Week Ahead: The Fed meets as inflation bites

Week Ahead

The Fed meets as inflation starts to bite into the US economy. Will we see any major changes from Powell and co? US GDP is in focus too with forecasts calling for more record quarterly growth. Meanwhile, Tesla hits the accelerator on the busiest US earnings season week so far this quarter.

Earnings reports aside, the week’s big event is July’s FOMC meeting.

Inflation and a hot-running economy are likely to take centre stage during July’s talks. We’ve recently seen Chairman Powell pledge “powerful support” for the US economy post-pandemic amidst a backdrop of rising inflation.

According to Powell, current rising consumer prices is down to the nation’s reopening and will fade. In a testimony to the US House of Representatives, Powell stuck to the jobs script, pointing out there is still 7.5 million jobs missing from the US’ pre-pandemic economy.

A reduction in stimulus is some way off, according to Powell. The Fed’s $120bn a month bond purchasing programme is probably not going to change. As mentioned above, this is tied in with labour markets. Bond-buying and Fed support will likely remain in place until those job gaps are filled.

No rate hike is expected until 2023 at the earliest.

But for all the Fed’s talk of inflation being broad-based, stemming from heightened economic activity, many remain unconvinced on the plan to let the economy run hot.

June’s headline CPI print of 5.4% was the highest reading for nearly 13 years. Observers on both the Democratic and Republic side will be hoping this can be tamed relatively soon.

Powell has promised that if inflation runs rampant, “we will use our tools to guide inflation back down.”

But “it would be a mistake to act prematurely.”

Sticking with the US economy, we are due the first reading of the nation’s Q2 GDP on Thursday.

So far, predictions are good. Deloitte cites technological advances may help power the US towards another bumper quarter – outstripping pre-pandemic growth levels.

The Conference Board has predicted the US economy will grow at an annualised 9% in 2021’s second quarter.

“As the economy fully reopens and consumer confidence continues to rise, we expect consumer spending to help drive the recovery forward – especially spending on in-person services,” TCB said. “These outlays will be underpinned by a strengthening labour market and a large pool of savings derived from three rounds of fiscal stimulus checks dispersed over the last year.”

We’ve also seen in previous PMI releases that manufacturing and services sectors have continued to act on a growth footing into June following a strong April and May. Three months of solid PMI performance should help power US GDP growth this quarter.

But again, all of this pent up demand being unleashed is leading into the higher core consumer goods prices the US is currently experiencing. We’ve also had reports of high input prices starting to affect manufacturing output too. June’s manufacturing PMI reading was actually slightly lower than May’s for instance.

But, if predictions are correct, the US is about to experience one of its best periods of quarterly growth since the Second World War.

Moving away from data, it’s the busiest week for earnings season this quarter so far.

Nearly 40 US large caps are due to share their Q2 earnings this week. This includes the bulk of the FAANG stocks. Netflix reported last week, but these remaining tech giants, Alphabet (Google), Amazon, Facebook, and Apple, are all reporting in.

Tesla, however, kicks off proceedings with its earnings summary coming on Monday after US market close.

This is interesting because Tesla has rocketed 330% in terms of share price between May 2020-May 2021 and traditionally share prices tend to rise prior to Tesla releases. They have done so at an average of 1.6% ahead of all quarterly releases for the past three years.

Elon Musk’s carmaker has much to celebrate this quarter. It delivered 200,000 in a quarter for the first time. Tesla has also unleashed a range of new automation services, based on an $199-per month subscription service.

Earnings forecasts are strong, but we’ll know more on Monday.

For more information on which large caps are reporting, be sure to check out our US earnings calendar.

