Important week ahead, and we expect August CPI (9/13) of +0.20% core or less to further reduce odds of a Nov hike, a positive for equities. Even as UAW strike looms. Array ( [cookie] => ae7d51-70dfa4-f3cb8a-668e33-52a6c9 [current_usage] => 1 [max_usage] => 2 [current_usage_crypto] => 0 [max_usage_crypto] => 2 [lock] => [message] => [error] => [active_member] => 0 [subscriber] => 0 [role] => [visitor_id] => 0 [reason] => Usage under limits [method] => ) 1 and can accesss 1

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We discuss: An important week lies ahead, most notably August CPI on 9/13 but also AAPL 1.96%  debut and potential UAW strike.  That said, we still view Sept as front-loaded on softness and probabilities favor stocks rising after CPI.

Please click below to view today’s Macro Minute (Duration: 6:39).

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The S&P 500 is about where it was a month ago, 4,450 (plus or minus). In the first 3 trading days of September, equities fell 2.5% but have tread water in the last two days. In our view, there are a number of important events this week, which we expect to result in stocks managing to move higher from the lows seen on 9/7 (S&P 500 4,430).

• This week has a big slate of data ahead. But of these, the most important is August CPI.
  – 9/11 11:00am ET: NY Fed 1-year inflation August
  – 9/12 1:00pm ET: Apple to debut iPhone 15
  – 9/13 8:30am ET: August CPI
  – 9/14 8:30am ET: August Retail Sales
  – 9/14 8:30am ET: August PPI
  – 9/14 11:59pm ET: UAW expected to go on strike
  – 9/15 10am ET: U Mich Consumer 1-yr inflation Sep. prelim
• The Street is looking for August Core CPI to come in at +0.20% MoM. We estimate that Aug Core CPI will come in closer to +0.16% to +0.18%, reflecting downside from airfares, softer used car prices and with possible help from softer shelter OER (owners equivalent rent).
• This would be the third consecutive month that core CPI was below +0.20% (+0.16%, +0.16% and +0.20%) and calculates to a 3-month annualized inflation rate of +2.1%. The YoY figure is still elevated at +4.3%, but this is because the year ago (2022) has some huge core prints that will be dropped. Sept ’22 +0.57% is dropped next month. So Core CPI YoY could fall below 4% in September (next month).
• Will a good Core CPI print of below +0.20% matter to markets? In our view, yes. There are a few reasons for this. Foremost, we think this will persuade many Fed FOMC members to now see that inflation is on a glidepath below their tracking estimates. And more importantly, this will likely further reduce the probability of a November rate hike. As of now, the Fed futures markets price in a 41% probability of a November hike.
• A media article posted Sunday (link–> here) by WSJ’s Nick Timiraos suggests an important change is underway at the Fed regarding future rate hikes. As Timiraos notes “As inflation cools, the burden has shifted toward evidence of an accelerating economy to justify higher rates.” To me, this is an important change in the reaction function.
• I know there is pushback to this constructive view. Many cite the fact that oil is up and headline CPI will be +0.6% or higher, the highest readings since mid-2022. Energy does impact goods and some services. But recall, the largest weight in Core CPI is housing at 40%, and unless higher oil prices drives up the price of homes, this surge matters less to the Fed stance.
• There are two other events to be mindful of this week. The Apple expected iPhone 15 debut on Tuesday 9/12 and the likely UAW strike at 11:59pm ET on 9/14. How important these are to markets is not really known but we know both matter.
• Our data science team listed the 20 major strikes since 1919 (there are plenty more). And of these, only 5 (of 20) saw equities fall more than -2% in the following month:
  – Nov 1919: United Mine Workers -12.5%
  – Sep 1934: Textile Workers -3.5%
  – Jan 1946: Steel Strike -2.1%
  – Aug 1981: PATCO (air traffic controller) -5.4%
  – Aug 1997: UPS -5.0%
  All of these had economic ripples that caused broader risk.
• Economists view the economic risks from the UAW to be less. Thus, while nobody wants to see auto plants shut down, we also think this will prove to be more noise for markets. Will this be enough to offset good CPI news? Perhaps.

BOTTOM LINE: We believe weakness in September was front-loaded. So we see higher probabilities of gains this week.

The market has again become a “game of inches” where investors need to be tactically mindful. August, for instance, was soft in the start and gained later. And September, the first 3 days were terrible. We think the weakness was frontloaded this month:

• Our constructive stance on markets remains intact. Primarily, we see the glidepath of inflation lower than consensus sees. And if the incoming data continues to be softer (on inflation), the Fed likely shifts away from “data dependency” towards looking at more forward measures. The media article referenced reflects this, with the nuance that accelerating economic growth could pose a risk to this view.
• But we still see equity markets higher by year-end and once we are through this continued chop, we see S&P 500 rising to 4,750 or greater by year-end.
• Moreover, it is encouraging to see leadership coming from Cyclicals like Technology XLK 1.44% , FAANG FNGS 1.48% , Energy XLE 2.10%  and Discretionary XLY 1.18% . While Industrials XLI 0.03%  have been soft lately, strong USD has been a headwind to an extent. The bottoming of PMIs is a positive for Industrials.

