This Just In
Goldman Sachs Economist advise they no longer expect March hike by Fed.
“In light of the stress in the banking system, we no longer expect the FOMC to deliver a rate hike at its next meeting on March 22 (vs. our previous expectation of a 25bp hike). We have left unchanged our expectation that the FOMC will deliver 25bp hikes in May, June, and July and now expect a 5.25-5.5% terminal rate, though we see considerable uncertainty about the path.”
There is a long time between now and March 22.
The Hot Zones this Week Each week there are zones where trading can get wild. I call these the hot zones.
The US is expected to see a decline in energy services, leading to a 0.38% m/m increase in headline CPI inflation and a year-on-year rate decline to 6.1%. However, core CPI inflation is projected to rise by 0.42% m/m, and the year-on-year rate of increase in core CPI would only fall slightly to 5.5%. Core goods are expected to rise by 0.1% m/m due to less disinflation from durables categories like used cars and new cars. Meanwhile, core services are expected to rise by 0.54% m/m on the strength of shelter and non-shelter components. These factors suggest that inflationary pressures are diminishing only slowly, potentially increasing the pressure on the Fed to move more forcefully.
I forecast that headline PPI will increase by 0.3% m/m in February, which is a deceleration from January’s 0.7% m/m, partly due to the expected decline in energy prices. When excluding food and energy, I expect PPI to rise by 0.4% m/m, which is in line with the average over the past three months but above the 6-month average as businesses continue to face input cost pressures. Although goods-related costs are expected to ease, services-related costs may remain sticky. Finally, I anticipate that PPI excluding food, energy, and trade services will rise by 0.3% m/m after January’s 0.6% m/m increase.
Economic Calendar
Briefing.com has a good U.S. economic calendar for the week. Here are the main U.S. releases.
Briefing.com
Last Week’s Numbers
Review Last week’s numbers here.
Earnings
The S&P 500’s 22Q4 year-over-year earnings are expected to be -3.2%, with the energy sector excluded, the estimate is -7.4%. Of the 497 S&P 500 companies that have reported earnings, 67.8% have reported earnings above analyst estimates, slightly higher than the long-term average of 66.3% and lower than the prior four-quarter average of 75.5%. In the week of March 13, four S&P 500 companies are expected to report quarterly earnings.
Aggregate Estimates and Revisions
- 22Q4 Y/Y earnings are expected to be -3.2%. Excluding the energy sector, the Y/Y earnings estimate is -7.4%.
- Of the 497 companies in the S&P 500 that have reported earnings to date for 22Q4, 67.8% have reported earnings above analyst estimates. This compares to a long-term average of 66.3% and prior four quarter average of 75.5%.
- During the week of Mar. 13, four S&P 500 companies are expected to report quarterly earnings.
Source I/B/E/S data from Refinitiv
My View
Growth: Although GDP growth slowed down to 0.9% in 2022 (4Q/4Q), we anticipate a recovery by 4Q 2024, with an estimated decline of only -0.4% in 2023 (4Q/4Q). While the economy may face some cooling effects due to tighter monetary policy and financial conditions, our forecast indicates a steady upward trend for the future.
Inflation: Despite headline PCE growth at 5.7% in 2022 (4Q/4Q), our forecast anticipates disinflation next year due to a mild recession and ongoing goods deflation. We expect headline PCE to grow at a more moderate 3.0% in 2023 and core PCE at 2.9%, which is broadly in line with the Fed’s 2% mandate by the end of 2024.
Federal Reserve: While we expect 25bp hikes in March, May, and June, for a terminal of 5.25-5.5%, we acknowledge the burden has shifted towards slower movement in light of weaker economic data. However, we maintain our forecast for the first rate cut in March 2024.
Global Spotlight
On March 13, the U.S., Australia, and the United Kingdom will hold an AUKUS discussion to discuss the implementation of the trilateral security pact. The meeting will focus on Australia’s acquisition of nuclear-powered submarines and related technologies, as well as deepening engagement via the pact in other areas such as technology sharing in hypersonic weapons and artificial intelligence. While China views the pact as a thinly veiled military containment effort that will destabilize the Indo-Pacific, AUKUS signatories note that China’s threats to the security of Taiwan and the South China Sea warrant greater Western military cooperation to preserve regional peace.
China’s Two Sessions legislative meetings will close on March 13, following the release of a Party and State Institutional Reform Plan. The plan is expected to reconfigure government institutions to better achieve Chinese leader Xi Jinping’s vision for China’s economic, technological, and security development over the next five years. The reform is also likely to further empower the Party over the state, particularly on matters of financial stability, data oversight, and handling unrest. Officials selected for key government roles, including the premier, vice premiers, and various heads of government ministries, will be revealed over the weekend. While the premiership is widely expected to go to Xi acolyte and former Shanghai party chief Li Qiang, who will assume the other roles is less certain, but it will indicate Beijing’s governing priorities and Xi’s influence network in the state apparatus.
Russian President Vladimir Putin will meet with the Russian Union of Industrialists and Entrepreneurs, a group of Russia’s most powerful business leaders, on March 16. At their last meeting on February 24, 2022, the day Putin announced the invasion of Ukraine, Putin acknowledged the difficulties that new Western sanctions would pose to their operations but insisted the invasion was necessary because Russia “had no other choice.” This time around, Putin will likely attempt to show foreign and domestic audiences that Russia’s business elite remain fully behind the war. The group reportedly will propose a 10-point package of legal changes to reduce criminal and administrative pressure on Russian business.
On March 14, the European Commission will unveil two initiatives critical to the future of the EU net-zero transition. The Critical Raw Materials Act aims to ensure the bloc has access to key materials such as lithium and rare earths needed to meet its carbon-neutrality target by 2050. It will set a goal of having the European Union domestically produce at least 10% and process at least 40% of its demand by 2030, and will establish a European Critical Raw Materials Board to coordinate action. The Net-Zero Industry Act aims to boost the bloc’s manufacturing capacity for green technologies and products in response to U.S. green subsidies under the Inflation Reduction Act. It will include a 40% industrial output target for green technologies in the European Union by 2030, as well as other measures to streamline regulatory requirements, shorten permitting processes, and improve labor skills. Both acts will be subject to intense negotiations between EU member states and may take months to win approval, particularly the Net-Zero Industry Act.
