This week saw several consequential news releases come out that will likely shape expectations for how the Fed will act in September. The figures released over the last five days will also likely have an impact on whether market participants believe that there is going to be a soft landing for the economy.
On Tuesday, the Price Producer Index (PPI) was released. It revealed that overall, prices increased by .1 percent during the past month, compared to an expected increase of .2 percent over that same time period. Core PPI was flat for the current month compared to an expected increase of .2 percent, and it’s worth noting that the Core PPI for June was downgraded to an increase of .3 percent.
On Wednesday, the CPI report for July came out, and it revealed that inflation was 2.9 percent on an annualized basis, which was lower than the expected 3 percent. Core CPI and overall CPI were up .2 percent on a monthly basis, which was in line with what analysts were expecting.
On Thursday, retail sales figures were made available to the public, and it was revealed that overall sales were up 1 percent on a monthly basis. Core retail sales were up .4 percent on a monthly basis, which was more than the .1 percent gain that analysts had projected. Overall sales were only expected to go up by .4 percent.
It’s worth noting that there were some questions about the data as the figures were significantly better than expected. However, the main takeaway for most observers is that it’s more likely that the economy can remain strong for the time being.
The other takeaway is that the Fed is unlikely to cut interest rates by more than 25 basis points. After some poor economic news last week, markets fell dramatically, and it was thought that the Fed might need to make a cut of 50 basis points.
However, markets have largely recovered since initially making solid gains last Friday. In comments earlier this week, Fed member Bostic said that it might make more sense to simply hold off until the end of the year to make a cut. He mentioned that it would be worse to stay the course instead of cutting early and having to raise rates again in the future.
Also on Thursday, unemployment claims data came in better than expected as there were only 227,000 claims for benefits compared to an expected 236,000. This gives some more credence to the idea that the economy might be able to survive even if rates aren’t slashed immediately.
On Friday, the University of Michigan came out with its preliminary inflation expectation and consumer sentiment reports. Consumers believe that inflation will remain at 2.9 percent 12 months from now. Consumer sentiment was 67.8, which was higher than the expected 66.7.
The S&P 500 was up 3.65 percent to close at 5,554 this week. On Tuesday morning, the market hit its low of 5,336 before beginning a steady climb into Friday. On Friday afternoon, the S&P would hit its high of 5,558 before easing slightly into the close.
Like the S&P 500, the Dow would also gain more than 3 percent this week to close at 40,659. On Monday afternoon, the market hit its low of the week at 39,306, and it would hit its high of 40,270 on Friday afternoon.
Finally, the Nasdaq was the big winner for the week as it would finish up 4.91 percent to close at 17,631. The Nasdaq made its low of the trading week on Monday morning at 16,739 and would make its high for the last five trading days on Friday afternoon when it tapped 17,660.
In international news, New Zealand cut its interest rate by 25 basis points on Tuesday night. On Wednesday morning, it was revealed that inflation in the United Kingdom (UK) came in at 2.2 percent compared to an expected 2.3 percent. On Thursday, it was revealed that GDP growth was flat in the UK.
The upcoming week will be dominated by the Jackson Hole Symposium taking place on Thursday and Friday. Jerome Powell will speak there on Friday morning. FOMC meeting minutes are scheduled to be released on Wednesday afternoon, which could give some insight into where the Fed might be heading with interest rates. Internationally, Canada is expected to release inflation data on Tuesday while many European nations will be releasing Services and Manufacturing PMI data on Thursday.