Markets brace for a consequential day for the economy

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12 min ago

Wall Street’s facing an economic double-whammy this week

The New York Stock Exchange is shown on Tuesday, June 11.

Wall Street will be parsing the May Consumer Price Index report just hours before the Federal Reserve is slated to announce its monetary policy update.

The CPI report and Fed’s policy meeting have fallen on the same day just seven times since 2014, according to Bank of America.

Despite the rare event, it’s unlikely the stock market will swing widely because of the economic two-fer, some investors say.

“The things that could drive volatility higher would be if Chair Powell was to say something unexpected; I think that is of a very low probability,” wrote Dave Sekera, chief US market strategist at Morningstar, in a Monday note. But if “inflation metrics come out much higher than expected, that could lead to a small sell-off. How much the market sells off would depend on how much above consensus inflation is running.”

The central bank is widely expected to keep rates on hold this month. Some analysts say upcoming CPI data won’t alter the Fed’s June decision, unless it shows a huge deceleration or acceleration in inflation. But the metric will still help guide the Fed’s decisions during the second half of the year.

“The number of rate cuts the Fed will actually be able to deliver this year will depend heavily on the outlook for inflation; if it remains stickier, investors may want to temper their expectations for easing for 2024,” wrote Glenmede’s investment strategy team in a Monday note.

12 min ago

What investors expect from the inflation report and Fed meeting

Here's what Wall Street expects from the latest Consumer Price Index report and the Federal Reserve's policy meeting.

"It is likely that we will see a mild deceleration in core CPI. At the same time, we note that inflation probably sits nowhere near the Fed’s 2% guidance, which should reinforce the likelihood that the [Federal Open Market Committee] stays on hold this month," said Naomi Fink, global strategist at Nikko Asset Management.
"If core inflation eases in line with expectations, that will enable investors to breathe a sigh of relief. But, if core inflation comes in even slightly hotter than expected, ‘higher for longer’ concerns might resurface," said BeiChen Lin, investment strategist at Russell Investments.
"We estimate [the neutral interest rate] has moved higher since the Great Recession. We expect the Fed to recognize this in their [Summary of Economic Projections], with dots reflecting just one rate cut in 2024 and an upward revision in inflation projections," said Roger Aliaga-Diaz, chief Americas economist at Vanguard.
"The delay in rate cuts will continue to strain lower- and middle-income consumers," said Stephen Rich, CEO of Mutual of America Capital Management. "Negative indicators are starting to show, including the rise in subprime auto loans and credit card delinquencies. These trends could signal trouble ahead for many Americans, even as the economy generally remains strong."
"The dot plot will likely show a reduction in the median number of cuts expected in 2024, with a drop to 2 cuts being relatively dovish and a drop to just one sending a more hawkish signal," said Kristy Akullian, head of iShares investment strategy, Americas, at BlackRock.

12 min ago

What to expect from today's inflation report

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A customer shops at a Target store on May 20 in Miami, Florida.

The Consumer Price Index for May isn't expected to show a significant slowdown in inflation, but it could be an additional piece of evidence showing that the heat seen in the first quarter has subsided.

April's report showed a cooler read on inflation than the hotter-than-expected prints in the three preceding months and sent US stock indexes to record highs as a result.

For May, economists are expecting that prices grew a mere 0.1% from April (thanks mostly to falling gas prices and tame food prices) but that the annual rate would stay steady at 3.4%, according to FactSet consensus estimates.

If prices were to advance 0.1% from April, it would mark the slowest monthly gain since October 2023.

Core CPI, which is looked to as a measure of underlying inflation as it strips out the volatile food and energy categories, is expected to increase at 0.3% for the second month in a row. If so, that would bring annual core inflation from 3.6% to 3.5%, setting a fresh three-year low.

Shelter inflation remains the biggest hurdle to CPI slowing, and it remains to be seen when the moderation in market-rate rents will be reflected in the critical inflation gauge.

All in all, the May CPI data should show some "encouraging evidence" of moderating inflation, but it won't be definitive enough to green light a rate cut before September, noted Scott Anderson, chief economist with BMO.

12 min ago

Inflation is coming down, but the path could be bumpy

Products are displayed at a grocery store on June 11, 2024 in San Anselmo, California.

Inflation showed signs of cooling in April after staying worryingly warm during the first quarter of this year.

There are also signs that Americans are spending less: A second estimate of gross domestic product, released in May, showed that consumer spending was weaker in the first three months of the year than initially reported. Big-box retailers are cutting prices to entice price-conscious consumers.

Investors are looking to the May CPI for clues about whether that cooldown in April’s CPI report was a blip. Already, other metrics have suggested that inflation is still taking its time to come down.

The April Personal Consumption Expenditures index, the central bank’s preferred inflation gauge, showed the US economy made little progress keeping costs in check. US home prices are at record highs. Prices for used and new cars are still running hot, as are costs for insuring, repairing and maintaining them.

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