As we kick off a holiday shortened week, we are looking at the major stock averages in the red, the U.S. labor market data lifting rate hike expectations, and while rising yields continue to pressure treasuries and also raise the odds of a fed rate hike at the September meeting, risk assets as well as corporate credit are resilient, and investors are keeping an eye on whether AI, CapEx and corporate earnings growth can keep the rally alive.
All eyes now turn to inflation. Well, joining us on this Tuesday morning after a long holiday weekend is Michael Reinking, senior market strategist at the New York Stock Exchange. Michael, good morning. Thank you so much for joining us.
Good morning. Thanks for having me back.
Well, here we are. We are back at it again. And we're looking at the major U.S. stock averages in the red. And we're also looking at oil creeping higher but all focuses on Fridays inflation figures. So what do you make of the market action this morning.
Yeah. Look I mean we had an escalation of kinetic activity kind of over in the Middle East both in Iran and, you know, kind of with Saudi Arabia. Um, you know, which is clearly pushing oil prices higher this morning. Uh, we have seen kind of prices back off a little bit from the overnight highs. You know, ice Brant kind of tested that $100 a barrel.
Um, and then we've also seen kind of, you know, the Treasury yields kind of pulled back a little bit this morning. Haven't really seen kind of a catalyst for that. Um, you know, but, you know, markets in general kind of taking kind of this, uh, you know, kind of that news flow kind of somewhat in stride. Um, you know, and what we, what we are seeing is, you know, some of the positive reviews of the open AI model over release over the weekend, you know, really helping kind of the tech, uh, infrastructure stocks, you know, the semiconductors, memory stocks this morning.
And you're seeing kind of a continuation of that strength from last week. Uh, you know, while we're seeing kind of the software sector kind of kind of fall on the opposite side of that. So markets pulling back a little bit. But, you know, I think it's kind of we continue to be in this kind of digestion phase.
You know after we'd seen kind of the rally, um, you know, kind of at the start of Q2.
Yeah. And as we head into this week, of course, we're going to be watching the inflation figure, the CPI followed by the CPI and of course, the implications for the Federal Reserve, especially on the heels of that jobs report for the month of August. So what will you be watching for in particular?
Yeah. So I mean, I think, you know, Friday's jobs report came in kind of well ahead of expectations from a fed perspective, right. They've pretty clearly told you that, you know, they are focused on the inflation side of things. So I don't think that the stronger jobs report necessarily kind of pushes them towards a hike.
But what it does do is it it kind of gives them the cover to, to hike. If they kind of really want to kind of embark upon that inflation fight that they're talking about. Right. So, um, you know, by Friday we'll have a pretty good sense of what PCE should look like. You know, we've we've heard some kind of somewhat dovish kind of commentary, um, you know, kind of from Fed Williams and Fed Waller last week, you know, kind of, you know, talking about you know, if we didn't see kind of a re acceleration, you know, kind of in this August data that, you know that they would be okay with, you know, kind of holding rates.
You know, markets are still kind of priced at 5050. Um, you know, we'll have to see how Friday. You know, how Friday comes out. Um, I think, you know, you're kind of looking for kind of 0.2%, uh, on a core, right? Would would be kind of that dividing line. So if you start to see something hotter than that, um, you know, then that would kind of push markets more towards the, to the hike.
Uh, and, and something below that number, you know, kind of, you know, leads you in kind of that steady state.
Yeah. And another area we're all paying attention to. Treasury yields, of course. And we'll be watching for the Treasury auctions this week. But another area that I find very interesting this morning is we're looking at the Dow being impacted by Amgen. And this does come as Novartis is pulling back. So what do you make of these sectors this morning.
And what are you watching for in yields.
Yeah. So well you know from a yield perspective the other thing to keep in mind that we have this week, which is kind of a pretty big deal is, is the Treasury buyback. Right. So that Treasury buyback announcement this week is the is the first time we're going to see that, you know, Treasury Secretary Benson suggested that they would buy back, you know, at least $4 billion.
You know, you're starting to see estimates come in where people think you could see that kind of two weeks. You know, kind of that number in in that buyback. Right. So I think that's something to kind of pay attention to from the Treasury perspective. Um, you know, look, we had a couple of negative, uh, you know, kind of drug negative drug announcements, you know, kind of out, you know, which is kind of weighing on that health care sector, uh, you know, kind of in particular.
And that had been a sector that had, you know, played pretty significant catch up, you know, kind of over the last couple of months, as we've seen, kind of that tech trade, you know, kind of come off the boil, so to speak. And now you're seeing kind of a little bit of a reversal of that, you know, kind of this morning particularly, you know, in which we kind of talked about with, you know, kind of the the semis and the picks and shovels, uh, of, of that, uh, AI trade, you know, kind of really trading pretty well and seeing some of the other areas of the market kind of pullback.
Well, Michael, I appreciate your time this morning. Thank you so much for joining us. And thank you so much for sharing all of your insights. Thanks for having.
Me.
