[ad_1]
A four-month rally in U.S. stocks, fueled in part by investors’ expectations of a 2024 interest rate cut by the U.S. Federal Reserve, faces a challenge posed by two major events in the coming week. ing.
It will begin with Federal Reserve Chairman Jerome Powell’s biannual testimony to Congress on Wednesday and Thursday, followed by the official February jobs report on Friday.
Analysts and investors said the non-farm payrolls report could signal a risk that inflation will continue to heat up if job growth exceeds the consensus estimate of 190,000. There is a possibility that it will move further.
“Inflation has bottomed out, but it’s still above the Fed’s target and labor “Further weakening of the market is likely to be necessary.” assets. “The headlines we’ve been seeing about tech layoffs are wide of the mark as jobs are coming back and wages are rising in Central America.”
January data proves that point. February begins with the release of January’s non-farm payrolls, with 353,000 jobs created and average hourly wages for all employees up 0.6% despite the highest interest rates in more than 20 years. It was shown that there was an increase in
Then, data on inflation was released. Both consumer and producer prices in January exceeded expectations, and the Fed’s recommended inflation measure known as PCE was released last Thursday, marking the fastest monthly rate of real price growth in nearly a year. was shown to be increasing. Meanwhile, personal income in January increased by 1% from the previous month.
Federal funds futures traders subsequently backpedaled their expectations for as many as six or seven quarter-point rate cuts by December, moving them closer to the three rate cuts the Fed had signaled was likely appropriate. moved. But that was still enough to give the Dow Jones Industrial Average DJIA and S&P 500 SPX their best starts since 2019, fueling four-month gains for all three major indexes. For the week, the S&P 500 rose 1% and the Nasdaq Composite rose 1.7%, while the Dow Jones fell 0.1%, based on FactSet data.
Broadly speaking, more confidence that inflation is falling toward the Fed’s 2% target before policymakers lower their target for the federal funds rate to 5.5% from its current range of 5.25%. Chairman Powell is expected to stick to his scenario by emphasizing the need for analysts said. It is believed that he is still reluctant to comment on anything that could move markets or interest rate expectations.
“Powell needs to avoid what he did in November and December, which is that policymakers sent a very bullish message to the market that rate hikes are over and the next move is to cut rates,” Tyner said by phone. It was meant to provoke,” he said. “The Fed must continue to unite on the need to be patient without rushing to cut rates, and on the data dependence that current data point toward not cutting rates until later this year.”
read: Wall Street economist warns investors that the Fed won’t cut rates in 2024
Aptus Capital’s strategy relies on the use of option overlays to improve results. The portfolio manager said the company was “well positioned” to capture both up and down market movements due to its “disciplined approach to hedging in both directions.”
Others believe that Mr. Powell’s testimony before the House Financial Services Committee and the Senate Banking Committee could produce one of two non-base case outcomes. This could mean that Mr. Powell could backtrack on his expectations for the timing and extent of Fed rate cuts this year, or, conversely, that the outlook for slower inflation and the economic outlook suggests a need for sustained rate cuts. has been done.
Interest rate markets are the likely mechanism by which financial markets will react in some way to Chairman Powell’s testimony and Friday’s nonfarm payrolls report, particularly to trading in federal funds futures and collateralized overnight interest rate futures. Mike Saunders, head of fixed income at Wisconsin-based Madison Investments, which manages $23 billion in assets, said any reaction in the futures market would simultaneously impact long-term Treasuries and risk assets. .
Sanders said on the call that Fed officials likely don’t have enough confidence that they have won the fight against inflation by June, and that markets are doubting policymakers’ ability to begin cutting rates by that month. He said there are doubts that the estimates are being overestimated.
“Fed officials are more or less committed to cutting rates when appropriate, but they are concerned that cutting rates too soon could cause inflation to stick,” he said.
“The services side continues to be higher than the Fed would like, and much of the disinflation is coming from the financial side,” Sanders said. Inflation trends “remain unbalanced from the Fed’s perspective, and policymakers need to be concerned about services, especially given the personal income growth we’ve seen.” Until the Fed knows whether the rise in inflation seen in January is temporary or whether this situation is here to stay, the status quo will remain in place. ”
Analysts said they were particularly concerned about supercore inflation, a measure of core services excluding housing, which remains at a level that suggests the services side of the U.S. economy is working at full capacity. He said that
No major U.S. statistics are expected to be released on Monday. On Tuesday, factory orders for January and ISM service sector activity statistics for February will be released.
On Wednesday, data will be released including ADP’s private sector employment report, January statistics on wholesale inventories and job openings, and the Fed’s Beige Book report. San Francisco Fed President Mary Daley is also scheduled to speak on this day.
Thursday’s data set includes weekly initial jobless claims, revised fourth-quarter productivity figures, the U.S. trade balance and consumer credit statistics. Cleveland Fed President Loretta Mester is also scheduled to attend. New York Fed President John Williams will appear on Friday to release the final consumer sentiment data for February.
[ad_2]
Source link
