Wednesday, June 19, 2024

Inflation in the United States determines the Federal Reserve’s decision to raise or hold interest rates

Date:

Next week presents a make-or-break moment for expectations of a US Federal Reserve interest rate hike; The main event is the release of the September inflation report on Thursday.

Both headline and core inflation are expected to register a monthly increase of 0.3 percent in September, while core inflation will ease to 3.6 percent year-on-year. The base annual reading will drop to 4.1 percent from 4.3 percent. In September, Market Plus reported that gas prices remained relatively stable, car prices rose, and some basic services remained resilient.

U.S. job growth picked up in September, indicating that the labor market is strong enough to prompt the Federal Reserve to raise interest rates again this year, even if wage growth moderated.

The Labor Department’s jobs report (Friday) gets a lot of attention as non-farm payrolls rose by 336,000 jobs last month. August data was also revised upward to show an increase of 227,000 jobs, up from 187,000 previously.

Economists polled by Reuters expected jobs to increase by 170,000. Estimates range from 90,000 to 256,000.

Initial jobs data for September came in lower than expected despite issues related to adjusting for seasonal factors as education sector workers return to their jobs after the summer break.

The current strength of the labor market indicates that monetary policy will remain tight for some time, 18 months after the US Federal Reserve began raising interest rates.

The unemployment rate was unchanged at an 18-month high of 3.8 percent.

As for next week, traders will focus on Wednesday’s producer price index release before Wall Street closes on Thursday’s CPI release and weekly jobless claims.

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On Friday, the University of Michigan’s sentiment report will be closely watched, with a focus on near-term inflation expectations.

Last month, “consumer” prices rose 3.2 percent over 12 months, the slowest since 2021.

By mid-November clarity is expected on who will be the front-runner to become Speaker, who will play a key role in averting a central government shutdown.

Earnings for banks such as JP Morgan, Wells Fargo, BlackRock and Citigroup will be released on Friday. Many expect funds to highlight the most vulnerable consumers due to the increase in demonetisation and the depletion of excess savings.

Federal Reserve officials will participate in 14 calls throughout the week, most of which will be after the inflation report.

Euro-zone

A fairly quiet week for the eurozone, with European Central Bank President Christine Lagarde likely on some key fronts. The release of ECB meeting minutes on Thursday will be the key event of the week in terms of a possible debate on whether to raise interest rates or keep them at their current level.

United Kingdom

Next week’s UK GDP data for August is unlikely to make a big difference to the Bank of England’s November meeting, for two reasons: one, it’s been unhelpful lately, and it’s completely (or partially) irrelevant. Additional drainage in May. The extraordinary rise in output in June was somewhat reversed in July, and the increasing number of strikes was also affected.

Russia

Wednesday’s inflation data is the highlight of next week’s release, and is expected to rise again to 5.8 percent. Inflation rising at that rate will increase pressure on the central bank to keep raising interest rates, and the ruble is near an 18-month low.

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China

China’s financial markets will return to business after the Golden Week holiday. On Wednesday, money supply data, new yuan loans and auto sales data for September will be released.

Core consumer and producer price inflation data for September will be released on Friday, and are expected to have risen to 0.2 percent year-on-year from 0.1 percent in August. It will be the second straight month of year-over-year growth in consumer prices.

It is a similar forecast to the producer price index; Its negative growth is expected to narrow slightly to -2.4 percent year-on-year from -3 percent in August. This is the third consecutive month of slowdown in output contraction.

Trade balance data for September will be released on Friday, and the trade surplus is expected to widen slightly to $70 billion from $68.36 billion. Consensus for export growth remains unchanged at -8.3 percent y/y and -8.8 percent in August, while import growth is expected to slow to -6 percent y/y in August from -7.3 percent.

Japan

On Tuesday, current account data will be released, which is expected to show an additional surplus of 3.091 trillion yen, up from 2.772 trillion yen.

Bank credit and producer price index data for September will also be released on Wednesday. Bank credit is expected to decline to 2.4 percent year-on-year from 3.1 percent in August. This would be the slowest growth rate since September 2022. The producer price index is expected to decline to 2.3 percent year-on-year from 3.2 percent in August.

Nadia Barnett
Nadia Barnett
"Award-winning beer geek. Extreme coffeeaholic. Introvert. Avid travel specialist. Hipster-friendly communicator."

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