Markets Try to Regain Positive Ground in Shortened Week After Labor Day Holiday

It’s back to school and back to work, albeit remotely, for America post-Labor Day with the economy poised for more Federal Reserve watching and the markets trying to pull out of a three-week nosedive.

A pair of readings on the health of the services sector coupled with the minutes from the Fed’s July meeting should provide more recent readings on the economy heading into the fall, but the main event will occur next week when the consumer price index for August will be released.

Last week saw data on the job market, reflecting a slowdown but not one that will concern policymakers yet. In fact, many analysts described it as a “Goldilocks” environment of not too hot and not too cold – in other words, just right. Employers added 315,000 jobs in August, roughly in line with estimates but below July’s revised 526,000.

One fly in the ointment is news that the Russians will suspend shipments of natural gas to Europe indefinitely, following what was originally termed a maintenance shutdown. Meanwhile, oil-producing nations said they will cut production by 100,000 barrels a day, effectively reversing an increase they approved in July.

In the U.K., incoming Prime Minister Liz Truss inherits an economy in crisis with inflation running rampant amid sharp increases in energy costs.

Still, in the U.S. there is cautious optimism that inflation is being tamed somewhat and that the economy continues to grow modestly.

“Although the Fed will not pivot from its hawkish stance, the aggressive H1 pace of tightening in financial conditions will not be repeated over the remainder of the year,” BCA Research wrote Tuesday morning. “Falling inflation will boost real wages and consumer sentiment, which are positive for aggregate spending.”

On Wednesday, the Fed will release details of its July meeting, where it raised interest rates by 75 basis points. The central bank will meet in two weeks, and analysts predict either a 50 or 75 basis point increase. Much will depend on the CPI reading on Sept. 13 and whether that shows a drop in the annual rate of inflation.

Dow Jones Industrial Average futures were ahead about 165 points in pre-market trading Tuesday as Wall Street seeks a positive start to the week following a three-week losing spell.

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