Welcome to “The Week Ahead” where we take a moment to provide our thoughts on what we can expect in markets and the economy during the upcoming week.
Equity markets sold off last week, down 2.2%, as investors concerned themselves with rising rates, debt ceiling risks, and news of continued supply chain issues. Thanks to the vaccines and Merck’s recently revealed antiviral pill, COVID variants were of minimal concern, as markets have become less sensitive to waves of the pandemic. With one quarter to go in 2021, however, there remain bumps on the road to recovery: more persistent supply chain bottlenecks than expected; inflationary pressures, the transitory vs. not debate; finally, the reduction in stimulus and accommodative policies and the ramifications that may create for entities that have become reliant on the over-supply of financial liquidity. For now, the market seems to be minimally concerned. However, the Evergrande issue in China should have reminded investors that a receding tide unveils the excesses of accommodative policies.
The highlight this week will be September’s nonfarm payrolls. Thus far, data has not shown evidence of a material pick-up in job growth from the states that ended the supplemental $300/week unemployment benefits in July. As Fed Chair Powell commented recently in reference to the pending payrolls number, “it would not take a knock-out jobs report to meet the test, only a reasonably good report.” Thus the focus is likely to center on whether the September payrolls will be “reasonably good” and keep the Fed on track, or whether it faces the risk of disappointment that could delay or derail Fed taper plans.
Data deck for October 2–October 8: