Markets Awaiting Fed
Fed to announce tapering in November?
What's so transitory about inflation?
COVID numbers continue to improve.
Markets have been jittery of late as investors try to figure out when the Fed will announce Tapering and how aggressive will they reduce their bond purchasing. Goldman Sachs released a report Friday stating their belief that Tapering will be announced at their November meeting and that it will be at a pace of $15 billion per month, setting up an ultimate end to Tapering by June of next year. The report also detailed the view that the Delta variant has only a 20% chance of delaying the tapering announcement into 2022. This is important to note as the Fed would likely not begin Tapering should the Delta variant be a major threat to future growth prospects.
Last week, economic data was light, but mixed. Weekly Jobless Claims declined and surprised the market, allowing the Fed the ability to begin Tapering sooner rather than later. Job Openings increased for the 8th month out of the last 10 and now exceed the number of unemployed. Extended pandemic unemployment benefits have now expired, so it will be interesting to see how the Labor Market continues to heal from current levels. The Fed's Beige Book did indicate slowing economic growth in certain sectors last month. Most importantly, the Producer Price Index showed inflationary pressures are still increasing. This week, we'll get the August print of the Consumer Price Index to see how much higher producer prices have filtered down to the consumer. The Fed's claim of inflation being transitory does not seem to be translating to real prices. Shipping rates across the globe have reached 10-year highs. This is adding to inflationary pressures and supply disruptions.
In addition to inflation, we also find out how the consumer is responding with Retail Sales and Consumer Sentiment to be released this week. The New York and Philadelphia manufacturing indices come out, which will give us an idea if that sector is holding up or cooling off in light of the Delta variant. Speaking of the variant, the positivity rate of cases, which fell below 10% last week has again dipped below the 10% line after slightly increasing late into last week. If the numbers hold after two weekends of nearly full football stadiums, we could be nearing the end of the latest COVID wave here in the U.S. After peaking on August 25th, cases are down 19% globally. If that ends up being the peak of this latest wave, then the Delta variant will have reached only 80% of the cases from the original strain. This would be positive news for sure.