Wednesday, June 15, 2022
Halfway through the final month of calendar Q2, we await the latest Fed decision on monetary policy, which comes out at 2pm ET today. Until just a couple days ago, it was a done deal that the result would be a 50 basis-point (bps) hike to the Fed funds rate, which has already been upped 75 bps (from 0.00%-0.25%) since early March.
But leaked to The Wall Street Journal this week is a story depicting a Fed willing to consider a 75 bps hike instead. The Fed itself is in a blackout period, so was not officially available to adjust expectations for the past week and a half. Within that closed window, year-over-year CPI came in at +8.6% late last week. This spooked the markets big-time, and it may have spooked the Fed as well.
In any case, despite Fed Chair Jay Powell’s assertion to the contrary after last month’s meeting, it appears 75 bps may be what the Fed decides today. In addition, the Fed’s program of drying up the flooded balance sheet by $30 billion per month until September, when it doubles, will also get an update in today’s release.
In short, the Fed has the world on its shoulders today. And what keeps the decisions so mysterious is that it’s difficult to predict market reaction to any of the possible decisions made this afternoon. Not that the Fed has an obligation to keep the stock market healthy — it doesn’t. But if monetary policy goes as earlier expected at a 50 bps increase, does this give the markets a sigh of relief… or a sign of weakness from the Federal Reserve?
Thankfully, we do have answers to several questions this morning, and these come in the form of Retail Sales, Import/Export Prices and the Empire State Manufacturing Survey. Each of these came in lower than expected, but only Retail Sales posted a reduction from month-earlier levels:
Retail Sales for May reached just -0.3%, following a downwardly adjusted +0.7% the previous month and below the +0.1% a consensus of analysts had been expecting. Stripping out vehicle sales, this figure jumps to +0.5% — just 10 bps below expectations. Ex-auto and gas, we see +0.1%, which may come as a surprise with how gasoline prices have dictated retail sales of late. The Control number came in unchanged, down from +1% last time around.
If we subtract gasoline sales from last month, Retail Sales sink to -0.7%. This demonstrates how prices at the pump have gouged consumers of late — and the May print doesn’t even include $5 gasoline at the national level, meaning more pain is on the way regarding Retail Sales in the next release. Motor vehicles illustrate continued supply problems, -3.5% last month.
The Import Price Index for May came in at +0.6%, beneath the expected +1.0% but up from the 0.0% for April. Ex-petrol, this drops to -0.1%, though year-over -year on headline is still very high: +11.7%. This is not quite where we were back in March, +13%, but that print depicted a 10-year high.
Exports more than doubled forecasts last month: +2.8% versus +1.3% expected. Again, we’re off March highs of +4.1%, but that read was an all-time high going back to the beginnings of these metrics in 1984. Year over year, Exports came in at a whopping +18.9%, which itself sets a new all-time high. Seeking an illustration that inflation is a global problem? Look no further.
Empire State Manufacturing for June struck another negative headline this morning: -1.2 versus expectations of 0.0. This has been a tough year for manufacturing in the fourth-most populous state in the U.S., which has posted negative prints in four of the first six months. However, today’s headline is much improved from May’s -11.6 and March’s -11.8, and a strong bounce-back in April has year-to-date Empire State productivity remaining in positive territory halfway through 2022.
All this said, pre-markets have not budged from their moderately higher futures ahead of any of these reports. This strongly suggests we remain in a holding pattern ahead of today’s Fed news. At that point, who knows? Right now, the Dow is +260 points, the S&P 500 is +40 and the Nasdaq is +150 points.
Questions or comments about this article and/or its author? Click here>>
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All Eyes on the Fed Decision Today
Wednesday, June 15, 2022
Halfway through the final month of calendar Q2, we await the latest Fed decision on monetary policy, which comes out at 2pm ET today. Until just a couple days ago, it was a done deal that the result would be a 50 basis-point (bps) hike to the Fed funds rate, which has already been upped 75 bps (from 0.00%-0.25%) since early March.
But leaked to The Wall Street Journal this week is a story depicting a Fed willing to consider a 75 bps hike instead. The Fed itself is in a blackout period, so was not officially available to adjust expectations for the past week and a half. Within that closed window, year-over-year CPI came in at +8.6% late last week. This spooked the markets big-time, and it may have spooked the Fed as well.
In any case, despite Fed Chair Jay Powell’s assertion to the contrary after last month’s meeting, it appears 75 bps may be what the Fed decides today. In addition, the Fed’s program of drying up the flooded balance sheet by $30 billion per month until September, when it doubles, will also get an update in today’s release.
In short, the Fed has the world on its shoulders today. And what keeps the decisions so mysterious is that it’s difficult to predict market reaction to any of the possible decisions made this afternoon. Not that the Fed has an obligation to keep the stock market healthy — it doesn’t. But if monetary policy goes as earlier expected at a 50 bps increase, does this give the markets a sigh of relief… or a sign of weakness from the Federal Reserve?
Thankfully, we do have answers to several questions this morning, and these come in the form of Retail Sales, Import/Export Prices and the Empire State Manufacturing Survey. Each of these came in lower than expected, but only Retail Sales posted a reduction from month-earlier levels:
Retail Sales for May reached just -0.3%, following a downwardly adjusted +0.7% the previous month and below the +0.1% a consensus of analysts had been expecting. Stripping out vehicle sales, this figure jumps to +0.5% — just 10 bps below expectations. Ex-auto and gas, we see +0.1%, which may come as a surprise with how gasoline prices have dictated retail sales of late. The Control number came in unchanged, down from +1% last time around.
If we subtract gasoline sales from last month, Retail Sales sink to -0.7%. This demonstrates how prices at the pump have gouged consumers of late — and the May print doesn’t even include $5 gasoline at the national level, meaning more pain is on the way regarding Retail Sales in the next release. Motor vehicles illustrate continued supply problems, -3.5% last month.
The Import Price Index for May came in at +0.6%, beneath the expected +1.0% but up from the 0.0% for April. Ex-petrol, this drops to -0.1%, though year-over -year on headline is still very high: +11.7%. This is not quite where we were back in March, +13%, but that print depicted a 10-year high.
Exports more than doubled forecasts last month: +2.8% versus +1.3% expected. Again, we’re off March highs of +4.1%, but that read was an all-time high going back to the beginnings of these metrics in 1984. Year over year, Exports came in at a whopping +18.9%, which itself sets a new all-time high. Seeking an illustration that inflation is a global problem? Look no further.
Empire State Manufacturing for June struck another negative headline this morning: -1.2 versus expectations of 0.0. This has been a tough year for manufacturing in the fourth-most populous state in the U.S., which has posted negative prints in four of the first six months. However, today’s headline is much improved from May’s -11.6 and March’s -11.8, and a strong bounce-back in April has year-to-date Empire State productivity remaining in positive territory halfway through 2022.
All this said, pre-markets have not budged from their moderately higher futures ahead of any of these reports. This strongly suggests we remain in a holding pattern ahead of today’s Fed news. At that point, who knows? Right now, the Dow is +260 points, the S&P 500 is +40 and the Nasdaq is +150 points.
Questions or comments about this article and/or its author? Click here>>