PCE Prices, Micron Results Could Help Set Tone

Keith Lansford (0:05)

Welcome to the Schwab Market Update Podcast, where we prepare you for each trading day with a recap of recent news and a look at what's ahead.

I'm Keith Lansford, and here is Schwab's Early Look at the Markets for Wednesday, September 30th. An important trail marker on the path toward next month's Federal Reserve Meeting comes into focus today, as investors await the August Personal Consumption Expenditures or PCE Price Index. Consensus for the 8:30 a.m. Eastern Time Report is 0.3% monthly and 3.3% annually for core PCE, excluding food and energy. Non-core PCE is seen at 0.4% and 3.7%, though that includes the energy market that has ascendant this month. A Fed policy maker said last week he'd like to see 0.2% or less core monthly PCE growth. We believe the Fed will hike at least one more time this year, and maybe again later this year or early next year, said Cooper Howard, Director of Fixed Income Research and Strategy at the Schwab Center for Financial Research. The outlook largely depends on the breadth and pace of inflation. PCE will be important and could help inform the future path of the Fed funds rate. Heading into PCE, chances of a rate hike next month stood at 51%, according to the CME FedWatch tool, down from 70% a day earlier. Odds fell after the August job openings and labor turnover survey, or JOLTS, came in below expectations at $7.08 million, and home prices rose a surprising 2.5% in July. Both suggest difficult circumstances for consumers, perhaps putting the Fed more on the dividing line between yes and no. Consumer confidence from the Conference Board in September likely played a part too, coming in at 81.9, well below 88.6 in August. Beyond PCE, market participants will closely study today's August personal spending and income data, seen up 0.7% and 0.4% respectively, after smaller rises for both in July.

Tomorrow brings the September Challenger jobs cuts report before the open. The August reading of approximately 53,000 didn't raise many eyebrows, but analysts expect a jump to nearly 80,000 in September. That's not historically high, but it's the trend that matters. September layoffs a year ago were just 54,000. More important is Friday's September non-farm payrolls data, with consensus at 84,000 jobs created. That's roughly half of August's surprisingly firm 162,000, but revisions to August and any earlier data might be enlightening. A very strong jobs report might raise rate hike odds for both October and December, but it would likely take a very weak report to send a hike chances or treasury yields much lower. A 10-year treasury note yield topped 5.25 percent early this week for the first time since 2007, and sits not far below that year's peak near 5.32 percent. It inched up again Tuesday despite US crude falling below $90 per barrel. However, the two-year note yield fell slightly as hopes grew that the Fed might get less hawkish thanks to the soft data. US government's surprise release of 40 million barrels of oil from inventories kept crude under pressure. Lower oil initially gave stocks a lift Tuesday after the Wall Street Journal reported that crude flows out of the Middle East had reached 80 percent of pre-war levels. This may be close to what's needed in the near term considering global demand is down sharply since the war began, the newspaper reported. Prices, however, haven't dropped for drivers or transport firms as damage to refineries hits production of products made from oil. The Trump administration's consideration of a diesel export ban likely wouldn't help matters. A diesel export ban would only provide temporary relief at best, said Michelle Gibley, Director of International Equity Research and Strategy at the Schwab Center for Financial Research. Every barrel of oil produces gas, diesel and jet fuel. Stopping production of one product stops all of them. With pipelines full, refineries would have to shut down, resulting in an almost simultaneous increase in gas prices, trading one problem for another.

Stocks exposed to the diesel market had a mixed showing Tuesday.

Turning to earnings, memory chip maker Micron reports after the close and might help set direction on Thursday. Analysts expect earnings per share of $31.61 on revenue of $51.1 billion. That would represent astonishing 351.3% annual revenue growth, highlighting the importance of memory chips in the AI buildout and recent high memory prices. Micron shares could be volatile after the report, with the options market projecting a 9% move. The rest of the AI market could follow Micron, likely moving major indexes in pre-market trading Thursday. The full impact, however, might not be felt until Thursday's regular session begins and volume reaches normal daily levels. Volatility could also be up in general today, as it's the final day of the quarter. This can cause some profit taking.