Wall Street enters the week ahead watching two labor and inflation reports that will shape Federal Reserve rate expectations, plus earnings from Micron that will test the AI trade's recent rebound. Traders are pricing in a 66% chance of another quarter-point Fed hike at the late-October meeting.
Jobs data leads the week
Friday's nonfarm payrolls report for September is the biggest economic release of the week, preceded by Tuesday's JOLTS report and Wednesday's ADP private hiring data. Economists polled by FactSet expect a gain of 82,500 jobs in September, with unemployment unchanged from 4.1% in August.
The August jobs report came in much stronger than expected and likely contributed to the Fed's decision to raise rates by a quarter-percentage point at its September meeting, even as inflation runs above its 2% target. Fed Chairman Kevin Warsh said the decision followed "a pretty wide-ranging set of data, including in the labor markets". As of Sunday, traders are pricing in a 66% chance of a quarter-point hike at the Fed's late October meeting and roughly even odds of another increase in December.
Inflation gauge carries a methodology change
Two days before the jobs report, the August personal consumption expenditures price index arrives. The PCE is expected to show a 0.4% month-over-month rise and a 3.8% annual gain. Core PCE, the Federal Reserve's preferred inflation measure, is projected at 0.3% monthly and 3.4% annually.
However, the Bureau of Economic Analysis is changing how it tabulates spending on financial services such as portfolio management and software, and will issue retroactive data through the first quarter of 2021. RBC Capital Markets economists predicted the update may produce a lower-than-expected reading, but cautioned against reading that as a sign of disinflation.
Micron earnings test the AI trade
Micron reports Wednesday night in results expected to move the broader AI trade, since demand for its memory chips can be extrapolated to demand for AI computing overall. Analysts at Bank of America said hyperscalers recently agreed to pay more for memory in the first half of 2027 compared with the fourth quarter of 2026, though the bank still models memory pricing potentially declining more than 10% in calendar 2028. Micron had 16 take-or-pay strategic customer agreements as of its June fiscal third-quarter report. Rosenblatt analysts expect these deals to eventually account for up to 40% of bits produced over the next three to five years.
Micron is expected to report earnings per share of $31.49 on revenue of $50.9 billion, according to estimates compiled by LSEG. Shares are up 17% since Sept. 14 but remain 11% below their all-time closing high set on June 25.
Source: CNBC
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