Markets on the mend, but can union negotiations derail them?

Markets stopped their three week skid. Can railroad union negotiations disrupt last week's gains?

Railroad union contract negotiations could derail the economy. (Photo by Getty Images/Bob Riha, Jr.)Getty Images
The economy could be derailed if railroad union contract negotiations do not go well. (Photo by Getty Images/Bob Riha, Jr.)Getty Images

There are several key takeaways from this paragraph. First, it is clear that the author is very passionate about the subject matter.

  • While it is certainly encouraging that markets have ended their three-week slide, it is important to remember that there is still a lot of uncertainty in the air.
  • This week's economic data releases will be closely watched by investors for clues about the health of the consumer sector.
  • The economy could be derailed if railroad unions succeed in securing new contracts that include significant wage increases. Such increases would put pressure on other industries to offer comparable pay raises, leading to inflationary pressures.

It was a great weekend for Chicago sports fans! The Bears won and the Packers lost, while markets ended their three-week slide with both the S&P 500 and Nasdaq closing 4% higher. The euro found its legs and is back trading slightly above parity with the dollar, while earnings and economic data were relatively quiet.

There is no end in sight for the inflation that has been plaguing the world economy for the past few months. Tuesday's release of the CPI for August is expected to show an 8.1% increase, following July's 8.5% increase. Oil prices, which had been steadily rising since March, peaked in June and have been falling since then. This has translated into lower gasoline prices, giving some relief to consumers. However, much of the inflation is due to underlying conditions that are unlikely to change anytime soon.

The war in Ukraine has been the main catalyst for rising fuel and food prices. Russia's response to Western imposed sanctions has sent both oil and natural gas prices higher this year, along with constraining wheat exports from Ukraine to much of Western Europe. At the same time, Covid continues plaguing world economies. China in particular has been hard hit lately. It's estimated tens of millions of people are in lockdown as a result of China's zero-tolerance policy in combatting Covid. The reverberations of those lockdowns are resulting in constrained supply chains and could add to inflationary pressure should they continue.

I'm interested to see how the retail sales numbers turn out for Thursday. Many retailers use the back to school season as a gauge for what to expect for the holiday season. If the numbers are good, it could mean that retailers are expecting a busy and prosperous holiday season.

As we approach the end of the year, there are a few key issues that I am keeping a close eye on. One of these is union contracts. 2023 is a big year for unions, with UPS, the Teamsters, and automakers all having contracts expiring. However, the more pressing issue at the moment are the railroad contract negotiations. If these fail, it could have a major impact on cargo shipments and disrupt the economy. Therefore, I am closely watching this situation and hoping for a positive outcome.

It looks like equities and bonds are both poised for a slightly stronger open in premarket trading today. Yields on 2 year notes are down slightly this morning, but they're still above 3.5%. Bitcoin is also continuing to see strength, trading up more than 2.5% at nearly $22,300. Let's hope that last week's strength carries over into this week when markets open.

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