As we embark on the week ahead, it’s crucial to navigate the seas of the ever-fluctuating economy with a steady hand and keen eye. The recent data has nudged our 2Q GDP tracking estimate slightly downwards, from 1.5% q/q saar to 1.4%. This slip was influenced by a variety of factors, from personal spending to construction, core capital goods orders to trade balances, all playing a crucial role in the complex tapestry of our economic forecast.
The previous month’s personal spending figures came in just shy of expectations, prompting a revision in April’s data and impacting our personal consumption expenditure tracking. Meanwhile, despite a robust rise in May’s construction spending, revisions to April’s figures and a weaker than projected annual growth trajectory have tempered our initial optimism.
In the realm of manufacturing, we noticed a curious dance between durable and non-durable goods’ inventories, subtly nudging our inventory estimate down. Additionally, a dip in nonresidential spending and the trade deficit’s narrowing have resulted in alterations to our structures and net exports tracking estimates, respectively.
Yet amidst these shifts, the higher-than-expected vehicle sales have fueled a bump in our PCE estimate, countering the lower-than-expected figures for medium and heavy trucks, which marginally dented our equipment estimate.
With the upcoming week poised to unveil fresh data including May wholesale inventories and June CPI, PPI, import price index, and the monthly budget statement, we stand ready to recalibrate our 2Q tracking, as the economic tides ebb and flow. Keep your compass close and your charts at hand, as we plot our course through the week ahead, armed with these insights and more.
As we continue to provide you with valuable insights and market updates, we’re also working to extend the reach of our “The Week Ahead” blog post to help more investors stay informed. Growing our readership is a shared journey, and we value your part in it. If you find our analysis helpful, we would be incredibly grateful if you could share this with a friend or a colleague. Your support in broadening our community is greatly appreciated. Together, we can help more investors make informed decisions in these dynamic markets. Thank you for your ongoing support!
The Hot Zones this Week
As a seasoned trader, I always keep my eye on a variety of market events. In the coming week, we have several critical announcements to watch out for. These have the potential to cause significant volatility in the markets, so it’s vital to approach these events with caution. Let’s dive into the details:
Wednesday, July 12
Consumer Price Index
I’m forecasting that the June CPI report will show a headline CPI rise by 0.3% m/m (0.27% unrounded). Consequently, I predict the y/y rate to drop from 4.0% in May to 3.1% in June, marking the lowest reading since March 2021. This recent decline in headline CPI can largely be attributed to favorable base effects, given last year’s surge in energy prices. With this in mind, I’m expecting the NSA index to print at 305.393.
For core inflation, I’m predicting a 0.3% m/m (0.29% unrounded) increase. This deceleration from the average 0.4% m/m pace over the last six months could cause the y/y rate to decline three-tenths to 5.0%, possibly pushing the 3-month annualized rate down as well.
Thursday, July 13
Initial Jobless Claims
I’m anticipating initial jobless claims to decrease to 245k for the week ending July 8, from a 12k increase to 248k in the preceding week. There’s potential volatility around these figures, due to holidays and increasing Worker Adjustment and Retraining Notification (WARN) notices suggesting impending layoffs. Be wary of the July 4th weekend effects as well.
Producer Price Index
For the PPI, I’m predicting a slight increase of 0.1% m/m in June, which would result in the y/y rate falling from 1.1% to 0.1%. Improvement in supply chains and softening demand continue to ease producer prices.
Monthly Budget Statement
As for the US Treasury, I’m predicting a deficit of $205bn in June, compared to $240bn in May. Despite the suspension of the debt ceiling, the Treasury seems to be rebuilding its cash buffers. This deficit would bring the total for FY2023’s first nine months to $1,370bn.
Friday, July 14
Import Price Index
Import prices are likely to have fallen by 0.1% m/m in June due to a decline in petroleum prices. I’m predicting import prices, excluding petroleum, to remain unchanged for the month.
U. of Michigan Sentiment
Finally, I’m expecting the University of Michigan consumer sentiment to increase to 65.5 in July’s preliminary reading from 64.4 previously. The easing inflation expectations, robust financial markets, and a recent increase in the consumer expectations index are all hinting towards a positive consumer sentiment in July.
Remember, trading around these announcements can be risky due to potential market volatility. Make sure you’re prepared for any eventuality and trade safely!
