We’re still more than two weeks away from the next Federal Open Market Committee (FOMC) meeting, which will determine the course of interest rate levels through the remainder of the summer, but the Fed remains almost magnet-like in its ability to pull interest toward it this far out. This week brings us the Consumer Price Index (CPI), Producer Price Index (PPI) and the start of Q2 earnings season — all of which carry to potential to augment the Fed’s next decision.
The initial monthly economic prints for the month so far have been inconclusive, with a private-sector ADP ADP jobs report coming in unexpectedly hot but nonfarm payrolls from the U.S. government unexpectedly cool. These followed a Personal Consumption Expenditures (PCE) report which has come down nicely from the historically high levels we saw a year ago, though still nearly double the Fed’s optimum inflation level of 2.0%.
For Wednesday morning’s CPI report, year-over-year expectations are for a big drop, from +4.0% reported a month ago to +3.1% anticipated this time around. This metric, also known as the “Inflation Rate,” would be a strong sign of encouragement that the economy is cooling at an acceptable rate to fight overall inflation — as would any further surprise to the downside. Although year-over-year core CPI — stripping out volatile food and energy costs — has proven much stickier: it’s expected to come down to +5.0% from +5.3% as of the last CPI report.
PPI data comes out the following day, and these have some of the most attractive current inflation-level prints anywhere in weekly/monthly/quarterly economic data: headline year over year for May reached +1.1%, while core was +2.8%. To the extent PPI numbers can be seen as an early indicator of future CPI reads, further lower levels here would be a good sign for market participants. However, PPI data is not quite as closely aligned to overall inflation as CPI historically is.
We’ll also see major companies starting to report Q2 earnings later this week — and not just the major Wall Street banks, like JPMorgan Chase JPM, Citigroup C and Wells Fargo WFC. On Thursday we’ll hear from industry leaders PepsiCo PEP and Delta Air Lines DAL. All five of these companies currently carry Zacks Rank #3 (Hold) ratings, though Delta gets an “A” on Value-Growth-Momentum, whereas JPMorgan and Citi currently are getting “F”s.
More near-term, Wholesale Inventories and Consumer Credit, both for May, will be out after the bell this morning and at the close, respectively. We’ll also hear from Fed Vice Chair Michael Barr, San Francisco Fed President Mary Daly and Cleveland President Loretta Mester in this final week before Fed members’ blackout period ahead of their next Fed decision, which is coming July 25-26.
Pre-market futures are tepid on either side of zero-balance at this hour, with the Dow slightly in the green and the Nasdaq and S&P 500 slightly in the red. We do not expect today’s news events to hold much sway either direction — at least not compared to the impact Wednesday’s CPI report might bring.
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CPI, PPI Inflation Reports, Q2 Earnings Await
We’re still more than two weeks away from the next Federal Open Market Committee (FOMC) meeting, which will determine the course of interest rate levels through the remainder of the summer, but the Fed remains almost magnet-like in its ability to pull interest toward it this far out. This week brings us the Consumer Price Index (CPI), Producer Price Index (PPI) and the start of Q2 earnings season — all of which carry to potential to augment the Fed’s next decision.
The initial monthly economic prints for the month so far have been inconclusive, with a private-sector ADP ADP jobs report coming in unexpectedly hot but nonfarm payrolls from the U.S. government unexpectedly cool. These followed a Personal Consumption Expenditures (PCE) report which has come down nicely from the historically high levels we saw a year ago, though still nearly double the Fed’s optimum inflation level of 2.0%.
For Wednesday morning’s CPI report, year-over-year expectations are for a big drop, from +4.0% reported a month ago to +3.1% anticipated this time around. This metric, also known as the “Inflation Rate,” would be a strong sign of encouragement that the economy is cooling at an acceptable rate to fight overall inflation — as would any further surprise to the downside. Although year-over-year core CPI — stripping out volatile food and energy costs — has proven much stickier: it’s expected to come down to +5.0% from +5.3% as of the last CPI report.
PPI data comes out the following day, and these have some of the most attractive current inflation-level prints anywhere in weekly/monthly/quarterly economic data: headline year over year for May reached +1.1%, while core was +2.8%. To the extent PPI numbers can be seen as an early indicator of future CPI reads, further lower levels here would be a good sign for market participants. However, PPI data is not quite as closely aligned to overall inflation as CPI historically is.
We’ll also see major companies starting to report Q2 earnings later this week — and not just the major Wall Street banks, like JPMorgan Chase JPM, Citigroup C and Wells Fargo WFC. On Thursday we’ll hear from industry leaders PepsiCo PEP and Delta Air Lines DAL. All five of these companies currently carry Zacks Rank #3 (Hold) ratings, though Delta gets an “A” on Value-Growth-Momentum, whereas JPMorgan and Citi currently are getting “F”s.
More near-term, Wholesale Inventories and Consumer Credit, both for May, will be out after the bell this morning and at the close, respectively. We’ll also hear from Fed Vice Chair Michael Barr, San Francisco Fed President Mary Daly and Cleveland President Loretta Mester in this final week before Fed members’ blackout period ahead of their next Fed decision, which is coming July 25-26.
Pre-market futures are tepid on either side of zero-balance at this hour, with the Dow slightly in the green and the Nasdaq and S&P 500 slightly in the red. We do not expect today’s news events to hold much sway either direction — at least not compared to the impact Wednesday’s CPI report might bring.
Questions or comments about this article and/or author? Click here>>