The figures could change the calculation of the Federal Reserve, which is guaranteed to raise interest rates again at its next policy meeting on September 21. The question is how much?
But could the odds of another massive rate hike diminish if inflation data continues to suggest that “price stability” might finally be closer to reality? Consumer Price Index (CPI) figures will be released on Tuesday morning while Producer Price Index (PPI) figures will be released on Wednesday.
Economists currently expect consumer prices in August to decline slightly from July, and prices are up 8.1% over the past 12 months. Of course, 8.1% is still incredibly high by historical standards, but that would be a noticeable slowdown from the 9.1% year-over-year price surge in June.
“We’ve probably seen the peak of inflation. Food and energy prices are down. There’s more room for the downside,” said Joe Kalish, chief global macroeconomic strategist at Ned Davis Research.
Investors seem to be grudgingly accepting the likelihood that the Fed will raise rates another 75 basis points in a few weeks…regardless of what the August inflation data indicates.
But traders are hoping September’s rate hike will be the last of such magnitude. Assuming the Fed raises rates by three-quarters of a point on September 21, this would bring interest rates back to a target range of 3% to 3.25%.
Look at Federal Funds futures on the CME for November. At noon on Friday, investors were pricing in a 70% chance of a half-point hike at the Nov. 2 Fed meeting … within a range of 3.5% to 3.75%.
There was only a 10% chance of a fourth consecutive 75 basis point increase, however, which could be one of the reasons stocks have rebounded so far in September after falling in august.
Price increases slow and consumers continue to spend
Wall Street is clearly betting that inflation trends will continue to move in the right direction. Economists also expect producer prices, or the cost of goods at the wholesale level, to decline slightly in August. Forecasts call for a drop of 0.1% from July to August, after a drop of 0.5% from June to July.
Producer prices jumped 9.8% year-on-year in July, but that’s down from June’s high of 11.3%. Any further slowdown would likely be welcomed by the market, the Fed and consumers.
This brings us to retail sales. Consumer spending figures for August are due Thursday morning. The government announced last month that retail sales rose 10.3% year-on-year in July. It will be interesting to see if this rate of sales accelerated in August or if it slowed down.
And this is the key point. Investors need to pay more attention to inflation data than what Powell or other Fed members are saying. The Fed remains dependent on data, which is why the odds of a rate hike are constantly changing.
“There must be a compelling downward trend in inflation. We’re not there yet,” David Donabedian, chief investment officer of CIBC Private Wealth US, said in a report on Friday.
Big tech at your fingertips
Shares of both companies have fallen this year, along with the rest of the tech sector and the market in general. Oracle is down almost 15% while Adobe plunged more than 30%.
But analysts expect solid sales growth from both companies…nearly 15% for Adobe from a year ago and an increase of nearly 20% for Oracle.
An investment strategist said big tech companies like Oracle and Adobe make sense for investors.
“We have big tech that is much more mature and established,” said Suzanne Hutchins, head of real returns strategy and senior portfolio manager at Newton Investment Management.
“Both companies generate more than 40% of sales outside the United States,” Morgan noted in a report.
Monday: Chinese markets closed; Oracle revenue
Wednesday: American PPI
Thursday: US retail sales; weekly jobless claims in the United States; meeting between Russian Vladimir Putin and Chinese Xi Jinping; Adobe revenue
Friday: consumer sentiment in the U. from Michigan to the United States; Retail Sales, Unemployment and Other Economic Data in China