Tomorrow we get PCE, the Fed's favored inflation gauge. And it comes two days before Kevin Warsh gives his first speech, as Fed Chair, at the Kansas City Fed's annual economic symposium in Jackson Hole.
As we discussed in the past, this event has historically served as a platform for central bankers to communicate important signals regarding policy adjustments.
In 2010, Bernanke telegraphed QE2 in his Jackson Hole Speech. Two years later, he telegraphed QE3 at the event. In 2014, Mario Draghi (head of the European Central Bank) telegraphed aggressive action from the ECB to battle deflationary pressures — a bond buying program was formally announced just days later.
More recently, in August 2024, Jerome Powell used it to say the time had come for policy to adjust. The Fed cut in September.
That said, Warsh has spent his first three months removing the Fed's signaling apparatus. He ended forward guidance. Asked what he'd say in Jackson Hole, he called it "a blank piece of paper."
So the market will pay attention on Friday to the one venue built for signaling, to hear from a Chairman who has spent the summer dismantling signaling.
The bigger event of the week, comes tomorrow after the close.
Nvidia reports Q2 earnings.
They guided $91 billion in revenue for the quarter.
The Q1 number was $81.6 billion, which was up 85% year-over-year.
The data center revenue that had become a $4 billion quarterly growth rhythm for a couple of years — surged by $13 billion in Q1. That was 21% quarterly growth, 92% year-over-year.
So, clearly the explosive growth for Nvidia has returned.
And given the history of beating guidance, it's a good bet that we'll find tomorrow that Nvidia has returned to triple-digit revenue growth, for the first time in two years.
So, by this time tomorrow, we will likely have a company doing near $400 billion run rate, growing at a triple-digit rate.
Meanwhile the stock closed today at $213, about 10% below its May high, at roughly 23 times forward earnings (on tomorrow's guidance).
Hold that share price flat and let earnings compound. At 25% growth it's under 12 times by 2030. At 30%, roughly 10 times. Even at 15%, less than a fifth of what the company just delivered, it's 15 times.
Now, we talked about the Treasury's move last week to support the long-end of the bond market. And we talked about what looked like a new (or restored) Treasury-Fed Accord.
For the better part of eighteen years, when long-dated Treasuries needed a buyer, the Fed has been the buyer.
Warsh has been explicit that the use of the Fed balance sheet borders on fiscal policy, and he wants the Fed out of that business.
With that, the move last week by Scott Bessent's Treasury to infuse demand in the long-end of the Treasury market looked like the Treasury taking over the role of crisis manager.
Stan Druckenmiller published an op-ed in the Wall Street Journal on Monday attacking the Treasury's decision.
This was his case: it wasn't liquidity management, it was price management. And it wasn't prompted by market stress or crisis.
With that, he argued to "let the bond market speak." Let the bond market do its job of disciplining fiscal profligacy (perpetual deficits).
He failed to mention that the market he wants to speak, hasn't been able to speak freely since 2008.
The Fed manipulated it for the better part of eighteen years, and remember Powell even restarted monthly asset purchases last December on his way out the door, in size!
And Janet Yellen, Biden's Treasury Secretary, skewed bond issuance toward bills deliberately, to hold the long end down. It was price management, and it ran through a presidential campaign.
Bessent is dealing with a market where the Fed is withdrawing, foreign dollar access is being made conditional, and the hyperscalers are competing with Treasury for capital. And last week he said, to justify the bond move, "what do I know that the market doesn't know?"
