US Market Jun 12th: D-day or Relief Rally?
With Fri, 7 Jun 2024 lukewarm jobs report, investors are bracing for this week’s crucial FOMC meeting set for Tue & Wed, Jun 11-12.
The outcome of June policy meeting by the central bankers, will set the stage for the market going forward.
Will US stock market crash?
Probably not.
This time around it’s less about the actual interest rate decision.
Most analysts have already priced in no change to rates for this June 2024.
What is very important though is about the tone that (a) the Fed and (b) Fed Chair Mr Jerome Powell adopt at the meeting.
Wall Street has been hoping for rate cuts all year, to no avail so far.
Stubborn inflation, combined with a relatively tight labour market, has given the central bank little incentive to take its foot off the brakes.
Many investors are anchoring their expectations that the Fed will issue its first, rate reduction in September.
US Non Farm payroll for May 2024
Friday’s non-farm payroll jobs report did little to help the cause on that front. (see above)
The US economy added 270,000 jobs in May, 50% more than the 180,000 economists had forecast.
US Unemployment for May 2024
That said, the unemployment rate also increased slightly to 4%, the highest level since January 2022.
This paints an unclear picture of the current unemployment situation as it pertains to the Fed.
While expanding payrolls would generally support continued hawkish monetary policy, the increasing unemployment rate is still notable.
Expert’s Opinion.
According to Comerica Bank, Chief Economist, Mr Bill Adams:
Accelerating pay growth could be a sign of inflationary pressures ready to rebound if the Fed takes their foot off the brake.
On the other hand, higher unemployment could signal (a) weaker wage growth ahead, (b) softer consumer demand, and (c) less pricing power for businesses, which would cool inflation.
Stock Market’s Fears Ahead of CPI Inflation, Before FOMC
Interestingly, the FOMC is not the only major economic event this Wed, 12 Jun 2024.
After US jobs reports cycle is over, next is US inflation reports - all over again.
US May 2024 Consumer Price Index (CPI) inflation report releases in the morning ahead of the interest-rate decision, likely by no coincidence.
With inflation taking a modest step back in April 20204, the May CPI will offer:
The first indication of whether there’s an underlying disinflationary trend taking root in the economy. OR
If prices (and likely interest rates), will continue to hover higher than preferred, heading into H2 2024.
According to CPI Nowcasts for May 2024, inflation is expected climb 0.08%. (see above)
This is actually a notably low monthly increase, but it’s mostly attributed to easing oil prices.
Fed-preferred core inflation, which excludes food and energy, is projected to climb 0.3% in May.
If forecast is accurate, it would likely paint a relatively neutral picture for inflation.
What will happen if :
A MoM CPI at “+0.3%” will be in-line with April’s CPI reading, that was was the first reprieve after 2 months of 0.4% monthly inflation gains.
A MoM Core CPI at “+0.3%”, Wall Street will continue to maintain belief in at least one rate cut in 2024.
In the event if MoM Core CPI ends up closer to +0.4%, expect a dramatic response from Wall Street as aspirations of a rate reduction take a brutal hit to the chin.
Regardless, expect the CPI to be a focal point of the FOMC meeting on Wednesday.
The tone Mr Powell takes on the data will likely illuminate Wall Street’s rate cut expectations going forward.
My viewpoints: (mine only)
Unlike initial interest hike where US market reaction became “predictable” after every hike.
With inflation at an impasse, it has become increasingly difficult to forecast what the impending reading.
Regardless of whether it is going to be good news (of further inflation cooling) or bad news (of creeping inflation), everyone just need to have a strategy, a Plan-B.
For myself, I will try my best to stay at the sidelines, until Wednesday afternoon.
Everyone starts to (a) tally your war chest and (b) draw up your stock/s list with time by your side.
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Do you think US May 2024 CPI and Core CPI — will rise, fall or remain status quo?
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