Inflation Data, Global Interest Rates, and A Long List of Talking Feds

Top things to watch this week

The Economic Calendar:

MONDAY: Philip Jefferson Speaks (8:00a CT), Loretta Mester Speaks (8:00a CT), Consumer Inflation Expectations (10:00a CT)

TUESDAY: NFIB Business Optimism Index (5:00a CT), Redbook (7:55a CST), PPI (7:30a CT), Lisa Cook Speaks (8:10a CT), Fed Chair Powell Speech (9:00a CT), Total Household Debt (10:00a CT), 52-Week Bill Auction (10:30a CT)

WEDNESDAY:  MBA Morgage Applications (6:00a CST), CPI (7:30a CT), Inflation Rate (7:30a CT), Empire State Manufacturing Index (7:30a CT), Retail Sales (7:30a CT), Business Inventories (9:00a CT), NAHB Housing Market Index (9:00a CT), Retail Inventories (9:00a CT), EIA Petroleum Status Report (9:00a CT), Neel Kashkari Speaks (11:00a CT), Michelle Bowman Speaks (2:20p CT)

THURSDAY: Building Permits (7:30a CT), Import/Export Prices (7:30a CT), Housing Starts (7:30a CT), Philly Fed Manufacturing Index (7:30a CT), Jobless Claims (7:30a CT), Industrial Production/Capacity Utilization (8:15a CT), Michael Barr Speaks (9:00a CT), EIA Natural Gas Report (9:30a CT), Patrick Harker Speaks (9:30a CT), Loretta Mester Speaks (11:00a CT), Rafael Bostic Speaks (2:50p CT)

FRIDAY: CB Leading Index (9:00a CT), Christopher Waller Speaks (9:15a CT), Baker Hughes Rig Count (12:00p CT)

Key Events:

• Focus on Chair Powell’s speech (Tues.) and consumer price index (CPI) reports (Wed.). 
• Busy economic report week with CPI, retail sales, PPI, and housing starts.
• FOMC Speakers – Jefferson, Mester, Cook, Chair Powel, Kashkari, Bodtic, and Bowman.
• Notable earnings on Walmart, Home Depot, and Alibaba.
• Open-AI announces Chat GPT-4 enhancements and updates.
• Money manager’s 13F regulatory disclosures of their quarterly equity ownership changes.

CPI INFLATION DATA EXPECTATIONS

This upcoming CPI report could be a game-changer for interest rate cut expectations. Remember how those odds recently shot up after the Fed’s last meeting and some rosy jobs data? Well, buckle up because these next readings could send them soaring (or plummeting) once again.

STOCK INDEX FUTURES

Last week, the S&P 500 and Nasdaq 100 were higher, +1.87% and +1.51%.
S&P 500 earnings are off to a strong start in 2024, exceeding expectations. More than 75% of companies have reported earnings that beat analysts’ forecasts.

Overall earnings per share (EPS) are up 5.2% compared to last year, well above the predicted growth of 3.4%. This could be the strongest earnings growth in two years.

The outlook for the rest of the year appears more positive as well. Discussions of recession have significantly decreased on earnings calls and investor events, falling from 302 mentions a year ago to just 100 this quarter. This marks a two-year low for mentions of recession. Traditionally, analysts tend to lower their earnings estimates at the beginning of a quarter, but this may not be the case this time around.

GLOBAL INTEREST RATES

Last Wednesday, the Bank of England decided to keep interest rates unchanged at 5.25%. While the majority voted to hold (7-2), there was some dissent. Two members, including Deputy Governor Dave Ramsden, argued for a slight decrease to 5%.

However, Governor Andrew Bailey hinted at a possible rate cut in June. He acknowledged positive signs on inflation, suggesting it might reach the Bank’s 2% target soon. But, he emphasized that the Bank was still prepared to act.

INTEREST RATE FUTURES

CPI data this week and comments from Chair Powell could lead to a potential shift in the neutral rate.

Bond market activity was muted last week. Short-term interest rates, reflected by the two-year Treasury yield, edged slightly higher to 4.87% (up seven basis points). Long-term rates, reflected by the ten-year Treasury yield, also rose modestly to 4.50% (up four basis points).

The Federal Reserve will likely hold rates steady at their next meeting in June. Market predictions show a 96% chance of no change.
Minneapolis Fed President Kashkari emphasized a wait-and-see approach. He acknowledged a strong job market but highlighted inflation concerns. Inflation at 2.7% in March is still above the Fed’s preferred level.

Source: CME FedWatch

GOLD FUTURES

Gold’s rally continues! After a strong run, is this just a pause before another surge?

Gold futures prices are still well above their 50-day moving average, indicating a positive trend. The key level to watch is short-term resistance at $2425, and a break above this level could trigger a “squeeze” higher.

Goldman Sachs sees further upside: Their research team believes gold’s price appreciation could outpace what traditional factors like real bond yields and dollar strength would suggest. This is due to the continued strong demand for gold bars and coins from individual investors and central banks.

Gold options volatility is tilted to the upside: This means options strategies that benefit from a price increase (calls and call spreads) are becoming more attractive, especially after the recent decline in gold options volatility.

Asset class performance sheet

These performance charts track the daily, weekly, monthly, and yearly changes of various asset classes, including some of the most popular and liquid markets available to traders.

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