Markets finished Monday mixed as tech stocks led the way higher. Investors continued to digest Fed Chair Powell’s speech on Friday, which reassured investors that tapering asset purchases could begin later this year and separated rate hikes from tapering, as rate hikes are now known to be up against a "different and much more stringent test," though details on what that means was not provided.
Pending home sales for July were released Monday morning, and showed a surprise pullback from June. Pending home sales fell for the second straight month, slumping 1.8% month-over-month against estimates for a growth of 0.5%. This suggests that the housing market might be starting to cool off following months of soaring prices.
Additionally, Affirm Holdings (AFRM) stock closed 46% higher after striking a deal with Amazon (AMZN). Under the terms of the deal, Affirm’s payment services will land on Amazon checkout and provide Amazon customers a “buy now pay later” option for select purchases. This is a win-win for the companies as Amazon will get to save on the so-called “swipe fee” and will direct significantly more deferred payments to Affirm.
Looking ahead this week, investors will be focused on the delta variant’s impact on both the monthly jobs report, as well as on consumer confidence - which has been taking a bit of a beating lately.
Consumer Confidence
First up this week is the August Consumer Confidence report slated for Tuesday morning. This should be an especially telling release as investors try to gauge how much the delta variant is threatening the recovery. In July, Consumer Confidence climbed to its highest reading since February 2020 and displayed a return to pre-pandemic confidence levels with its 129.1 reading.Fast forward a month and vaccine and mask mandates, fresh travel restrictions, and rising inflation have all dampened the spirits of consumers. Economists have consensus estimates for consumer confidence set at a decline to a reading of 123.0.
In the University of Michigan’s August Consumer Sentiment report last week, sentiment saw its largest dip since 1978 after falling 13.78% month-over-month. This also represented the worst reading in 10-years. According to the report, “Consumer’s extreme reactions were due to the surging Delta variant, higher inflation, slower wage growth, and smaller declines in unemployment.”
In regards to the forthcoming confidence reading, investors will be hoping for a less extreme reaction than in the University of Michigan’s report. Consumer confidence can be an indicator for consumer spending, meaning lower confidence can lead to lower spending levels and slower growth.
Jobs Report
In addition to gaining perspective on the consumer’s confidence towards the near future, investors will also gain insight on the health of the labor market and the impact that the delta variant has had on the employment situation. The delta variant saw a surge in COVID-19 cases from late June through August, but has since stepped back down after slowing significantly in late August.In the August jobs report slated for release Friday morning, economists are expecting the unemployment rate to come in at 5.2% after a reading of 5.4% in July. Meanwhile, Nonfarm payrolls are expected to add 750,000 jobs back into the economy. This would represent a slowing of growth after July’s jobs report added 943,000 jobs and June’s jobs report added 938,000 jobs.
While we have repeatedly noted how the pandemic has made it difficult for economists to provide accurate estimates, this Friday’s report will be a pretty important follow up to Fed Chair Jerome Powell’s speech last Friday.
During the speech, the Fed Chair hailed the labor market for making “clear progress toward maximum employment” and suggested that the time to begin “reducing the pace of asset purchases” could be coming later this year. A strong addition of jobs could reinforce this sentiment, and perhaps signal that the labor market is ready to manage with less accommodative measures.
However, while Friday’s report could be an important step towards tapering, it could also work to swing the Fed in the other direction. Powell warned on Friday that the labor market still has “substantial slack”, meaning an unexpectedly poor reading could underscore the fragility of the labor market to the Fed and revert some of the recent dovish sentiment back into hawkish views.
Economic Events this Week
Tuesday - 8:30 a.m. - Consumer ConfidenceWednesday - 8:30 a.m. - ADP Employment Change - 10:00 a.m. - ISM Manufacturing Index - 10:30 a.m.- EIA Crude Oil Inventories
Thursday - 8:30 a.m. - Initial & Continuing Claims - 8:30 a.m. - Trade Balance
Friday - 8:30 a.m. - Nonfarm Payrolls - 8:30 a.m. - Unemployment Rate - 10:00 a.m. - ISM Non-Manufacturing Index