After a brutal month for equity investors in April, May kicks off with a series of major market events that could further stoke volatility in risk assets.
One of the focal points this week will be the Federal Reserve’s May monetary policy meeting, which takes place on Tuesday and Wednesday. Market participants expect that at the conclusion of this meeting, central bank officials will opt to raise interest rates by 50 basis points, marking the first increase of more than 25 basis points since 2000. Investors also expect the Fed formally announce plans to start rolling assets. off the central bank’s balance sheet, beginning the process of quantitative tightening.
As of Friday, fed funds futures showed traders were pricing in a greater than 99% chance that the Fed would raise rates by 50 basis points, bringing the target range for the fed funds rate to between 0.75% and 1.00%.
These expectations came after weeks of comments from key Fed officials, including Fed Chairman Jerome Powell and Fed Vice Chairman Lael Brainard, that suggested the Fed was excited about raising interest rates. more aggressively in the short term.
“We are really committed to using our tools to bring back 2% inflation,” Powell said during a public appearance with the International Monetary Fund earlier this month. “In my opinion, it is appropriate to move forward a little faster. And I also think there’s something about the front-loading idea… that points to the 50 basis point direction on the table.”
Such a move would hasten the Federal Reserve’s path toward reducing inflation, which has persisted for a longer period of time and at a higher rate than many policymakers initially anticipated. Last week, government data showed core personal consumption expenditures (PCE), the Fed’s preferred gauge of inflation, rose at an annual rate of 5.2% in March.
This nearly matches February’s rate for being the fastest since 1983. And consumer prices spiked last month to the highest since December 1981 with an 8.5% annual increase.
“They’re behind the curve, they know they’re behind the curve,” Jim Smigiel, chief investment officer at SEI Investments, he told Yahoo Finance Live last week. “We are more than 8% in inflation and [the Fed funds rate] It’s at a quarter point. They will enter at 50 [basis points]. They’re going to do 50 again. And they’re going to start talking about balance.”
“From the Fed’s perspective, at this stage they are willing to trade a little bit of GDP and a little bit of unemployment to bring down the rate of inflation,” Smigiel added. “I think they feel like they’re backed into a corner. Nothing that happens today is going to throw them off course. They’re going to get there early and shoot a little bit.”
At the same time, Powell also suggested that he believes the central bank will succeed in tightening monetary policy while maintaining economic expansion. However, some experts have been more skeptical, especially after new data last week showed that the US economy shrank at an annualized rate of 1.4% earlier this year.
“They are between a rock and a hard place,” David Stryzewski, CEO of Sound Planning Group, told Yahoo Finance Live last week. “The two big things that they have to defend against right now, inflation and then this balance between, we want low-cost loans … because there are a lot of people trying to get mortgages. We have a lot of our business-based economy with a lot of debt. And it has been very easy to refinance it”.
“The Fed is late to the table in trying to take some of this back and make some of these changes,” he added. “We were in such a strong economy. And that was really our moment where maybe we could have done some of this adjustment. So we were a little late.”
Still, borrowing costs remain historically low and consumers have still shown a general propensity to spend. The key question remains, however, whether that finally manages to continue as the cost of doing business rises along with interest rates and financial conditions tighten further.
“We think recession risks are low for now, but high for 2023. The key risk is that inflation remains elevated next year, forcing the Fed to hike until it hurts,” wrote Ethan Harris, a global economist. from Bank of America, in a note on Friday. “In addition to inflation, investors should watch consumer spending, sentiment, labor supply and the front of the yield curve to assess downside risks.”
april jobs report
The latest monthly jobs report from the Department of Labor will round out this week’s list of economic data and offer an updated snapshot of the strength of the labor market so far this year.
The report is due out on Friday, so it will not be one of the data points considered during the Fed’s deliberations earlier in the week. However, the data is likely to have played only a marginal role in the Fed’s decisions, even if it were available, given that the Fed has shifted its priorities to fighting inflation rather than maximizing employment in a job market that is already tight. has shown many signs of strength.
Consensus economists expect nonfarm payrolls to rise by 391,000 in April, slowing slightly from March’s 431,000 rise. Unemployment is expected to improve further to 3.5%, which would match the February 2020 level with the lowest unemployment rate in about 50 years.
Average hourly earnings, a closely watched indicator of whether rising wages are reinforcing a cycle of higher prices, are expected to rise 5.5% from last year, moderating slightly from the 5 year annual rate. ,6th of March. Still, these wage gains have not kept pace with inflation, given that consumer prices recently rose 8.5%.