Key incoming data September

•  9/1 8:30am ET August Jobs Report Tame
•  9/1 10am ET August ISM Manufacturing Tame
•  9/6 10am ET August ISM Services Mixed
•  9/6 2pm ET Fed releases Beige Book Tame
•  9/8 9am ET Manheim Used Vehicle Index August Final Tame
•  9/8 2Q23 Fed Flow of Funds Report Tame
•  9/13 8:30am ET August CPI
•  9/14 8:30am ET August PPI
•  9/15 8:30am ET September Empire Manufacturing Survey
•  9/15 10am ET U. Mich. September prelim 1-yr inflation
•  9/15 Atlanta Fed Wage Tracker August
•  9/18 8:30am ET September New York Fed Business Activity Survey
•  9/18 10am ET September NAHB Housing Market Index
•  9/19 Manheim September Mid-Month Used Vehicle Value Index
•  9/20 2pm ET September FOMC rates decision
•  9/21 8:30am ET September Philly Fed Business Outlook Survey
•  9/22 9:45am ET S&P Global PMI September Prelim
•  9/25 10:30am ET Dallas Fed September Manufacturing Activity Survey
•  9/26 9am ET July S&P CoreLogic CS home price
•  9/26 10am ET September Conference Board Consumer Confidence

Key incoming data August

• 8/1 10am ET July ISM Manufacturing Tame
• 8/1 10am ET JOLTS Job Openings Jun Tame
• 8/2 8:15am ADP National Employment Report Hot
• 8/3 10am ET July ISM Services Tame
• 8/4 8:30am ET July Jobs report Tame
• 8/7 11am ET Manheim Used Vehicle Index July Final Tame
• 8/10 8:30am ET July CPI Tame
• 8/11 8:30am ET July PPI Tame
• 8/11 10am ET U. Mich. July prelim 1-yr inflation Tame
• 8/11 Atlanta Fed Wage Tracker July Tame
• 8/15 8:30am ET Aug Empire Manufacturing SurveyMixed 
• 8/15 10am ET Aug NAHB Housing Market IndexTame
• 8/16 8:30am ET Aug New York Fed Business Activity SurveyNeutral
• 8/16 2pm ET FOMC MinutesMixed 
• 8/17 8:30am ET Aug Philly Fed Business Outlook Survey Positive
• 8/17 Manheim Aug Mid-Month Used Vehicle Value IndexTame
• 8/23 9:45am ET S&P Global PMI Aug PrelimWeak
• 8/25 10am ET Aug Final U Mich 1-yr inflationMixed
• 8/28 10:30am ET Dallas Fed Aug Manufacturing Activity Survey Tame
• 8/29 9am ET June S&P CoreLogic CS home price Tame
• 8/29 10am ET Aug Conference Board Consumer Confidence Tame
• 8/29 10 am ET Jul JOLTS Tame
• 8/31 8:30am ET July PCE Tame
• 9/1 8:30am ET August NFP jobs report
• 9/1 10am ET August ISM Manufacturing

Key incoming data July

• 7/3 10am ET June ISM Manufacturing Tame
• 7/6 8:15am ADP National Employment Report Hot
• 7/6 10am ET June ISM Services Tame
• 7/6 10 am ET May JOLTS Tame
• 7/7 8:30am ET June Jobs report Mixed
• 7/10 11am ET Manheim Used Vehicle Index June Final Tame
• 7/12 8:30am ET June CPI Tame
• 7/13 8:30am ET June PPI Tame
• 7/13 Atlanta Fed Wage Tracker June Tame
• 7/14 10am ET U. Mich. June prelim 1-yr inflation Mixed
• 7/17 8:30am July Empire Manufacturing Survey
• 7/18 8:30am July New York Fed Business Activity Survey
• 7/18 10am July NAHB Housing Market Index in-line
• 7/18 Manheim July Mid-Month Used Vehicle Value Index Tame
• 7/25 9am ET May S&P CoreLogic CS home price Tame
• 7/25 10am ET July Conference Board Consumer Confidence Tame
• 7/26 2pm ET July FOMC rates decision Tame
• 7/28 8:30am ET June PCE Tame
• 7/28 8:30am ET 2Q ECI Employment Cost Index Tame
• 7/28 10am ET July Final U Mich 1-yr inflation Tame

Key data from June

• 6/1 10am ET May ISM Manufacturing Tame
• 6/2 8:30am ET May Jobs report Tame
• 6/5 10am ET May ISM Services Tame
• 6/7 Manheim Used Vehicle Value Index May Tame
• 6/9 Atlanta Fed Wage Tracker April Tame
• 6/13 8:30am ET May CPI Tame
• 6/14 8:30am ET May PPI Tame
• 6/14 2pm ET April FOMC rates decision Tame
• 6/16 10am ET U. Mich. May prelim 1-yr inflation Tame
• 6/27 9am ET April S&P CoreLogic CS home price Tame
• 6/27 10am ET June Conference Board Consumer Confidence Tame
• 6/30 8:30am ET May PCE Tame
• 6/30 10am ET June Final U Mich 1-yr inflation Tame

Key data from May

• 5/1 10am ET April ISM Manufacturing (PMIs turn up) Positive inflection
• 5/2 10am ET Mar JOLTS Softer than consensus
• 5/3 10am ET April ISM Services Tame
• 5/3 2pm Fed May FOMC rates decision Dovish
• 5/5 8:30am ET April Jobs report Tame
• 5/5 Manheim Used Vehicle Value Index April Tame
• 5/8 2pm ET April 2023 Senior Loan Officer Opinion Survey Better than feared
• 5/10 8:30am ET April CPI Tame
• 5/11 8:30am ET April PPI Tame
• 5/12 10am ET U. Mich. April prelim 1-yr inflation Tame
• 5/12 Atlanta Fed Wage Tracker April Tame
• 5/24 2pm ET May FOMC minutes Dovish
• 5/26 8:30am ET PCE April Tame
• 5/26 10am ET U. Mich. April final 1-yr inflation Tame
• 5/31 10am ET JOLTS April job openings

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