Earnings and then the Fed

Earnings season is back and we will see many companies report next week. Generally, companies that can pass through inflationary pressures to their customers should report improved margins. However, sectors such as auto manufacturing are running well below capacity so the supply chain will continue to create issues into next year. So, I think earnings should be generally good but in a few weeks we will be back to talking about the Fed and their withdrawal from buying bonds (tapering).

This week the Fed released the minutes from their September meeting (not a transcript) and there was a stronger than expected consensus of reducing the $120B in monthly bond purchases. It looks as though they are concerned enough about inflation and recovering consumer demand to consider removing all the purchases by the middle of next year. Inflation is everywhere these days as you will read below and overseas central banks have already started to raise interest rates. The worldwide tightening cycle will be the theme for 2022 and it looks like we will find out the details at the November meeting.

The stock market has been in a corrective pullback for most of the last six weeks but there may be a bottom in place. A spirited rally to close the week so we have a good start into earnings reports but sometimes vertical moves can be reversed so it would be best to see some price consolidation before moving to new all-time highs. Above 4476 would take out structural resistance and build confidence a low was reached earlier this month. If true, the next several weeks should be good for the stock market. An unexpected reversal would warn of another leg lower down to 4214.

Chart of the Week!

Remote Work from Statistica

Economic & Central Banking Snippets 

Change in Hourly Wages
  • The Atlanta Fed’s wage growth tracker showed hourly wages rose 4.2% in September from one year earlier for all workers. For those who changed jobs within the last year, pay rose 5.4%, the highest reading for job switchers since 2002. (WSJ)
  • The number of job openings from the JOLTS survey showed 10.4mm openings for the month of August.
  • Nominal core retail sales in September rose 0.7%, however, inflation is running faster than sales so net of inflation this report is not as rosy.
  • The producer-price index for final demand—a gauge of prices that suppliers are charging businesses and other customers—rose 8.6% in September from a year earlier. That was the largest 12-month advance since the series began in 2010. (WSJ)
  • The import inflation continues in September as prices are 9.2% higher verses last year with the industrial supplies sub-component having the largest increase at 35%.
  • Singapore’s economy grew 6.5% compared to last year and in response the Monetary Authority of Singapore tightened monetary policy.
  • The Chilean central bank hiked interest rates 1.25% to 2.75%.  
  • The preliminary October UoM consumer confidence index fell to 71.4 from 72.8 which is the second lowest reading in ten years.
  • Headline CPI in September rose 5.4% compared to last year and the core is up by 4%.
  • The September PPI for China pushed higher to 10.7% (YOY) so inflation is everywhere right now.  

Macro Snippets

LME Futures
  • Metals prices surged to multiyear highs after smelters, facing soaring energy bills and pressure to cut their carbon emissions, curtailed production. Zinc for delivery in three months on the London Metal Exchange jumped to its highest level in more than three years on Thursday, and aluminum prices on the exchange climbed to their highest level since 2008. (WSJ)
  • IKEA, the world’s largest furniture retailer, said Thursday shipping backlogs were making it difficult to get products from warehouses to stores. Still, the company reported higher revenues as customers moved to online sales. (WSJ)
  • More than 10,000 Deere workers walked off the job as their union seeks higher wages and broadened benefits.
  • Securities regulators could rule as early as next week on as many as four applications for ETFs that will buy bitcoin futures contracts rather than the cryptocurrency itself. Over the next two weeks, the Securities and Exchange Commission may either approve, reject or delay the proposals ProShares, Valkyrie Investments, Invesco and VanEck submitted in August.
  • China’s President Xi Jinping is training regulators’ sights on the banking industry. Regulators have launched inspections of the nation’s banks to ensure communist control and to curb capitalist forces in the economy.
Paul J. McCarthy

That is all for now and thank you for being a subscriber!


Paul J. McCarthy, III

President – Kisco Capital

Paul McCarthy

Mr. McCarthy is the President and founder of Kisco Capital.