Monday: S&P Global US Manufacturing PMI, April (59.7 expected, 59.7 in previous report); Construction spending, month over month, March (0.8% expected, 0.5% in February); ISM Manufacturing, April (57.7 expected, 57.1 in March); ISM Prices Paid, April (87.1 in March); ISM New Orders, April (53.8 in March); ISM Employment (56.3. in March)
Tuesday: Factory Orders, March (1.2% expected, -0.5% in February); JOLTS Job Openings, March (1.1266 million in February); Durable goods orders, end of March (0.8% in the previous edition); Durable goods without transportation, at the end of March (1.1% in the previous edition); Non-defense capital goods orders, excluding aircraft, end-March (1.0% as of previous print); Shipments of non-defense capital goods, excluding aircraft, end of March (0.2% in the previous edition)
Wednesday: MBA mortgage application, week ended April 29 (-8.3% over the previous week); ADP Employment Change, April (360,000 expected, 455,000 in March); Trade Balance, March (-86.7 billion dollars expected, -89.2 billion dollars in February); S&P Global US Services PMIM, end of April (54.7 in the previous edition); S&P Global US Composite PMI End of April (55.1 as of previous print); FOMC Monetary Policy Decision
Thursday: Challenger Job Cuts, year over year, April (-30.1% in March); Non-agricultural productivity, preliminary Q1 (-2.3% expected, 6.6% in Q4); Unit Labor Costs, preliminary Q1 (6.7% expected, 0.9% in Q4); Initial jobless claims, week ending April 30 (180,000 during the previous week); Continuing Claims, Week Ending April 23 (1.408 million during the previous week)
Friday: Change in nonfarm payrolls, April (390,000 expected, 431,000 in March); Unemployment rate, April (3.6% expected, 3.6% in March); Average hourly earnings, month over month, April (0.4% expected, 0.4% in March); Labor force participation rate, April (62.5% expected, 62.4% in March)
Before market open: Moody’s Corp. (MCO), ON Semiconductor Corp. (ON)
After Market Close: Clorox (CLX), Devon Energy (DVN), Diamondback Energy (FANG), MGM Resorts International (MGM), Avis Budget Group (CAR), Expedia (EXPE), Chegg (CHGG), ZoomInfo Technologies ( ZI)
Before market opening: The Estee Lauder Co. (EL), Pfizer (PFE), Biogen (BIIB), Paramount Global (PARA), Hilton Worldwide Holdings (HLT), Molson Coors Beverage (TAP), Marathon Petroleum (MPC ), KKR Inc. (KKR), S&P Global Inc. (SPGI)
After Market Close: Caesar’s Entertainment (CZR), Airbnb (ABNB), Starbucks (SBUX), Advanced Micro Devices (AMD), Paycom Sofware (PAYC), Skyworks Solutions (SWKS), Revolve Group (RVLV), Match Group ( MTCH) , Lyft (LYFT)
Before Market Open: Wingstop (WING), AmerisourceBergen (ABC), CVS Health (CVS), Marriott International (MAR), Moderna (MRNA), Yum! Brands (YUM), Vulcan Materials Co. (VMC), Sinclair Broadcast Group (SBGI), Spirit Airlines (SAVE)
After Market Close: Booking Holdings (BKNG), GoDaddy (GDDY), Uber (UBER), Marathon Oil (MRO), Twilio (TWLO), Etsy (ETSY), TripAdvisor (TRIP)
Before Market Open: Zoetis (ZTS), ConacoPhillips (COP), Apollo Global Management (APO), Nikola (NKLA), Wayfair (W), Penn National Gaming (PENN), Royal Caribbean Cruises (RCL), SeaWorld Entertainment (SEAS) , Datadog (DDOG), Crocs (CROX), Dominion Energy (D), Kellogg’s (K), Shopify (STORE)
After Market Close: Block Inc. (SQ), Virgin Galactic Holdings (SPCE), DoorDash (DASH), Sweetgreen (SG), Opendoor Technologies (OPEN), Zillow Group (ZG), Luminar Technologies (LAZR), FuboTV ( FUBO), Live Nation Entertainment (LYV), Corsair Gaming (CRSR), Lucid Group (LCID)
Before market open: Under Armor (UAA), Cigna (CI), DraftKings (DKNG)
After market close: There are no notable reports scheduled for publication
Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck
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