US equity markets were quiet Tuesday while traders awaited important inflation data. Tomorrow morning, the consumer price index report for November will be released. The producer price index report (PPI), which is due on Thursday morning, follows.
The day ahead: A brief recap
Analysts predict that the annual CPI for November will be 2,7%. This is a slight increase over October. Analysts expect the Core CPI to rise by 3.3% annually and 0.3% monthly in November.
The housing costs index for October was up 0.4% compared to the previous month. In October, other indexes saw increases of 0.4%. These included used cars and truck (+0.3%); medical care (+0.3%); and airline fares (+3.2%). Airline fares have risen significantly in recent weeks due to increased fuel prices, and demand for travel in the lead up to holidays.
We wrote yesterday that the basis for the inflationary figures this week is (generally) a Goldilocks job report last week. Goldilocks Jobs Report + CPI and PPI as expected = Rate Cut. Right? Well, probably.
Rewind and let’s see what happened “Goldilocks” Last week’s jobs report.
In November, the economy created 227,000 new jobs. This was higher than expected at 202,000, and it’s a significant increase over the 36,000 new positions in October. (Upwardly revised to 12,000 from an earlier reported figure). It’s all good right? There were also some pesky numbers in the report from last week.
Wages are increasing. In November they were up 4% on an annual basis, just a little bit above the expected 3.9%. In November, unemployment increased to 4.2% from its previous 4.1%.
Even though positions seem to be growing, finding a job is becoming more difficult. Latest initial jobless claims figures showed that continuing claims increased by 9,000 to 1.91 million for the week ended Nov. 16 — hitting the highest level since November 2021.
Not the most rosy picture of the job market.
Fed Funds futures markets are still pretty confident (86% to be precise) that FOMC will decide to reduce interest rates by 25 basis point next week. It would also be consistent with the statements made by Fed officials earlier in the year. And we all know that Chair Jerome Powell is not one to shock markets.
In 2025, the Fed will play a bigger role. Officials have already begun to prepare markets for a more gradual cutting cycle. Governor Michelle Bowman — who, you might remember, dissented on the FOMC’s decision to cut by 50bps in September — mirrored Powell’s language last week, saying the central bank needs to move “cautiously” Moving forward
Also, in 2025 we’ll have a new president (older) with familiar economic policies and not so familiar ones. Be prepared.
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