Thursday’s inflation data for September is expected to show that price pressures continued to moderate at the end of the third quarter. The data, coming on the heels of Friday’s robust jobs report is likely to shape expectations around the size and pace of Fed rate cuts in the coming months.
Producer price inflation data on Friday is also expected to point to tamer inflation.
The data is likely to reassure the Fed that inflation is on a sustainable path back towards its 2% target.
The Fed kicked off its easing cycle last month with a hefty 50 basis point rate cut and Friday’s jobs report argues against the central bank delivering another outsize cut in November.
“Next week, CPI for September will be a key data release. If prices rise faster than expected on top of the stronger labor data, chances for the Fed to skip the November meeting will increase,” analysts at UBS said in a note on Friday. “Keep in mind that in the “dot plot” released following the September FOMC meeting, nearly half of the participants thought that total cuts of 50-75 bps by year-end would be appropriate, meaning only 0-25 bps of additional cuts this year.”
The Fed is to publish the minutes of its September meeting on Wednesday with investors on the lookout for indications into how officials may be thinking about the pace of easing going forward.
Additional insights into the factors that led to policymakers reaching a consensus around the 50bps cut would also be noteworthy.
Investors will also get a chance to hear from several Fed officials during the coming week, including Neel Kashkari, Raphael Bostic, Adriana Kugler and Lorie Logan.
Meanwhile, Thursday’s report on initial jobless claims is likely to be impacted by recent weather disruptions.
U.S. third-quarter earnings season is about to kick into gear, in what will be a test for a stock market near record highs and trading at lofty valuations.
Major financial firms including JPMorgan Chase (NYSE:JPM), Wells Fargo (NYSE:WFC) and BlackRock (NYSE:BLK) all report on Friday.
Bank results offer an important view into the economy, including the strength of demand for loans. Investors will also be on the lookout for signs of whether the Fed’s large rate cut last month is already influencing the economy through rising auto sales or the purchase of other big-ticket items.
Other companies reporting results during the week include PepsiCo (NASDAQ:PEP) and Delta Air Lines (NYSE:DAL).
Bullish investors are hoping results will justify increasingly rich valuations in the stock market. The S&P 500 is up 20% for the year so far and is trading near record highs despite recent volatility spurred by rising geopolitical tensions in the Middle East.
Oil prices rose on Friday and settled with their biggest weekly gains in over a year on the mounting threat of a region-wide war in the Middle East, although gains were limited as U.S. President Joe Biden discouraged Israel from targeting Iranian oil facilities.
Israel has sworn to strike Iran for launching a barrage of missiles at Israel last Tuesday after Israel assassinated the leader of Iran-backed Hezbollah. The events had oil analysts warning clients of the potential ramifications of a broader war in the Middle East.
On a weekly basis, Brent crude gained over 8%, the most in a week since January 2023. WTI gained 9.1% week-over-week, the most since March 2023.
Iran is a member of OPEC+ with production of around 3.2 million barrels per day or 3% of global output. The group’s spare production capacity should allow other members to boost output if Iranian supplies are disrupted, limiting oil price gains.
The Reserve Bank of New Zealand meets on Wednesday and some market watchers believe it could follow the Fed’s example and cut rates by half a point.
The central bank lowered the official cash rate for the first time in more than four years at its last meeting in August, a year ahead of its own projections, and RBNZ Governor Adrian Orr said he would like to deliver two more cuts by Christmas.
Meanwhile, the Reserve Bank of Australia is to publish the minutes of its September meeting on Tuesday, with market watchers on the lookout for insights on its hawkish hold. RBA Deputy Governor Andrew Hauser on the docket to speak the same day.
–Reuters contributed reporting
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