The Market Today

All Eyes on Fed Communications as Inflation Fears Grow, Business Sentiment Weakens

by Craig Dismuke, Dudley Carter


Business Confidence Sours on Labor and Supply Chain Imbalances: Small business confidence dropped 1.0 point to 99.1, a six-month low, in the September report from NFIB as the labor issues and supply chain disruption continue to weigh on activity.  The number of respondents expecting to increase employment dropped 6.0 points despite record-high job openings, as the index tracking how difficult it is to fill job openings rose to its highest level on record (data series goes back to 1973).  Those expecting the economy to improve over the coming six months declined another 5 points to net -33%, the weakest reading since December 2012.  According to NFIB’s Chief Economist, Bill Dunkelberg, “Small business owners are doing their best to meet the needs of customers, but are unable to hire workers or receive the needed supplies and inventories. … The outlook for economic policy is not encouraging to owners, as lawmakers shift to talks about tax increases and additional regulations.”

Job Openings and Fedspeak: The August JOLTs report (9:00 a.m. CT) is expected to show job openings move to a new, record-high 10.95mm.  Also today, this week’s flood of Fed communications will continue: Vice Chair Clarida (10:15 a.m.), Atlanta Bank President Barkin (11:30 a.m.), and Richmond Bank President Barkin (5:00 p.m.).  All three speakers are voting members in 2021.  This week’s Fed communications will be particularly insightful given the disappointing September jobs data released last week.


Markets See-Saw with Corporate Earnings Season Set to Start Against Uncertain Economic Backdrop: Although the U.S. bond market was closed Monday for a holiday, equity markets remained opened and retreated as oil prices extended their recent rally. The Dow, S&P 500, and Nasdaq all slipped around 0.7% yesterday as global oil prices rose above $80 per barrel, adding to inflation-linked concerns. U.S. WTI was earlier up 0.7% to above $81 per barrel, the eighth daily increase in the last nine sessions and the priciest crude since 2014. Equity futures, however, were holding in around even on the day after recovering from further declines during Asian trading. Futures reversed higher as European markets attempted to erase a sharp opening drop. Europe’s Stoxx 600 was down 0.1% after initially falling 1.2%. Before the NFIB’s Small Business Optimism Index disappointed, a popular survey of financial experts about the outlook for Germany’s economy fell for a fifth month and by more than expected to its lowest level since March 2020. Against the uncertain economic backdrop, investors are anticipating the start of the quarterly corporate earnings season this week. Treasury yields were mixed at 7 a.m. CT, pivoting flatter between the 5- and 7-year maturities. The 2-year yield had added 2.0 bps to 0.34%, a high since March 2020, while the 10-year yield slipped 1.2 bps to 1.60%. The 5-year yield inched up 0.7 bps to 1.07%, a high since February 2020.


ICYMI – October 8, 2021 Weekly Market Recap: Treasury yields were pressured higher throughout the week as rising energy prices stoked inflation fears, a temporary debt ceiling lift delayed Treasury default risk into December, and stronger wage growth signaled a tightening labor market. Oil prices climbed steadily as growing concerns about a global energy shortage applied upward pressure on commodities more broadly. U.S. WTI rallied 4.8% on the week to close near $80 a barrel, its highest level since November 2014. The debt ceiling debacle was pushed into early December by a Senate deal to raise the debt ceiling by roughly $480 billion. The ISM’s Services PMI picked up unexpectedly and jobless claims improved. However, September’s labor data was the primary focus. The BLS reported the economy added just 194k jobs last month, well short of estimates for a 500k gain. While seasonality issues related to education jobs skewed the topline figure lower, even a slightly better 317k gain for private payrolls missed expectations of 450k and ADP’s projection of 568k. Leisure and hospitality job growth was positive but remained weak relative to its pre-Delta pace. In the household report, hiring was stronger and unemployment declined but participation drifted lower, disappointing expectations for continued improvement in labor supply. Notably, wage growth remained firm. The report may not derail the Fed’s plan for a tapering announcement in November, but it certainly makes upcoming Fed speeches more significant. For the week, the 2-year and 5-year Treasury yields rose 5.4 bps to 0.318% and 13.2 bps to 1.058%, the highest respective levels since March and February of 2020. The 10-year yield jumped 15 bps to finish at 1.612%, its highest mark since the middle of June. Click here to view the full recap.

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