The week ahead is crucial for investors as they eagerly await critical updates on the volatile economic landscape.
November’s Consumer Price Index (CPI) report will be revealed on Tuesday morning. It will provide the final details on inflation before the announcement of the last Fed policy of the year on Wednesday afternoon.
On Wednesday, a noteworthy press conference featuring Fed Chair Jerome Powell, with fresh economic forecasts from Fed officials, will take center stage, disclosing the last Fed policy decision for the year at 2 pm ET. Market expectations strongly lean towards a Fed policy decision maintaining interest rates within the 5.25%-5.50% range to conclude 2023.
Producer prices are scheduled for release on Wednesday morning, followed by the unveiling of retail sales on Thursday.
The week concludes with a closer look at US manufacturing activity on Friday, emphasizing the diverse aspects of the economic calendar.
Powell’s Press Conference is Eagerly Awaited
Fed chair is expected to navigate investor expectations amid speculation that the Fed may cut rates as soon as March.
During his last public address on December 1, Powell referred to the speculations about rate cuts as premature. He also cautioned against speculation on when policy might ease. Powell conveyed the Federal Reserve’s readiness to tighten policy further if deemed appropriate.
JPMorgan chief economist Michael Feroli believes Powell may refrain from actively engaging in the discussion about rate cuts.
Anticipation for Fed Policy
Fed officials will unveil an updated Summary of Economic Projections in tandem with the Fed policy decision. This comprehensive release encompasses the dot plot outlining policymakers’ anticipated future interest rate directions.
Additionally, forecasts on inflation, GDP growth, and unemployment will be disclosed, providing a holistic economic outlook.
Investors will closely monitor if recent data, particularly the November jobs report and Tuesday’s inflation reading, influences the central bank’s discussion on the future policy direction.
The interpretation of this data will likely play a pivotal role in shaping the narrative around the Fed’s approach going forward.
Economists predict a 3.1% year-over-year increase in the headline CPI for November, reflecting a slight decrease from the 3.2% rise observed in October.
Additionally, prices are anticipated to remain unchanged on a monthly basis for the second consecutive month.
Anticipation for November’s Core Price Index
On a “core” basis, excluding the volatile food and energy categories, the forecast for November’s Consumer Price Index (CPI) indicates a 4% year-over-year rise, maintaining the same level as the previous month.
This core inflation figure surpasses the Fed’s target of 2% annual inflation. Additionally, monthly core price increases are anticipated to be 0.3%, a slight increase from the 0.2% month-over-month rise observed in October.
October’s inflation data revealed both core Consumer Price Index (CPI) and core Personal Consumption Expenditures (PCE), the Fed’s preferred inflation measure, reaching their lowest annual inflation levels since September and April of 2021, respectively. The upcoming release will be closely scrutinized as it contributes to the ongoing assessment of inflation trends.
Jefferies’ economics team, led by Thomas Simons, noted on Friday that, akin to the previous month, they anticipate a dampening effect on headline inflation due to declining energy prices.
However, they expect ongoing upward pressure on the core segment, driven by factors such as owner’s equivalent rents/rents, insurance, car maintenance, and other services. This analysis underscores the multifaceted dynamics influencing inflationary trends.
A Snapshot of the Week Ahead
On the corporate front, the week ahead anticipates relatively sparse events, with major quarterly updates expected from Costco (COST), Adobe (ADBE), and Lennar (LEN). These reports from prominent names will likely take the spotlight in the corporate landscape for the week.
Entering the week, the markets carry substantial momentum, having seen gains in the last six consecutive weeks across all three major US stock market indexes.
Year-to-date, the Dow Jones Industrial Average (^DJI) has surged over 9%, the S&P 500 (^GSPC) has shown a nearly 20% increase, and the Nasdaq Composite (^IXIC) has experienced an impressive gain of nearly 38%.
The S&P 500 is currently within a narrow margin, less than 5% away from its all-time closing high. This indicates a potential proximity to a significant milestone in the market.