- Real GDP: If the Atlanta Fed is correct, Q3 will be the third consecutive weak GDP quarter given the bank’s Q3 Real GDP estimate of 0.3%, which follows two consecutive negative Real GDP quarters.
- Inflation: We expect inflation to be sticky when the CPI is reported on October 13th. Core CPI will remain elevated largely due to the shelter component. Food prices will remain high. Energy is likely to remain low (until the winter season).
- The Cleveland Fed’s estimates for September Core CPI and Headline CPI (6.64%, 8.20% respectively), seem reasonable on the heels of the figures for the month of August.
- The Fed will continue to hike rates as a result, further strengthening the U.S. Dollar.
- Yields: Yields will continue to climb as the Fed hikes. The 10-year Treasury is now at 3.98%. The Fed is getting what it wants – a cooling of the U.S. Economy and a stronger USD.
- U.S. Dollar: It is difficult to think of a reason why capital would not continue to flow into the Dollar versus other currencies for the foreseeable future given that yields are likely to continue to climb. A rising USD creates a currency headwind for U.S. companies that have international operations. (see our currency note).
- Earnings: Companies will eventually be required to have an honest conversation with investors about limited demand/revenue visibility, FX headwinds, rising costs (input costs and the cost of capital). It is difficult to imagine that 2023 will be anything but weak from a Revenue and EPS standpoint. Better for companies and investors to have that discussion during the September quarter earnings calls rather than pretend that macro backdrop does not exist.
TEK2day
Operating at the Intersection of Technology and the Capital Markets