Major economic data

Date Time (GMT+1) Asset Event
Mon 26-Jul 9.00am EUR German ifo Business Climate
 
Tue 27-Jul 3.00pm USD US Consumer Confidence
 
Wed 28-Jul 2.30am AUD CPI q/q
  2.30am AUD Trimmed Mean CPI q/q
  1.30pm CAD CPI m/m
  3.30pm OIL US Crude Oil Inventories
  7.00pm USD FOMC Statement
  7.00pm USD Federal Funds Rate
  7.30pm USD FOMC Press Conference
 
Thu 29-Jul 1.30pm USD Advanced GDP q/q
  3.30pm GAS US Natural Gas Inventories
 
Fr 30-Jul 9.00am EUR Germany Preliminary GDP q/q
  1.30pm CAD GDP m/m
  1.30pm USD Core PCE Price Index m/m

 

Key earnings data

Mon 26 Jul Tue 27 Jul Wed 28 Jul Thu 29 Jul Fri 30 Jul
Tesla 3M Automatic Data Processing CME AbbVie
General Electric Boeing Keurig Dr Pepper Aon
Advanced Micro Devices McDonald’s Mastercard Caterpillar
Alphabet (Google) Pfizer Merck Chevron
Apple Shopify Amazon Exxon Mobil
Microsoft Spotify Gilead Procter & Gamble
Mondelez Facebook Liberty Global Takeda Pharmaceutical
Starbucks Ford Pinterest Berkshire Hathaway
Teladoc Health PayPal Twilio
Visa Qualcomm

 

Week Ahead: FOMC minutes, global PMI rush & UK CPI/Retail sales

Week Ahead

FOMC meeting minutes are released this week for April’s meeting as pressure mounts on Jerome Powell et al to take inflation seriously.

UK CPI data gives an insight into inflation there, while the first batch of post-lockdown retail sales data lets us see if shoppers are heading back to the British high street.

There’s a wealth of PMI data coming from the UK, US, and EU too. How will their economic recoveries compare?

FOMC meeting minutes – is the time act approaching?

We get a detailed look inside the FOMC this week as it releases its minutes for its April meeting.

We know the story now. Despite acknowledging the fact inflation is probably on its way, although rising fuel-led CPI data has shown this is already case, no major tweaks are coming to the Fed’s current policy.

Chairman Jerome Powell is content with letting the economy run hot. Rates remain at near zero. QE will remain in place for the foreseeable at $120bn a month in treasury and agency mortgage-backed securities.

We’ve spoken in the past about what it will take for Powell and Co. to switch things up. According to Powell, three criteria need to be met:

• Effective complete recovery in the labour market
• Inflation reaching 2%
• Inflation running above 2% for a sustainable period of time

Employment might be key here. Eight million Americans are still out of work – although job openings have leapt above that figure. April’s NFP data was not quite as stellar as March’s blockbuster performance either.

The US economy is strengthening. First quarter GDP grew 6.4% year-on-year. We’re not out of the woods yet though, but the momentum is building – maybe it’ll force Powell’s hand in June. For now, the course is steady.

UK CPI shines inflation spotlight on UK economy

We’ll get a taste of the state of inflation in the UK this week with April’s year-on-year CPI data release.

According to May’s Monetary Policy Report, the Bank of England puts current CPI below the Monetary Policy Committee’s (MPC) target of 2.0%. However, we’ve seen indicators that inflation is coming in previous Office of National Statistics (CPI) releases.

March’s ONS CPI reading put the consumer price inflation at 0.7%, compared with 0.4% in February, and rebalancing with the 0.7% level seen in January.

Looking across the year, BoE forecasts think its 2.0% target might be hit by the end of the year. Other commentators have similar outlooks, maybe not hitting the full 2.0% level, but close to it. For instance, National Institute of Economic and Social Research (NIESR) puts year-end CPI at 1.8%, rising to 2.0% by Q2 2022.

Pantheon’s Chief UK Economist Samuel Tombs believes the 2.0% figure will come this month, with April’s printing clocking in at 1.7%. Tombs thinks, because the reading will come after shops have opened, alongside an anticipated semi-annual increase in electricity and natural gas prices, we’ll get a more accurate reading of the state of things.

First post-lockdown UK retail sales data inbound

UK retail sales data for April is coming, following preliminary data published last week.

As to be expected, with lockdown relaxing and non-essential shops open for trading again, initial sales data shows an encouraging spike across April. BRC-KPMG Retail Sales Monitor, overall retail sales in April rose 7.3% against April 2019 (when figures were unaffected by the Covid-19 pandemic).

On a like-for-like basis, sales were up 46%.

“Following the reopening of so-called non-essential stores on 12th April in England and Wales and continued online growth, retail sales enjoyed a welcome boost last month. With the short-term pent-up demand for the shopping experience drawing consumers back to stores, non-food sales across stores and online increased by a quarter between March and April,” BRC Chief Executive Helen Dickinson said.