Macro Market
Growth
My expectations for the slowdown in the US economy have been delayed by two quarters. I now predict that the growth in real GDP will be 1.2% in the 4th quarter year on year (4Q/4Q) this year, which is an improvement from the previous prediction of -0.2%. For 2024, I now anticipate a 4Q/4Q growth of 0.0%, compared to the previously forecasted 0.9%. I also suspect that growth will fall into negative territory for two quarters in the first half of 2024, albeit only at -1.0% and -0.5% quarter on quarter seasonally adjusted annual rate (q/q saar) for 1Q 24 and 2Q 24 respectively.
Inflation
My new forecast for core personal consumption expenditure (PCE) inflation predicts it to conclude the year at 3.8% 4Q/4Q and the next year at 2.4% 4Q/4Q. I believe that price stability will be realized in 2025.
Federal Reserve
Despite the pause in June, I anticipate the Federal Reserve to implement 25 basis point hikes in both July and September, bringing the terminal rate to between 5.5% and 5.75%. However, the Fed could choose to introduce the final hike in November. I now estimate the first rate cut and the cessation of quantitative tightening (QT) to take place in May 2024, a delay from the previous expectation of March 2024.
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
Source I/B/E/S data from Refinitiv
Aggregate Estimates and Revisions
- 23Q2 Y/Y earnings are expected to be -6.4%. Excluding the energy sector, the Y/Y earnings estimate is -0.7%.
- Of the 18 companies in the S&P 500 that have reported earnings to date for 23Q2, 77.8% have reported earnings above analyst estimates. This compares to a long-term average of 66.4% and prior four quarter average of 73.4%.
- During the week of July. 10, 11 S&P 500 companies are expected to report quarterly earnings.
Global Spotlight
Macron Courts Modi Amidst Unrest
With the lingering threat of civil unrest following contentious domestic reforms, French President Emmanuel Macron is set to welcome Indian Prime Minister Narendra Modi on Bastille Day. This visit will honor the silver jubilee of the Franco-Indian strategic partnership, potentially enhancing bilateral relations and defense agreements. Yet, with Bastille Day’s history of sparking security issues and recent riots simmering down, we should keep a watchful eye on how Macron balances his international and domestic obligations.
India’s Ambitious Lunar Venture
Betting high on their ambitious space program, the Indian Space Research Organization (ISRO) plans to launch the Chandrayaan-3 moon mission on July 14. After a hard landing debacle in 2019, India aims to join the elite lunar soft landing club currently occupied by the US, Soviet Union, and China. With space becoming a central arena for geopolitical jostling, the success of this mission could provide India a significant edge in the competition for space-based resources and commercial launches.
Ukraine Dominates NATO Summit
The upcoming NATO summit in Lithuania, set against the backdrop of a stagnant conflict in Ukraine, promises heated discussions about security guarantees and NATO membership for Ukraine. But don’t hold your breath for a concrete timeline, as NATO’s internal divisions could stall progress. An intriguing subplot is Turkey’s veto on Swedish accession, despite recent appeasements from Stockholm. Moreover, with China’s rising military assertiveness on NATO’s radar, we may witness significant strategic discourse adjustments.
Thailand’s Political Uncertainty
Thailand’s political landscape stands at a crossroads as its bicameral parliament gears up to elect a new prime minister on July 13. Despite commanding the most seats post-election, the Move Forward Party and its sole candidate, Pita Limjaroenrat, face an uphill battle to achieve a decisive victory. Pita’s proposed reforms, aimed at reducing the military’s and monarchy’s political influence, might not sit well with the conservative Senate. This uncertainty might trigger a scramble for power among military leaders and coalition partners, potentially causing unrest on the streets of Bangkok.
UPS Strike Threatens Supply Chain
Following failed negotiations, a UPS strike looms large on August 1, posing a significant threat to supply chain operations. If the strike goes ahead, alternative shipping companies might not be equipped to handle UPS’s typical daily package volume. Any prolonged disruption could force clients to pivot their supply chains towards competitors, potentially resulting in substantial long-term losses for UPS. Thus, the onus is on UPS and the Teamsters union to resolve their differences swiftly, lest they disrupt a significant segment of global logistics.
Stratfor.com
Should you find value in our posts, we encourage you to share them within your investment circles. Your sharing helps us reach and assist more members of the investment community. Additionally, if there’s any specific information you’d like us to cover or any feedback you wish to share, please don’t hesitate to reach out. We’re always looking to tailor our content to better meet your needs.
