The Hot Zones this Week
Each week there are zones where trading can get wild. I call these the hot zones.
This week, two key economic announcements are anticipated to have significant implications for the US economy. Firstly, on June 14th, the Federal Open Market Committee (FOMC) will announce its rate decision for June. Market expectations are that the FOMC will maintain the target federal funds rate at 5.125%, in line with the previous decision. This decision will provide insights into the Federal Reserve’s stance on monetary policy and its assessment of the current economic conditions.
Secondly, on June 13th, the Consumer Price Index (CPI) data for May will be released. The CPI measures changes in the average prices of goods and services consumed by households and is a crucial indicator of inflation. Both the year-on-year (yoy) and month-on-month (mom) CPI readings are expected to show a 4.1% increase. Additionally, the CPI excluding food and energy, which provides a gauge of underlying inflation trends, is also anticipated to show a 5.3% yoy and 0.4% mom increase. These figures will offer insights into the inflationary pressures in the economy and their potential impact on consumer purchasing power and overall price stability.
The FOMC rate decision and CPI announcements are closely watched by investors, economists, and policymakers as they provide valuable information for assessing the state of the economy and guiding financial market expectations. These announcements will help shape market sentiment and potentially influence future monetary policy actions, making them key events to monitor for anyone interested in understanding the current economic landscape and potential implications for financial markets and consumer behavior.
Macro Market
Economic Growth
In my view, achieving the target of 2% inflation necessitates a concerted effort to counterbalance domestic demand and rectify labor market imbalances. My forecast sees the real GDP growth slowing down from the 0.9% we saw in 2022 (4Q/4Q) to a decline of -0.2% in 2023 (4Q/4Q). This is due to the lagged impacts of a stricter monetary policy and tightening financial conditions, but I expect a recovery by 4Q 2024.
Inflation
I believe that the confluence of falling energy prices, rising inventory-to-sales ratios, and a mild recession this year will put inflation on a downward slope. The headline PCE inflation witnessed a rise of 5.7% in 2022 (4Q/4Q), and I predict it will slow down to 2.9% in 2023. The core inflation that grew by 4.8% is also anticipated to adjust to 3.4% in 2023. While my forecast for 2024 shows inflation broadly aligning with the Fed’s 2% target, I remain cautious about the possibility of persistent services inflation if demand remains sturdy.
Federal Reserve
When it comes to the Federal Reserve, I expect them to maintain their current stance at the June meeting with rates standing between 5.00-5.25%, as they evaluate policy lags and bank stress. I perceive this decision to be a tough call. However, it’s crucial to understand that a skip does not imply a pause, and I firmly believe that the Fed will continue to lean towards a higher policy rate.
Economic Calendar
Briefing.com has a good U.S. economic calendar for the week. Here are the main U.S. releases.
Briefing.com
Earnings
Source I/B/E/S data from Refinitiv
Aggregate Estimates and Revisions
- 23Q1 Y/Y earnings are expected to be 0.03%. Excluding the energy sector, the Y/Y earnings estimate is -1.7%.
- Of the 497 companies in the S&P 500 that have reported earnings to date for 23Q1, 76.9% have reported earnings above analyst estimates. This compares to a long-term average of 66.3% and prior four quarter average of 73.5%.
- During the week of June. 12, four S&P 500 companies are expected to report quarterly earnings.
Global Spotlight
Jake’s Quick Trip to India Before Modi Heads to Washington
Hey, did you know Jake Sullivan, our U.S. national security adviser, is hitting up Delhi to meet Indian Prime Minister Narendra Modi on June 13? That’s just before Modi swings by the United States on June 22. And this isn’t out of the blue. Remember, Lloyd Austin, our Secretary of Defense, just got back from India earlier this month, where he was yakking about strengthening our defense ties and supporting India’s own defense industry. Everyone’s a bit edgy about China’s growing power, right? So back in May, President Joe Biden and Modi decided to work together on some seriously cool stuff like semiconductors and artificial intelligence. For Sullivan’s trip, he’s expected to iron out the last details of a deal with General Electric to make jet engines in India for their military aircraft, plus setting up what Modi will be up to when he visits the U.S.
French, German, and Polish Leaders Natter about Security for Ukraine
Over in Paris, French President Emmanuel Macron is having a sit-down with German Chancellor Olaf Scholz and Polish President Andrzej Duda on June 12. They’re going to chat about how to keep Ukraine safe and whether the country should join NATO. Most of Europe thinks Ukraine joining NATO isn’t going to happen while the country’s still at odds with Russia. But the big three – France, Germany, and Poland – can’t agree on how to handle Ukraine’s push to join. Poland’s all for it, Germany thinks they should support Ukraine but outside of NATO, and France… well, they’re not being very clear. Macron did say in a speech at the end of May that Ukraine needs some strong security guarantees and a “path toward membership”, but he’s been vague about when that might happen.
Arab-China Business Bonanza
Check this out – Saudi Arabia is rolling out the red carpet for 2,000 investors and business people from China. They’re all coming for the 10th Arab-China Business Conference in Riyadh on June 11 and 12. This is a big deal, as it highlights the growing relationship between China and Saudi Arabia. They’ll be talking about cooperation in some cutting-edge areas like artificial intelligence and biotechnology, so you can bet the U.S. government will be keeping a close eye on what’s happening. Saudi Arabia’s a huge market for Chinese investments, and China’s the biggest buyer of Saudi energy. So if the Saudis can make their country more attractive for Chinese businesses, they might become a bigger player in China’s commercial dealings with the Gulf and Middle East.
Putin’s Big Chat at the St. Petersburg Forum
From June 14-17, Russia’s going to be the center of attention with the annual St. Petersburg International Economic Forum. Normally, this is where Russia tries to get more foreign investment, especially from the West. But this year, they’re not getting much love from the West, so guests from China, India, Saudi Arabia, and the United Arab Emirates are taking the spotlight. We can probably expect Putin to brag about how Russia doesn’t need the West as much economically. However, not many will hear about it as the Kremlin has banned journalists from “unfriendly countries” from covering the forum.
