Prices, Jobs, the Fed: What to Watch This Holiday Week
For us, it's all about GDP expectations vs. Fed rate policy.
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* Here’s our road map for this week.
* Expect Powell to reiterate need for more data today.
* Watch for: June Service PMI, jobs data, the second-quarter GDP implications, May Consumer Price Index comments in Wednesday’s Fed minutes.
Today puts the spotlight back on Fed Chair Powell for the first time since the June Federal Open Market Committee press conference. Recent data has shown further inflation progress. But that revised April core personal consumption expenditure figure nags at us: It kept it unchanged at 0.3% for the third consecutive month.
We believe that when Powell speaks at 9:30 a.m. ET, he will recognize the dip to 0.1% in the May core PCE figure, and improvements elsewhere. Concerned, however, about being head faked by the data (like many were by last fall’s core CPI figures) Powell will reiterate the need to see more “good data.” Probably he’ll stick to the Fed dot-plot as well, repeating that the Fed sees one rate cut late this year ahead of the central bank's next policy meeting that concludes on July 31.
Here's what we'll be looking for in the coming weeks: further movement in the hard- and soft-inflation data and a shift in Fed language. Because Powell and crew have been careful with their words and as best they can have telegraphed their actions, odds are we should see them adopt more dovish language before delivering the first rate cut. This means we will continue to dissect upcoming Fed head appearances, especially those that will follow data-filled weeks like the one ahead of us.
This Week's Agenda
Today we have the May JOLTs Job Openings and Quits report. Tomorrow brings the June Service Purchasing Managers' Index from Institute for Supply Management and S&P Global (SPGI). Alongside those two reports, and what they reveal about economic activity, inflation, and job creation in that part of the economy, ADP will publish its June Employment Change Report and its lesser-followed monthly Pay Insights report. Then we have the June Challenger Job Cuts reports, which for those who read it to the very end, know it also provides a look at hiring plans.
Late morning tomorrow, the rolling gross domestic product forecast known as the Atlanta Fed’s GDPNow model will publish an update that includes data out today and tomorrow morning. The rolling forecast for the June-ending quarter has steadily fallen to 1.7% as of yesterday from its mid-June high of 3.2%. While some may be ready to sound the alarm, what we learn in tomorrow’s data could buoy that rolling forecast. If not, it could fan economic growth concerns, with some using it to argue that the Fed needs to cut rates before the December-ending quarter.
While U.S. equity markets will close early tomorrow at 1 p.m. ET ahead of the Independence Day holiday that has those markets closed on Thursday, the Fed will publish its most recent policy meeting minutes at 2 p.m. ET. Because of recent data, to some extent this will be a rear view report but recalling Fed Chair Powell’s press conference comment that many Fed officials did not update their dot plot forecasts to reflect the May CPI report, we’ll be interested in what they did say about that data. We’ll also be curious about the conversation should there be further sustained improvement in inflation data, something we’ve started to see signs of in the last few weeks.
This data-filled week culminates with the June Employment Report. Expectations as of today call for slower job and wage growth compared to May, but the data published today and tomorrow could result in some changes to that line of thinking. While the market will no doubt close out the week based on what the June Employment report shows, we’ll be as interested in the subsequent update to the Atlanta Fed’s GDPNow model, one that will provide an even clearer picture of June quarter GDP.
As we navigate the coming weeks, including the June-ending quarter earnings season, more June data, and the outcome Fed’s July policy meeting, we’ll remain mindful of the market’s valuation and dueling narratives between earnings per share growth in the second half of 2024 and Fed rate cuts. In yesterday’s video, we shared how our current cash levels will force us to be more selective and could lead to some tough decisions as we evaluate prospects for the second half of 2024 and 2025. While this could result in some position jockeying in the coming months, our goal remains to further the portfolio’s progress and position it for what lies ahead, while avoiding potential pitfalls.
