Weekly | Endocentric Risks

Your weekly summary with the most important news for your investments:

Results of the main stock market indexes.
General analysis of the possible endocentric and peripheral risks to manage during this last quarter of the year.
Movements on the corporate front.

Entering the last quarter of the year the three main endocentric risks to manage are:

The persistent inflation plaguing developed countries where central banks continue to engage in anti-inflationary rhetoric.
The macroeconomic slowdown in countries such as Germany, China and France, whose economies are commercially intertwined.
The evolution of oil prices, which last week closed at almost US$95 per barrel, as a result of the net purchase being managed by the US government to supply the country's strategic oil reserves going into the northern winter.

As for peripheral and secondary risks, we have already seen:

The U.S. political establishment over the weekend struck a deal to fund government operations for the next 45 days as they negotiate the final details of the fiscal 2024 budget.
Auto strike may not persist until the end of the year
The prices of commodities such as corn and wheat have been declining by an average of -30% compared to the price set at the end of the previous year, thus allowing for a disinflationary impact.

It was in this environment that in September the main U.S. stock indexes fell for the second consecutive month, with the Dow dropping -3.5%, the S&P 500 falling -4.9% and the Nasdaq yielding -5.8%. In between we saw the Treasury bond rate climb to 4.58% adding +14 basis points with the shortest 6-month rate closing at 5.56% internalizing an additional 25 basis point hike by the Federal Reserve (FED) to leave it at 5.75% closing the year in 2023 with two more meetings left for the Fed on November 1st and December 13th. However, in the following weeks the focus will be on quarterly corporate results, where on October 13 the country's main financial institutions, including BlackRock, Citigroup, JP Morgan Chase and Wells Fargo, will be kicking off the year.

The main risk facing the stock market is the lack of clarity provided by the FED in its last monetary policy meeting. This in an environment where headline PCE inflation showed a slight rebound to 3.5% (from 3.4%) while the core PCE reading, the Fed's preferred reading which excludes food and energy prices, continued to fall to 3.9% (from 4.3%). With this, the real rate of the economy is close to +1.5% and therefore already in a contractionary phase.

This week the focus will be on the ISM and PMI economic activity data and then we will wait for next Friday's employment figures for September, where the economy is expected to have generated 150 thousand new jobs and the unemployment rate remains at 3.8%. But it will be the wage inflation data that will set the inflationary expectations, with an expected figure of +4.3% year on year. This is because the wage impact is having an impact on persistent core inflation, which is not easing as quickly as the issuing institution would like.

The second element of risk to monitor is the speed with which the Euro Zone economy is slowing down, with very similar dynamics in its main economies such as Germany and France. For example, the growth of the German economy has come to a complete standstill as a result of:

A sudden and fleeting rate hike by the European Central Bank (ECB).
A more cautious demand not only due to the spike in energy and oil prices, but the ongoing war between Ukraine and Russia that may expand to Poland's northern borders with the potential entry of Belarus into the war contingency.
The marked slowdown in China, a major trading partner of Germany and the Euro Zone.

With regard to China, Xi Jinping's government is dealing with the bankruptcy of large real estate companies, culminating in the arrest of the main executive of the international company Evergrande, a company restricted from issuing new debt until the business activities being carried out have been clarified. For now, according to activity data released over the weekend, China continues to show slight economic dynamism with PMI activity readings slightly above 50 points, still in an expansionary phase.

On the business front Nike reported better than expected earnings where the company's chief financial executive noted the following:

"We are closely monitoring the operating environment, including foreign exchange rates, consumer demand during the holiday season and our second half wholesale order backlog."

This in an environment where the share price accumulated a year-to-date decline of -18% where inventories were being closely monitored. Nevertheless, the company announced that:

"Overall, we are very comfortable with the level of inventory in the market relative to retail sales that we are seeing as we begin to ramp up wholesale sales levels in the second half of the year."

This week the focus will continue to be on the auto industry not only because of the union strike that is affecting Ford, GM and Stellantis but Tesla will be releasing car shipments for the quarter estimating 450 thousand units. As for quarterly results Conagra, Constellation Brands and Levi's will be in the weekly spotlight.

In conclusion, it is to be expected that some of the peripheral risks will be receding, however, and as we have been mentioning for the last month, the price of oil may diametrically change the economic and inflationary impact, having climbed almost +40% since mid-June.

This Week

Monday (October 02)

Quarterly Reports

Atlas Lithium Corporation
Vericity, Inc.
BioSig Technologies, Inc.
Jet.AI Inc.
Adamas One Corp.

Economic Reports

Manufacturing Purchasing Managers' Index Report, ISM
ISM Manufacturing Jobs Index Report
Speech by Fed Board Oversight Vice Chairman Michael Barr

Tuesday (October 3)

Quarterly Reports

McCormick & Company, Incorporated
Cal-Maine Foods, Inc.
Village Super Market, Inc.
Novagold Resources Inc.
Urban One, Inc.

Economic Reports

Red Book Monthly Change Report
Job Vacancy Report

Wednesday (October 04)

Quarterly Reports

RPM International Inc.
Acuity Brands, Inc.
Helen of Troy Limited
NOVONIX Limited
Resources Connection, Inc.

Economic Reports

Services Purchasing Managers Index Report, ISM
ISM Services Employment Index Report
Speech by Fed Governor Michelle Bowman

Thursday (October 5)

Quarterly Reports

Constellation Brands Inc.
Lamb Weston Holdings, Inc.
Levi Strauss & Co.
Lavoro Limited
Nurix Therapeutics, Inc.

Financial Reports

Initial Unemployment Assistance Report
Import Report
Export Report
Balance of Trade Report
Speech by Fed Board Oversight Vice Chairman Michael Barr

Friday (October 6)

Economic Reports

Unemployment Report
Nonfarm Payrolls Report
Speech by Fed Governor Christopher Waller

Now you have more information about your investments. See you next week with more news.

*This is an illustrative example and does not represent an investment recommendation.