“Many fashion retailers saw an uptick in sales, particularly in outerwear and knitwear, as the public braved the cold spring weather for outdoor meeting and dining with friends. Furniture also saw a boost as consumers can once again try before they buy,” Dickinson added.

In the three weeks following the first reopening of stores across England and Wales, overall non-food sales in the UK rose 25% against spending levels of seen in March when the lockdown was still in full effect.

Inevitably, the growth rate will slow once the retail segment fully normalises. In the short term though, the sector looks like it’s being buoyed by an expected post-lockdown surge.

Worldwide PMI rush

An avalanche of flash PMI readings are on their way. The EU reports this week, as does the UK and US.

Starting with the EU, the bloc will be hoping to build on April’s forward momentum. Services flash PMI that month hit a nine-month high, with a score of 53.7. Manufacturing was rated at 62.9 according to IHS Markit ratings.

The EU, then, may mirror the course the UK is on: GDP contraction in the first quarter, followed by growth across the year.

Looking to the UK, April saw a record increase in services PMI, reaching its highest level for seven years. March’s reading was 56.3. April’s was 61.0. The partial reopening of the hospitality sector has put it on a growth footing once more, and we may see further growth when venues allow indoor service from Monday.
IHS Markit’s April manufacturing PMI for the UK also showed very strong performance, after nudging record highs. The index rose to 60.9 over 58.9 for March. Growth is back in the sector as orders pick up, but IHS did flag supply chain delays and input issues that could affect ongoing performance.

While the EU and UK look to grow, US manufacturing might be taking a step back. April’s ISM manufacturing PMI data came in at 60.7 – far lower than the expected 65. Supply chain woes are holding the sector back, according to ISM.

We’ll get further information on the economic health of these key industries with the week’s PMI releases.

Major economic data

Date Time (GMT+1) Currency Event
Tue 18-May 2.30am AUD Monetary Policy Meeting Minutes
 
Wed 19-May 7.00am GBP CPI y/y
  1.30pm CAD CPI m/m
  3.30pm USD US Crude Oil Inventories
  7.00pm USD FOMC Meeting Minutes
 
Thu 20-May 2.30am AUD Employment Change
  2.30am AUD Unemployment Rate
  1.30pm USD Phily Fed Manufacturing Index
  1.30pm USD Unemployment Claims
  3.30pm USD US Natural Gas Inventories
 
Fri 21-May 2.30am AUD Retail Sales m/m
  3.00am NZD Annual Budget Release
  7.00am GBP Retail Sales m/m
  8.15am EUR French Flash Manufacturing PMI
  8.15am EUR French Flash Services PMI
  8.30am EUR German Flash Manufacturing PMI
  8.30am EUR German Flash Services PMI
  9.00am EUR Flash Manufacturing PMI
  9.00am EUR Flash Services PMI
  9.30am GBP Flash Manufacturing PMI
  9.30am GBP Flash Services PMI
  1.30pm CAD Core Retail Sales m/m
  1.30pm CAD Retail Sales m/m
  2.45pm USD Flash Manufacturing PMI

 

Key earnings data

Date Company Event
Mon 17-May Bridgestone Q1 2021 Earnings
  Ryanair Q4 2021 Earnings
 
Tue 18-May Walmart Q2 2022 Earnings
  Home Depot Q1 2021 Earnings
  Vodafone Q4 2021 Earnings
  LG Corp Q1 2021 Earnings
  Take Two Q4 2021 Earnings
  Tata Motors Q4 2021 Earnings
 
Wed 19-May Cisco Q3 2021 Earnings
  Lowe’s Q1 2021 Earnings
  JD.com Q1 2021 Earnings
  Target Q1 2021 Earnings
  Analog Devices Q2 2021 Earnings
  Experian Q4 2021 Earnings
 
Thu 20-May Tencent Holdings Q1 2021 Earnings
  Applied Materials Q2 2021 Earnings
  National Grid PLC Q4 2021 Earnings
  Palo Alto Networks Q3 2021 Earnings
  Ralph Lauren Q4 2021 Earnings
 
Fri 21-May Deere & Co. Q2 2021 Earnings

 

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