As investors return from a shortened holiday week, they’ll be greeted by a pivotal confluence of economic events: the latest inflation data and the kick-off of second-quarter earnings season. With stocks hovering near all-time highs, market participants will be keenly attuned to the release of the June Consumer Price Index (CPI) on Thursday, which could significantly influence the Federal Reserve’s interest rate trajectory.
Against the backdrop of moderating job growth, the CPI reading takes on added significance, as it may bolster the case for a potential rate cut in September. Investors will also be closely watching Federal Reserve Chair Jerome Powell’s semi-annual testimony before the Senate Banking Committee on Tuesday and the House Financial Services Committee on Wednesday,
The corporate earnings landscape heats up this week, as some of America’s financial heavyweights take center stage. JPMorgan, Wells Fargo, and Citi are set to report their second-quarter results on Friday morning, offering valuable insights into the health of the banking sector.
The market ended the previous week on a high note, with the S&P 500 and Nasdaq Composite surging 1.9% and 3.1%, respectively, to close at all-time highs. The Dow Jones Industrial Average, which has trailed its peers this year, posted a more modest 0.5% gain.
The Federal Reserve’s next move on interest rates hinges on the delicate balance between labour market dynamics and inflationary pressures. While a slowing jobs market has strengthened the case for rate cuts, inflation data remains a crucial factor.
Inflation Expectations:
- Headline inflation expected to rise 3.1% annually in June, down from 3.3% in May
- Monthly prices forecast to increase 0.1%, a slight uptick from May’s flat reading
- Core CPI (excluding food and energy) predicted to rise 3.4% year-over-year, unchanged from May
- Monthly core price increases expected to clock in at 0.2%
The June CPI report, releasing on Thursday, will be a key test of the Fed’s disinflationary path. Bank of America US economist Stephen Juneau anticipates the data will build on the momentum of the “undeniably good” May report, further bolstering confidence in the Fed’s inflation-fighting efforts.