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Market prepares for hot consumer inflation report last week

Investors have been paying close attention to every reading about inflation lately, and the consumer price index will be a big one to watch next week.

The latest snapshot of the economy comes just a week before the important September meeting of the Federal Reserve Board. At that meeting, the Fed is expected to discuss details about plans to curtail bond purchase programs or quantitative easing.

Market experts say rising inflation could accelerate the Fed’s plans to delay $ 120 billion in bond purchases a month. Reducing asset purchase programs will be the Fed’s first major step from the simple policies implemented to combat the pandemic.

The consumer price index is expected on Tuesday and retail sales data will be released on Thursday. Consumer prices are expected to rise at an annual rate of 5.3% in August, according to FactSet’s consensus estimates, but consumers have continued to recede from high levels of spending earlier this year.

Hot CPI

“If the CPI is higher than expected, it can make a difference whether the September announcement is tapered or waits until November,” said Peter Boockvar, chief investment officer at the Bleakley Advisory Group.

Economists expect the CPI to rise at a pace of 0.4% month-on-month.Report will come later The August Producer Price Index, released on Friday, showed a year-on-year increase of 8.3%. There are also supply chain constraints.

The Fed’s official announcement of a reduction in its bond purchase program, also known as quantitative easing, is widely expected in November or December. Many who expected the September announcement postponed the time frame In the second half of the year following the August employment report, only 235,000 jobs were added, about 500,000 less than expected.

“Sure, inflation tends to be higher than expected. If that happens again, it will feed the story of continued high inflation. Obviously, it’s a bond market problem. Quantitative easing By accelerating the timing of tapering or accelerating the timing of primary rate hikes. ” That would be negative for stocks.

“If the market revolts here, resulting in volatility, it could rise until September,” Donna Bedian said of the Fed’s tapering announcement. “But in my view, it’s a quarter possibility.”

Stagflation?

That combination of higher inflation and slower spending, especially after the weak employment report in August, spurred talk about the threat of stagflation. These concerns are also heightened as economists have returned their third-quarter growth forecasts from over 6% to just over 5%.

“I’m more interested in the’flation’side than the’stag’. I think it will be going well until next year. ” He said the slowdown in consumer spending after stimulus boosted retail sales earlier this year could be a “short-term warning” rather than a surprise.

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“Retail sales exploded earlier this year as a direct result of stimulus payments, the introduction of vaccines, and consumer optimism,” he said. “It’s really calming now.” Told. “There’s a huge amount of liquidity and savings, and they’ve spent what they’ve spent from that extra savings. It’s a bit retroactive here, so economists are marking down their third-quarter estimates. .. Consumer fundamentals are pretty good. “

Michael Gappen, chief US economist at Barclays, said he hopes the CPI report shows that inflation is at its peak, as the Fed said. But he states that the slowdown is not just a matter of personal consumption. It also appears in business spending and housing.

“August was a bit of an egg in the presence of the labor market, but employment growth was strong on average and very strong throughout the year,” he said. “Although I was disappointed with my employment in August, my time and income were still pretty good. The income that consumers spend is there. We see this as a short-term issue.”

Gappen said economic growth in the third quarter could be a little slower than expected. However, he said some of the lost growth could emerge in the fourth quarter.

“Stagflation has several characteristics, but the real stagflation is rising unemployment and rising inflation. We don’t have that,” he said. “These are bottlenecks that constrain the pace of recovery and lead to higher inflation. Currently, demand is not an issue. Supply is an issue. Unemployment is still declining and employment is improving. It’s capricious, but I wouldn’t call it stag inflation. “

Donabedian expects price increases and shortages to continue next year as the supply chain continues to be disrupted.Several companies including PPG When General Electric, Have got I have already commented on how they see the problem Donna Bedian expects more warnings to be displayed for the third quarter earnings season.

Shares fell this week, with the S & P 500 down 1.7% to 4,458. The Treasury’s yield for the 10-year period of interest was above 1.3% and was 1.33% on Friday.

Many strategists expect the stock market to recede during the normally volatile September and October periods. Some say the Fed’s September meeting could catalyze, especially if the central bank sounds hawkish.

“It has risen by more than 30% in 2019, more than 18% last year, and more than 21% in the first few months of this year,” said Donavedian. “These are unsustainable rates or returns …. Our takeaways will be tougher from here. The ratings have been expanded somewhat and this incredibly supportive policy framework as a whole is a bit friendly. It will not be the target. “

Look at Congress now

Mr Donavedian began releasing details on infrastructure spending and said it was important to monitor parliamentary debates about what kind of tax increases would be proposed to pay for it.

“They are starting to fill in the gaps about where money is spent and what taxes and rates are written in the law,” he said. “This is the overall corporate tax rate, the tax on foreign income, capital gains, and dividend tax rates. These are major investor issues.”

He said the market is ignoring tax issues. “This kind of problem has been quiet during the summer, but it will be completely gone in the next two weeks. It will get a lot of attention.”

Tax decisions can have a significant impact on corporate profits, which is a major driver of stock market profits. “One of the very direct ways that can go wrong is if you get a large tax increase in force in 2022. This is a direct haircut,” he said.

Calendar one week ahead

Monday

Revenue: Oracle

2:00 pm Federal Budget Statement

Tuesday

6:00 am NFIB Small Business Index

8:30 am CPI

Wednesday

Apply for a mortgage at 7:30 am every week

8:30 am Import price

8:30 am Empire State Manufacturing

9:15 am Industrial production

Thursday

8:30 am Unemployed billing

8:30 am Federal Government Survey of Philadelphia

8:30 am Retail sale

4:00 pm TIC data

Friday

Consumer sentiment at 10 am

Market prepares for hot consumer inflation report last week

Source link Market prepares for hot consumer inflation report last week

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