Weekly | FED: Miscalibrated speech?
Your weekly summary with the most important news for your investments.
Your weekly summary with the most important news for your investments:
Impact of the Fed's intervention in the stock markets.
Results in the technology sector.
Movements on the corporate front.
Last week we mentioned that the apparent change in discourse presented by the Federal Reserve (FED) with the following comment in its minutes of its last monetary policy meeting: "while some felt that further [rate] increases would probably not be warranted" together with an inflationary rebound at the producer level, could engender an incorrect change in expectations. Last Thursday, in a short but sharp speech, Fed Chairman Jerome Powell sent global stock markets plunging and the 10-year sovereign yield to 5%, after pointing out that inflation is still too high and that they will do whatever it takes to bring it down to 2%. For some, the speech was "poorly calibrated" in an environment where the authorities should be managing fine monetary tuning, however, and as we will analyze below, the speech was fully intended.
In an environment where the price of oil returned to close to US$90 a barrel and the conflict between Israel and Hamas is becoming increasingly fragile, the Palestinian leadership opted not to meet with US President Biden in Egypt, following an attack on a hospital in the Gaza Strip. Meanwhile, the Republican party in the House of Representatives remains headless, with Congress unable to pass any legislation, just one month away from another state paralysis if the country's last budget legislation for the current administrative year is not passed. It was against this backdrop that the main U.S. stock indexes declined an average of -2.4% during the week, in line with the stock market declines recorded in the rest of the world.
During the week, market participants will be focused on the economic growth for the second quarter of the year (Thursday) and then await the PCE inflation data for the previous month, the FED's preferred inflation reading. For now, both headline and core readings are expected to end up easing to 3.5% and 3.7%, respectively. On the corporate side, technology companies Alphabet, Amazon, Intel, Intel, Meta, Microsoft, Snap and Spotify will be reporting their quarterly results, being several of these the ones that have supported the stock market so far this year. In turn, we will be watching the results of Coca Cola, Ford, GE, Mattel, McDonald's and T-Mobile along with energy companies Chevron, Exxon and Phillips 66, among many others. The energy sector has been active with Exxon's purchase of Pioneer Natural Resources for US$60 billion and this morning Chevron executing the purchase of Hess for US$53 billion. In the meantime, the FED representatives will not make any additional comments, awaiting the next monetary policy meeting on October 31 and November 1.
Below, I will leave you with excerpts from Powell's speech so you realize that this was calibrated to the country's inflationary circumstances:
"In any event, inflation remains too high and a few months of good data are just the beginning of what it will take to build confidence that inflation is declining sustainably toward our goal. We cannot yet know how long these lower readings will persist or where inflation will stabilize in the coming quarters. While the road is likely to be bumpy and take some time, my colleagues and I are united in our commitment to bring inflation down sustainably to 2 percent."
Adding in closing the following:
"My colleagues and I remain steadfast in our commitment to return inflation to 2 percent over time. A number of uncertainties, both old and new, complicate our task of balancing the risk of tightening monetary policy too much against the risk of tightening it too little. Doing too little could allow above-target inflation to take hold and ultimately require monetary policy to remove more persistent inflation from the economy at a high cost to employment. Doing too much could also cause unnecessary damage to the economy. Given the uncertainties and risks, and how far we have come, the Committee is proceeding cautiously. We will make decisions on the extent of additional policy tightening and for how long policy will remain tight based on the totality of incoming data, the evolving outlook, and the balance of risks."
Allowing us to conclude that the monetary policy rate hike cycle has not yet come to an end as inflation readings remain well above the 2% target.
On the corporate front, according to Factset with 85 S&P 500 companies having reported their quarterly results, the growth in sales is +1.8% while the drop in profits for the third quarter compared to the same quarter of the previous year is -0.4%. During the week, the focus was on Netflix, whose results came in above market expectations due to an increase in monthly subscribers. At the same time, the company announced another price increase for its services. Meanwhile, the automaker Tesla suffered a misalignment in its share price after reporting lower revenues than expected as a result of the price discount offered at the beginning of the year.
Goldman Sachs recorded a significant drop in profits after posting extraordinary losses of almost US$1 billion in investments in its consumer divisions. According to its CEO, David Solomon, the macroeconomic scenario will be as follows:
"I continue to believe that there has been a lag in this adjustment and that in a broad swath of the economy we will see more sluggishness, that doesn't necessarily mean it has to be a recession."
Finally, on the international front, on the following November 19, candidates Sergio Massa (with 37% of the vote) and Javier Milei (with 29%) entered Argentina's presidential contest. On the global geopolitical front, China's President Xi Jinping entertained Russia's President Vladimir Putin in a regional war environment unprecedented in decades.
In conclusion, this week agents will continue to digest the rate hike in the United States where the Fed's speech was not miscalibrated, but continues to anchor inflation expectations through verbal interventions.
This Week
Monday (October 23)
Quarterly Reports
Cadence Design Systems, Inc.
POSCO Holdings Inc.
Brown & Brown, Inc.
Alexandria Real Estate Equities, Inc.
Packaging Corporation of America
Economic Reports
Chicago Fed National Business Index Report
Tuesday (October 24)
Quarterly Reports
Microsoft Corporation
Alphabet Inc.
Visa Inc.
Coca-Cola Company (The)
Texas Instruments Incorporated
Economic Reports
Red Book Monthly Change Report
Manufacturing Index Report, FED Richmond
FED Richmond Manufacturing Freight Shipments Index Report
Services Index Report, FED Richmond
Wednesday (October 25)
Quarterly Reports
Meta Platforms, Inc.
T-Mobile US, Inc.
International Business Machines Corporation
Boeing Company (The)
Automatic Data Processing, Inc.
Economic Reports
Speech by Fed Chairman Jerome Powell
Thursday (October 26)
Quarterly Reports
Amazon.com, Inc.
Shell PLC
Mastercard Incorporated
Merck & Company, Inc.
Comcast Corporation
Economic Reports
Non-Perishable Commodity Orders Monthly Report
Gross Domestic Product Quarterly Change Report
Friday (October 27)
Quarterly Reports
Exxon Mobil Corporation
Chevron Corporation
AbbVie Inc.
Sanofi
Charter Communications, Inc.
Economic Reports
Monthly Personal Consumption Expenditures Index Report
Monthly Personal Income Report
Monthly Personal Spending Report
Now you have more information about your investments. See you next week with more news.
*This is an illustrative example and does not represent an investment recommendation.