Weekly Update 4/11/2023
CPI Report & Bank Earnings
Inflation data expected to show cooling
The country’s largest banks will report earnings this week!
Jobs Report: Labor Market Remains Resilient!
Tesla Announces Shanghai Battery Factory
Weekly Meetings:
INVESTMENT CLUB TUESDAYS 7 PM (CCB140)
INVESTMENT FUND TUESDAYS 8 PM (CCB140)
(BOTH MEETINGS ARE OPEN TO THE ENTIRE STUDENT BODY)
—Market Madness—
Angel Investing For Beginners 2023: How To Invest In Startups!
Inflation data expected to show continued signs of cooling in March
A closely-watched government measure of inflation is expected to show that price increases cooled further last month. March’s Consumer Price Index (CPI), slated for release Wednesday, is expected to come in at 5.2%, a slowdown from February’s 6% annual gain, according to estimates from Bloomberg. The number would mark the slowest annual increase in consumer prices since May 2021 but would still be significantly above the Federal Reserve’s 2% target. The Fed has been raising interest rates to try to bring down inflation, but the central bank risks sending the economy into a recession by hiking rates too high too fast.
On a monthly basis, consumer prices are expected to have risen 0.2% in March, down from a 0.4% increase in February. On a “core” basis, which strips out the more volatile costs of food and gas, prices in March are expected to have risen 0.4% over the prior month and 5.6% over last year, according to Bloomberg data.
“Core inflation, and core services, should remain sticky-high,” Bank of America analysts wrote in a note Monday, adding that “much of this stickiness stems from elevated rent and owners’ equivalent rent inflation, which should subside in the second half of the year.” Owners’ equivalent rent is the hypothetical rent a homeowner would pay. Wednesday’s data, a critical element in determining the Fed’s monetary policy, will follow the latest jobs report, which showed a slowdown in hiring last month.
According to data from the Bureau of Labor Statistics released Friday, the U.S. economy added 236,000 jobs in March while the unemployment rate fell to 3.5%. Still, the slowdown likely won’t be enough for the Fed to pause its aggressive rate hiking campaign. As of Monday afternoon, markets were pricing in a 70% chance the Federal Reserve raises rates by another 0.25% in May, according to data from the CME Group.
Forecasts from the central bank released last month suggested one additional 0.25% rate increase was likely this year. “Our base case is also for a 25 [basis point] hike in June, although there is a good deal of data to be seen before then, beginning with…CPI and retail sales releases,” John Canavan, lead U.S. analyst at Oxford Economics, wrote in a note last week. Retail sales data is scheduled for release Friday.
What markets are watching after digesting the US jobs data
In an unusual coincidence, the US jobs report was released on a holiday Friday — meaning stock markets were closed when the closely-watched economic data came out.
It was the first monthly payroll report since Silicon Valley Bank and Signature Bank collapsed. It also marked a full year of jobs data since the Federal Reserve began hiking interest rates in March 2022.
While inflation has come down and other economic data point to a cooling economy, the labor market has remained remarkably resilient.
Investors have had a long weekend to chew over the details of the report and will likely skip the typical gut-reaction to headline numbers.
What happened: The US economy added 236,000 jobs in March, showing that hiring remained robust though the pace was slower than in previous months. The unemployment rate currently stands at 3.5%.
Wages increased by 0.3% on the month and 4.2% from a year ago. The three-month wage growth average has dropped to 3.8%. That’s moving closer to what Fed policymakers “believe to be in line with stable wage and inflation expectations,” wrote Joseph Brusuelas, chief economist at RSM in a note.
“That wage data tends to suggest that the risk of a wage price spiral is easing and that will create space in the near term for the Federal Reserve to engage in a strategic pause in its efforts to restore price stability,” he added.
The March jobs report was the last before the Fed’s next policy meeting and announcement in early May. The labor market is cooling but not rapidly or significantly, and further rate hikes can’t be ruled out.
At the same time Wall Street is beginning to see bad news as bad news. A slowing economy could mean a recession is forthcoming.
—CRYPTO CULTURE—
Bitcoin price rallies to $29.4K as traders gear up for this week’s CPI print
Bitcoin rose to its highest level in ten months on April 10 as traders await this week’s April 12 consumer price index report to gain deeper insight into the Federal Reserve’s fight against sticky inflation. If the report shows inflation dropping, it could be the next possible catalyst that further’s BTC’s upward move.
On April 10, BTC price soared 3.37% to over $29,300 after a quiet Easter weekend. Interestingly, Bitcoin’s intraday gains appeared alongside a drop in U.S. equities, a rare decoupling that highlights the coin’s diminishing risk-on characteristics.
The Bureau of Labor Statistics will release March consumer price index (CPI) data on April 12, which expects to show inflation down to 5.1% from 6.0% year-over-year previously.
A slowdown in headline CPI increases the prospects of the Federal Reserve shifting in a more dovish direction. Conversely, persistent inflationary forces could lead traders to bet on more interest rate hikes in May. Bitcoin’s rise above $29,000 suggest that crypto traders have been pricing in a drop in inflation, which, in turn, could lead to a potential Fed pivot. Nonetheless, the U.S. dollar index (DXY), which tracks the greenback’s strength against a basket of top foreign currencies, climbed 0.7% on April 10, which, alongside a weaker U.S. stock market, shows macro investors see a rate hike ahead.