TQ Morning Briefing
Medtronic reports before the open with a year of tariff cost already inside its own guidance and cost cuts as the plan to absorb it. Three hours later the factory survey counts what every other manufacturer is paying. The Fed has to decide which of those two things is inflation.
Futures are lower across the board. The Nasdaq is wearing most of it and the Russell 2000 the least.
That is the rates trade arriving in equities. The ten year Treasury yield is higher again this morning, after reaching its highest level since January 2025 on Monday.
The two year Treasury yield jumped last week and gave none of it back. The thirty year Treasury yield is still under its August high, so the curve flattened into the move.
That matters. A long end move is about how much new debt is coming. This one is about the next meeting.
Crude is pushing sharply higher after the strikes on Iran. Gold is falling and the dollar is firmer against everything.
The VIX is up hard against a modest drop in futures.
Dell Technologies (DELL) reports after the close.
Market Implication
The volatility bid is going into a factory survey. That only happens when the market thinks one number will decide something.
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Weak hiring stopped being an argument
Kevin Warsh spoke at Jackson Hole on Friday. He settled the labor market question in one line.
"When labor supply is barely growing, monthly job gains are naturally going to run low."
That takes the payroll report off the table. A weak number no longer counts against a hike.
The market read it as an endorsement. September went from a minority view to the base case inside a week.
The cost side is the only thing still open
He was blunter about the other half of the mandate. The Fed's "predominant focus right now should be on prices," he said.
The July policy statement had already named supply shocks as a cause, energy among them.
So the hawkish case runs on input costs. Those have risen every month for close to two years.
Five of the six largest factory sectors reported increases last month. One purchasing manager told July's factory survey that pricing swings were arguably worse than the pandemic era.
Structural Setup
The whole repricing sits at the front of the curve. That is a bet on one meeting, and it unwinds fast if September delivers nothing. Duration bought for term premium reasons is on the wrong side of it.
The Dow fell more than twice as much as the S&P 500 on Monday in percentage terms. The selling landed on the old economy.
July's factory survey was the strongest reading since 2022. The market spent the day before the next one selling factories.
So the tape is pricing cost rather than volume. Nobody doubts the order book.
One line in that survey deserves a second look. Factory employment expanded in July. National payrolls fell in the same month.
Manufacturers said they were hiring while the country shed jobs.
Sector Read
Watch the prices paid line against the new orders line at ten. Orders holding while prices ease is the clean version, and industrials get their bid back. Both running hot together and Monday's rotation out of the makers has further to run.
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Governor Christopher Waller talks about the economy at 8:30 this morning. That is ninety minutes before the factory price survey lands.
Waller wanted a cut in January. Three of his colleagues dissented at the last meeting because they wanted a hike.
The committee is pulling in both directions at once.
Warsh took away the forward guidance that used to hide that. The street spent the weekend reading one speech several different ways. Individual voices are the only signal left.
The blackout starts Saturday. Four days of talking, then silence until the meeting.
Watch Signal
Three hawks already dissented, so a hike still needs the middle of the room. The most dovish governor on the Board goes first this morning. Listen for whether he treats energy as a problem of its own. That separation is the last thing holding the soft side of this committee together.
The factory survey asks purchasing managers one question about cost. Did the prices you paid go up?
It never asks what you charged.
So a reading above seventy tells you money moved. It says nothing about who ended up holding it.
Medtronic (MDT) answers that in public this morning.
Its finance chief told investors in June what tariffs would cost. Roughly a quarter of a billion dollars this year, booked straight into cost of goods sold.
The largest single quarter of that bill sits in the release landing before the open. The stated plan to cover it is cost savings rather than a price rise.
Its industry is doing the same. PwC's Glenn Hunzinger said in the spring that device makers are not passing prices to customers. They are bearing the brunt and hunting for efficiency.
None of that lands on a shelf price. It lands in cost of goods sold.
The Read
Prices paid measures a transfer, not a price level. Watch whether Medtronic lifts its full year guide this morning. A raise means somebody finally charged for the cost, and the hawks get their number. Silence means the ten o'clock survey is a profit warning wearing an inflation label.
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Economic Data: S&P Global Manufacturing PMI final, 9:45am ET. ISM Manufacturing PMI with the prices paid, new orders and employment sub-indexes, 10:00am ET. JOLTS job openings for July, 10:00am ET. Construction spending, 10:00am ET. Dallas Fed Services Index, 10:30am ET. Six week and 52 week bill auctions, 11:30am ET.
Fed Speakers: Governor Christopher Waller, 8:30am ET, economic outlook, Reuters NEXT newsmaker interview.
Earnings: Medtronic (MDT), NIO (NIO), Yext (YEXT) before open | Dell Technologies (DELL), Palo Alto Networks (PANW), MongoDB (MDB), GitLab (GTLB), Credo Technology (CRDO) after close
Overnight: Nikkei 225 −0.2%, Shanghai Composite −0.1%, FTSE 100 -0.6%, DAX -1.1%
Two numbers land at ten this morning. They answer to different masters.
Job openings count how much hiring demand is left in the economy. The factory price index counts what the cost side is still doing.
A soft openings number would have settled this argument a month ago. It settles nothing now. The argument that weak hiring is a supply problem already swallowed that half of the ledger.
So the other number carries the week. Prices easing while the factory headline holds, and the hawkish case loses the thing it was built on. Prices firming, and there is nothing left for the payroll report to decide.
Friday was supposed to be the test. By lunchtime it may be a formality.