Will "Inflation Anxiety" grips US Market ?
Labour & Hire.
It was almost a month ago that US market fell big time when July 2024, Non Farm payroll data fell and Unemployment data rose, sparking an unfounded recession fear; marking a sharp downturn on the fateful Fri, 02 Aug 2024. (click here ! to refresh memory)
Last Friday morning (06 Sep 2024), was a case of déjà vu all over again when US August 2024 (a) Non Farm payroll and (b) Unemployment reports were released, just before US trading commenced.
(1) US Non-Farm Payroll - August 2024.
August jobs report marked an improvement from downwardly revised July's data (of 89,000 jobs from first-reported 114,000). (see above)
Nevertheless, It still failed to quell Wall Street's recession fears.
Even though, the Fed is poised to start cutting interest rates soon.
US economy added 142,000 jobs in August 2024.
Falling short of Wall Street forecasts of 161,000 jobs.
Personally, I think it is definitely better than July’s 89,000.
In fact its a +59..55% improvement from July 2024, comparatively speaking.
(2) US Unemployment - August 2024.
Unemployment has been climbing “stealthily” since March 2024. (see above)
On 05 Apr 2024, it registered a March unemployment rate of 3.8%.
By 07 Jun 2024, May unemployment has reached a new 4.0% range.
On 02 Aug 2024, when market finally realized this, July unemployment rate was already 4.3%.
It the highest rate since 03 December 2021 of 4.2%.
Thankfully for August unemployment, it dipped by -0.1% to 4.2%.
Friday Market Tumble.
Negative sentiments generated from the two reports’ released, pushed US market/stocks to close in a sea of red on Friday, capping off a volatile trading week.
By the time market called it a day / week: (see above)
DJIA: -1.01% (-410.34 to 4.,345.41).
S&P 500: -1.73% (-94.99 to 5,408.42). Worst weekly performance since March 2023.
Nasdaq: -2.55% (-436.83 to 16,690.83). Worst performance since June 2022 and worst week of 2024.
Hopefully investors and Wall Street analysts managed to find the time (over the weekends) to chew and digest (fully) the above crucial jobs & unemployment reports.
And come to the realization that US is not slipping into recession (yet !).
Other Recession Factors.
Consensus has not shifted back to a recession as economists continued to pour over other economic reports for clues:
US weekly jobless claims report. Click here ! for last week’s jobless claims report.
Corporate earnings.
US GDP report and estimates. (see below)
US - Q2 2024 GDP (2nd estimates) was released on 29 Aug 2024.
It was an upward revision to 3.0%, upped by +0.2% from initial estimates of 2.8% (released on 25 Jul 2024).
US GDP is still in the “normal” between 2% to 3% range.
Retail sales report.
Wage report. (see below)
Looking under the hood, there were some positive signs at the margins. Joblessness declined, wage pressures picked up and the labor force expanded.
Average hourly earnings accelerated to +0.4% month over month (m/m) and +3.8% year over year (y/y).
The data exceeded forecasts by +10 bps on both fronts and July’s +0.2% & +3.6% respectively.
Week of 09 September 2024.
Inflation is backed at the forefront this week, after taking a backseat to labour reports.
Investors will be hawking over two key inflation reports that could further inform the Fed’s decision at its next FOMC meeting from Sep 17-18.
The two reports are:
Consumer Price Index (CPI) - to be released on 11 Sep 2024.
Producer Price Index (PPI) - to be released on 12 Sep 2024.
CPI - August forecast.
Teams at $Bank of America(BAC)$ securities and $Barclays Plc(BCLYF)$ expect:
Headline CPI (YoY): to come in at 2.5% & 2.6%, respectively, a slight dip from July data of 2.9%.
Core CPI (YoY): to come in at 3.2%; and remains status quo when compared to July 2024 data. (see below)
US core CPI August 2024 - Forecast
PPI - August Forecast.
Analysts at MarketWatch have the following forecasts for Producer inflation:
US core PPI August 2024 - Forecast
Headline PPI (YoY): will be 1.8% dipping -0.4% from July’s 2.2%.
Core PPI (YoY) is expected to rise by +0.1% to 2.5%, from July’s 2.4%. (see above)
Wednesday’s CPI August 2024 report may be the deciding factor as to whether the Fed will deliver a bigger-than-usual, 50-basis-point rate cut on 18 Sep 2024.
US central bank has not lowered Fed Funds rate by that much at one time since late 2008, when the US was in the midst of the worst financial crisis since the Great Depression.
Rate Cut Probability.
According to latest CME Group FedWatch tool, market has now priced in a: (see below)
75% probability that the Fed could cut rates by 25 basis points at its next meeting.
And just a 25% chance of a 50-basis-point rate cut.
The debate of whether -0.25% or -0.5% persists until FOMC announcement on 18 Sep 2024. As a result, market will remain nervous or mixed as inflation reports take centrestage in a bid to calm US market this week. Will it succeed ?
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Do you think Consumer price index (CPI) will continue to cool in August 2024?
Do you think Producer price index (PPI) will continue to cool or rise in August 2024 as forecasted?
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