Weekly Stock Market Report: CPI, Debt Ceiling & Taxes

Key Drivers for the Week of Sept. 13, 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.

  • Q3 growth estimates revised lower amid drags from Delta, supply constraints
  • Capital Hill infrastructure bill & debt ceiling battles
  • Central banks generally move cautiously toward reducing the pace of QE
  • U.S. data on retail sales, production to reflect slowing in activity, CPI firm
  • Canada focus turns to CPI data, along with manufacturing, shipment reports
  • China production, investment, sales data to extend softening trends
  • Japan business outlook survey expected to erode further, PPI seen rising
  • Eurozone CPI seen at 3% y/y, above ECB 2% target, due to special factors
  • UK August CPI expected to jump to 2.9% y/y; retail sales bouncing 0.8%

Week Ahead: CPI, Debt Ceiling & Taxes

The US calendar picks up with several key data reports including CPI, retail sales, and manufacturing/production numbers. Attention will also be on Capitol Hill as the infrastructure bill and the debt limit will also be on the markets’ mind. Rising inflation is leading to more mentions of future stagflation.

Wall Street had its worst week in months as growth projects were revised lower after the poor jobs report. The Dow dropped -2.36% and the S&P 500 was off -1.7%, while the NASDAQ slid -1.4%. Comments from the Beige Book also reflected the downside risks, noting the deceleration in economic activity and largely attributing it to a pullback in dining out, travel, and tourism.

Weakening was also see resulting from supply constraints and labor shortages, which are also boosting price pressures.

Meanwhile, on Capitol Hill, lawmakers will be working on a $1 tln infrastructure package, a $3.5 tln social spending package, while also maneuvering with the debt limit. The uncertainty in DC will increase volatility in the equities markets.

The increased spending will be paid for by $1.5 trillion in tax hikes. There are several being considered. The most likely ones are increasing the corporate tax rate from 21% to 26% and a special tax on people earning more than $5 million per year. Also being considered are new taxes to pay for roads, such as special usage taxes.

If the corporate tax increases are passed, they will likely affect the earnings in 2022. It does not appear that the market has priced in increased taxes.

I think the biggest threat to the markets will be the battle in DC over raising the debt ceiling. Republicans appear to be publically opposed to increasing the debt ceiling. Meanwhile, Democrats are putting off the issue of debate strategically to force it through on the basis of avoiding a government shutdown.

Republicans will likely continue their stance given Biden’s recent failure in Afghanistan and national vaccine mandate. He is at historic lows in approval. A shutdown will cause a huge amount of chaos in the markets. Rising inflation fears will add fuel to the fire. It could trigger a much overdue pullback.


Market pullbacks of 5% are very common, and we are now 351 days into a bull trend, the second largest of 357 days in 2002. We have been over a year since the S&P 500 touched the 200 moving average.

The upcoming economic reports will add to the Fed’s calculus ahead of the September 21-22 FOMC meeting, but given downside risks and comments from Chair Powell that “substantial slack” still remains in the labor market, it is unlikely the Fed will announce QE tapering at this time.

August retail sales (Thursday) are expected to decline -0.8%, while sales excluding autos should dip -0.2% following respective July decreases of -1.1% and -0.4%, largely due to supply shortages and waning stimulus. We see industrial production (Wednesday) rising 0.3% in August after climbing 0.9% in July.

Gains in mining and utilities should be offset by weakness in manufacturing and auto production as chip shortages remain a major drag. The Empire State index (Wednesday) should ease to 18.0 in September after plunging -24.7 points to 18.3 in August from the 43.0 all-time high in July. The Philly Fed index (Thursday) is seen slipping to 19.0 in September after the -2.5 tick decline to 19.4 in August, versus a 48-year high of 50.2 in April.

We expect August gains of 0.4% for the CPI (Tuesday) headline and 0.2% for the core, after respective July increases of 0.5% and 0.3%. As-expected August figures would result in a 5.3% headline y/y increase, following a 5.4% pace in July and June. Core prices should show a 4.1% y/y rise, slowing from 4.3% y/y in July. Widespread production bottlenecks are lifting all the broad inflation metrics in 2021.

We expect respective PCE y/y chain price gains of 4.2% and 3.5%. The Fed continues to interpret the inflation spike as transitory, though it’s unclear if upward commodity price pressure will abate much before early 2022. Also, import and export prices (Wednesday) are expected to rise 0.3% and 0.4% respectively in August, after July gains of 0.3% for imports and 1.3% for exports.

In Canada, the calendar is empty to start the week. The August CPI report will be the focus. While growth has stumbled, supply chain issues and the delta variant have continued to fuel inflation — we expect CPI (Wednesday) to accelerate to a 3.9% clip in August from 3.7% in July (y/y, nsa). CPI is projected to grow “only” 0.1% in August (m/m, nsa) after the 0.6% jump in July.

However, we would note that month comparable CPI has fallen -0.1% in August in each of the past three years. As such, our 0.1% month comparable estimate is consistent with elevated/rising price pressures in Canada.

Manufacturing (Tuesday) is expected to drop -1.5% in July after the 2.1% bounce in June. Housing starts are pegged at 265k in August from 272k in July. Wholesale shipments (Thursday) are seen falling -2.0% in July after the -0.8% loss in June. The existing home sales report for August is expected on Wednesday.

There is nothing from the BoC this week. The bank’s announcement last week delivered the expected steady 0.25% rate setting and lack of change to QE as the government accesses the impact of Delta and awaits the election. Governor Macklem, speaking the day following the announcement, detailed the bank’s QE exit strategy.

While the details were of interest, he did not change the base-case policy outlook of steady rates for a still extended time period with another cut to QE possible in October depending on the flow of growth and inflation data.

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