. As expected readings would result in the y/y headline PPI metric holding at the 8.3% August reading to leave a sixth consecutive all-time high. We expect a rise in the y/y core measure to 7.0% from 6.7% in August that will leave a seventh consecutive all-time high. The headline y/y metric may be peaking in Q3, but the core y/y measure should peak around year-end. The massive PPI climb since the start of 2021 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.

Import/Export Price Index: 0.7%/0.8%

Import and export prices are expected to rise 0.7% and 0.8% respectively in September, after August swings of -0.3% for imports and 0.4% for exports. Ex-petroleum import prices are expected to grow 0.4%, while ex-agriculture export prices grow 0.8%. Oil prices moderated in August after a 9-month stretch of big gains, though we’ve seen a steep climb in energy prices into October, and we’ve more generally seen a wide array of price gains attributable to global capacity constraints and supply chain disruptions. A downtrend in the value of the dollar into 2021 also aggravated the outsized trade price climb since December, though recent dollar gains may cap price increases into Q4. Trade price gains have contributed to the shift in market focus toward upside inflation risk in 2021, though these fears should diminish into 2022 as some price overshoots with supply chain distortions will presumably be reversed.

Empire State/Philly Fed Index: 22.0/22.0

The Empire State index should ease to 22.0 in October, after rebounding to 34.3 in September from 18.3 in August, versus a 43.0 all-time high in July and a 7-month low of 3.5 in January. The Philly Fed index is seen slipping to 22.0 in August after a rebound to 30.7 in September, versus a 48-year high of 50.2 in April and a previous 11-month high of 30.1 in January. Though producer sentiment bounced in August, we expect a continued broad pull-back in sentiment as the lift from stimulus and vaccines wanes. Levels should remain historically robust into 2022 with support from factory efforts to rebuild inventories, though supply chain disruptions have increased recently with heightened coronavirus restrictions in Asia and bottlenecks at U.S. ports. Demand for most industries since 2020 has rebounded well above pre-pandemic levels.

Retail/Ex-Auto Sales: -0.3%/0.2%

We expect a -0.3% September retail sales headline drop with a 0.2% ex-auto increase, following respective August increases of 0.7% and 1.8%, with a hit from declining vehicle sales and a continued unwind of the lift from Q1 stimulus. We expect a 1.5% increase for the CPI gasoline index that should support service station sales. Unit vehicle sales fell -6.4% to a 17-month low of 12.2 mln thanks to ongoing semiconductor shortages and delayed unloading at ports, following a 13.0 mln pace in August and a 16-year high of 18.3 mln in April. We expect retail sales to stabilize through Q4 following the post-stimulus pull-back, though service sector activity should continue to expand. Real consumer spending is expected to grow at a lean 1.7% rate in Q3 and a 3.3% pace in Q4, after rates of 12.0% in Q2 and 11.4% in Q1.

Business Inventories: 0.6%

Business inventories are expected to grow 0.6% in August after a 0.5% July gain. Our forecast incorporates expected gains of 0.6% for factories, 1.2% for wholesalers, and 0.1% for retailers. Sales should fall -0.1% in August, after a 0.5% (was 0.4%) gain in July. As-expected readings would result in the I/S ratio rising to 1.29 from a 9-year low of 1.25 in June and July, versus an all-time high of 1.72 in April of 2020. We saw a -$168.5 bln liquidation rate in Q2 that subtracted -$80.2 bln from Q2 GDP growth. Inventories are adding to GDP in Q3, as inventory liquidation in four of the six quarters through Q2 should come to an end. Inventories started to unwind pre-pandemic as earlier tariff front running reversed course before the big COVID hit, leaving room for a sustained inventory rebound through the rest of 2021.

Michigan Sentiment, Preliminary: 72.5

The preliminary Michigan sentiment report is expect to reveal a dip to 72.5 in October from 72.8 in September, versus a 10-year low in August of 70.3 and a cycle-high of 88.3 in April. Expectations are expected to rise to 68.7 from 68.1 in September and an 8-year low of 65.1 in August, versus an 83.5 cycle-high in June. Current conditions are expected to fall to 78.5 from 80.1 in September and a 16-month low of 78.5 in August, versus a 97.2 cycle-high in April. The 1-year inflation gauge should remain at 4.6% for a third consecutive month, after a 13-year high of 4.7% in July. The 5-10 year inflation measure should slip to 2.9% from a 10-year high of 3.0% in September that was last seen in May, and previously in 2013. Most confidence measures have posted a pull-back since Q2 with headwinds from the delta variant, resumed mask requirements, vaccine mandates, events in Afghanistan, and domestic political dysfunction, just as the confidence updraft with stimulus and vaccines is dissipating.