Expect a busy week on Wall Street!
Inflation data on Wednesday will provide insights into the Fed's potential interest rate decisions. Earnings season kicks off with companies like Delta Air Lines and banks reporting their financial performance. Bank of America predicts strong earnings growth due to cost reductions and a favorable economic environment. The shift from goods spending to services supports earnings for businesses. Overall, the market's trajectory is more tied to earnings strength than potential Fed rate cuts.
The U.S. economy added a strong 303,000 jobs in March, with the lowest unemployment rate in over two years at 3.8%. Despite cooling slightly from the "great resignation" era, the job market remains healthy, with employers providing ample job opportunities and real wage growth for workers. This positive labor market outlook benefits both workers and the economy without signs of overheating.
One Federal Reserve official warns that interest rates may need to rise instead of being cut to control inflation. Despite progress in lowering inflation, risks remain high due to supply chain issues, geopolitical factors, government spending, and a tight labor market. The official emphasizes caution in easing policy too soon as it could lead to a resurgence of inflation.
Turkey's inflation rate rose to 68.5% in March, driven by education, communication, and hospitality sectors.
Despite recent rate hikes, economists predict further tightening is needed to curb rising prices.
The opposition party's success in local elections suggests that the public is concerned about inflation, which may have factored into the decision to raise rates.
Inflation in the euro zone has slightly decreased to 2.4%. This has led to expectations that the European Central Bank will begin reducing interest rates in June. While some sectors remain inflationary, overall price pressures have eased. A low unemployment rate and the recent messaging of ECB officials support the likelihood of rate cuts in the near future.
Federal Reserve officials believe interest rate cuts are likely this year, with some expecting three reductions. However, these cuts are unlikely to begin before the June meeting. Additionally, officials now believe the long-term interest rate may be higher than previously anticipated, potentially reaching 2.6%. This shift suggests that the Fed is becoming more cautious in its approach to monetary policy.
Fed Chair Powell is speaking today. Last month, he said the Fed may lower interest rates later this year, but needs to see inflation declining towards its 2% goal. Other Fed officials have agreed, with varying views on the timing and number of rate cuts. Markets expect three cuts by the end of 2024, with the first possibly coming in June or July.
The Federal Reserve will take time to decide when to lower interest rates as inflation remains high. Chairman Jerome Powell said they need "greater confidence" that inflation will consistently fall towards the Fed's target of 2%. While the economy is still strong, the Fed is waiting for more data to confirm the recent increase in inflation is temporary.
Bitcoin, the digital currency, is attracting attention due to its recent rise and upcoming halving event. Its value poses a paradox, offering both risk and inflation protection depending on the investor's perspective and reasons for ownership. Some see it as a speculative investment, while others view it as a hedge against inflation concerns. Despite debates about its true nature, Bitcoin remains a hotly contended asset, with its future price movement yet to be determined.
The Federal Reserve may cut interest rates more deeply this year due to a weakening jobs market and easing inflation. Experts believe that a deterioration in employment data will prompt the Fed to take more aggressive action to support the economy. Positive stock market performance is expected in various sectors, including financials and consumer discretionary, with a shift away from the dominance of large-cap stocks.
On Friday, the government will release its latest inflation report, which shows how much prices have changed for things we often buy. This report is especially important to the Federal Reserve, which uses it to make decisions about interest rates. Financial markets will be watching closely to see how inflation has changed because the Fed wants to keep inflation low and stable.
Inflation, measured by core PCE, rose 2.8% annually in February, on par with estimates. Both headline and core PCE increased 0.3% monthly.
Despite meeting expectations, the Fed remains likely to hold interest rates steady. However, rising consumer spending (0.8% monthly) could lead to additional inflation pressures.
The report indicates inflation remains sticky, potentially delaying Fed rate cuts expected for June.
