A busy week ahead for the markets, starting with the FOMC meeting minutes for January. Powell was feeling hawkish, but the minutes should give us deeper insight into the Fed’s next moves. 

Also watch for inflation-focussed data releases, including the latest US PPI and retail sales data. The UK is in focus too as we look ahead to another CPI reading.  

FOMC meeting minutes lift the lid on Fed policy

It’s always good to get a little insider thinking, especially if those insiders are members of the Federal Reserve’s Federal Open Market Committee. 

Chairman Powell and his compatriots in the FOMC release the minutes from their January meeting this week. 

In post-meeting statements, Powell struck a hawkish tone, making it clear that the Fed was willing to start raising rates to tame the US’ wild inflation. He didn’t even rule out increasing rates at every subsequent Fed meeting across the year. 

The key takeaways from the FOMC’s January talks are essentially: 

• Asset purchases to wind up in early March 
• It will “soon be appropriate’ to raise rates 
• Shrinking of the Fed’s balance sheet will occur once rate hikes kick-off 

All in line with what we’re expecting. The minutes will just provide us with more clarity regarding the FOMC’s individual member’s thoughts and positions regarding policy moving forward. 

US PPI – are logistics bottlenecks starting to clear? 

Indicators that supply chain snags are uncoiling and goods are more freely flowing could be shown in this week’s US PPI report. 

Tuesday’s release will be detailing the state of producer price inputs for January. On a monthly basis, prices rose at a mild clip between November and December 2021, as recorded in the January 2021 release. 

A drop in the cost of goods helped cool input inflation in December. Overall, the PPI rose at a softer 0.2% in December, against a 1.0% jump in November. Goods prices fell 0.4% after a prior 1.1% rise. 

Despite the month-on-month slowdown, the index was up 9.7% year-on-year, following a 9.8% acceleration in the previous month. 

The December slowdown has given some hope that the supply chain bottlenecks that have dogged logistics worldwide are starting to thaw. More raw materials are getting to producers at a faster, steadier rate; at least, that’s what the data indicates. 

An Institute for Supply Chain management survey conducted in December, following the soft PPI print, confirmed the above. Manufacturers surveyed reported they were receiving improved supplier deliveries during the month. 

Consumer price inflation, however, is at its highest levels for 40 years at 7%. Could a cooler PPI report indicate price pressures will fall in line? It’s possible, but it’s also possible businesses will keep prices high in order to reap more profits and recoup operational costs accrued across the pandemic. 

UK CPI – will it broaden in January? 

Sticking with the inflation theme, we’re also examining the state of play in the UK. The nation’s Consumer Price Index data for January is reported Wednesday. 

So far, the situation isn’t particularly great. CPI inflation hit its highest levels in 30 years in December, reaching 5.4%. The public is feeling the pinch in nearly all areas, with the costs of clothing, food, and fuel continuing to accelerate.  

The Bank of England and Governor Andrew Bailey are in a bit of a bind. On the one hand, it’s raising rates in order to slow spending and bring inflation back towards its 2% target. On the other hand, the fact the bank failed to anticipate this has given it a bit of a PR problem. Ineffective and dithering. 

Also, the fact that his recent comments about public not asking for pay rises from the Bank’s chief, who earns north of £575,000 a year, didn’t exactly provide good optics. Of course, if the public DO all rush out, demand, and subsequently get pay rises, inflation will probably keep raging, but in a year when the vast majority of UK citizens have to tighten their belts, it’s not a great look. 

In terms of the practicalities of tackling inflation, it’s rate hikes. The next is very probably coming in March, when rates will advance a further 25 basis points, bringing the base rate up to 0.75%. 

The pressure is building and building on the Bank of England. Have Bailey et al got what it takes to tackle this rampant inflation? 

Market searches for a clearer US retail sales picture 

Let’s keep that inflation narrative running, only this time shifting the focus to retail spending.  

The United States’ latest batch of retail data, showing January spending, will be reported on Wednesday via the Census Bureau. 

The Census Bureau’s data for December, traditionally one of the hottest months of the year for retail spending thanks to Christmas, saw an unexpected dip. Omicron and sizzling inflation seem to be the guilty parties. 

On a monthly basis, December 2021 saw a 1.9% drop – way beyond the 0.2% forecast by Bloomberg-polled economists. Total spending clocked in at $626.8 billion.  

But is that the real story? The National Retail Federation (NRF) reported in January that total retail sales are up 13.4% year-on-year in December.  

“Consumers were backed by strong wages and record savings and began their shopping earlier this year than ever before. This is, in part, why we saw a decline in sales from November to December,” said NRF President and CEO Matt Shay. “The NRF expects further growth for this year, and we will continue to focus on industry challenges presented by Covid-19, the supply chain, labour force issues and persistent inflation.” 

So, actually, quite a high performing month for retail sales, or at least viewed through the prism of yearly increases.  

Earnings season continues

It’s still earnings season on Wall Street. Plenty of megacaps are yet to report.  

Those companies reporting on Wall Street this week include Airbnb, Walmart, NVIDIA, and Cisco. 

Be sure to check out our earnings calendar to see who is reporting and when this earnings season. 

Alternatively, keep scrolling to get a look at Wall Street’s top reporters for this week. 

Major economic data 

Key earnings data