Ahead this week: Jerome Powell’s testimony, Housing starts and US Q1CY23 GDP.
Main global factors for the week Ahead
US Markets
The Nasdaq ended an eight-week winning streak and the US benchmark indices all registered losses for the week. According to Reuters, the S&P 500 put an end to a five-week stretch of advances. The markets are still processing Fed remarks that suggested the US was not yet finished with its tightening cycle.
The S&P 500 ended the day 33.56 points or 0.77% lower at 4,348.33, while the Dow finished at 33,727.40, down by 219.28 points or 0.65%. The final value of the Nasdaq Composite was 13,492.50.
Key Factors
Tuesday, June 27, 2023:
Home Price Update
The New Home Sales report, which will be released on Tuesday, June 27, will provide insight into the May housing market.
The Case-Shiller Home Price Index and the April House Price Index from the Federal Housing Finance Agency (FHFA) will provide the most recent information on American home prices on Tuesday. After recovering 1.5% in March, home prices as measured by the Case-Shiller Index most likely increased 0.8% in April, although they most likely down 1.5% from the previous year. In a dramatic contrast to the record high growth rates witnessed a year earlier, before the Federal Reserve’s interest rate hikes affected housing demand, prices declined on an annual basis in March for the first time since early 2012. While prices in Miami, Tampa, Charlotte, and Atlanta were still higher than they were a year ago, Seattle and San Francisco had the largest annual declines.
The New Home Sales report, which will be released on Tuesday, June 27, will provide insight into the May housing market.
Thursday, June 29, 2023:
US Q1CY23 GDP Increase
The final US GDP growth figures for the first quarter of the current calendar year will be analysed by investors worldwide. According to the second estimates, growth slowed to 1.3 percent in Q1CY23, down from 2.6 percent growth in Q4CY22 and 3.2 percent in Q3CY22. This slowdown may be primarily attributed to the Federal Reserve’s repeated interest rate increases from March 2022 to May 2023, before pausing in June policy meeting.We should also keep an eye out for the Federal Reserve’s annual US bank stress testing results on June 29. The Fed runs stress tests to make sure that big banks have enough capital and can continue to lend to people and companies even during a severe recession.
Friday, 30 June 2023
The Fed’s Preferred Inflation Gauge
The Personal Consumption Expenditures Price Index (PCE Price Index), the Fed’s favored inflation indicator, will be released by the Bureau of Economic Analysis (BEA) for May on Friday. Prices are anticipated to have increased 0.2% last month after rising 0.4% in April. They probably increased by 4.1% on a yearly basis, slowing down from 4.4% in April. Price growth for core PCE, which excludes variable costs for food and energy, is estimated to have slowed to 4.5% from 4.7% in April. As part of its dual purpose of price stability and full employment, the Federal Reserve sets a target inflation rate of 2% annually for PCE.
The Consumer Price Index (CPI) does not accurately reflect consumer spending decisions, hence the PCE Price Index is the Fed’s favored inflation indicator. The PCE Price Index’s components are revised more regularly to reflect shifting consumer preferences than the CPI’s set basket of goods and services.
World Events
The European Central Bank (ECB) Forum on Central Banking 2023 in Sintra, Portugal, will feature a Policy Panel Discussion with Chair Jerome Powell as one of the major international events the following week.
U.S. MARKET KEY TRIGGERS
US data
With the release of May data for the personal consumption expenditures price index, the Federal Reserve’s favored inflation gauge, investors will receive a fresh update on the potential future course of interest rates.
The PCE price index and core rate for the 12 months ending in April were both still running significantly above the Fed’s 2% objective.
The central bank delayed rate hikes during its June meeting, but gave a warning that more hikes would follow. The inflation statistics will influence investor expectations surrounding the central bank’s next rate decision in July.
Prior to that, the most recent consumer confidence survey is scheduled to be released on Tuesday. In May, the index fell to a six-month low. The index for June is anticipated to rise a little.
On Tuesday, the Case-Shiller national house price index is also scheduled to be released. After accounting for seasonal variations, the index increased 0.4% in March.
The first half is coming to an end.
The second quarter of what has been a difficult year for markets thus far is coming to a finish. The year began with a surge of hope for China’s post-COVID recovery, increased economic resilience worldwide, and relief that inflation may have crested.
Since then, the last six months have felt like a very long time on the markets due to the U.S. banking crisis, the demise of Credit Suisse, and the fight to control inflation.
Big Tech is the best-performing asset of 2023 thanks to the buzz surrounding artificial intelligence (AI), with a gain of 75%. Nevertheless, the remainder of the market has had a challenging year, with the exception of a few niches like Japanese equities and European luxury stocks.
Surprisingly, given the instability in the industry, Bitcoin is the only asset to even come close to matching Big Tech’s gains, with a gain of 73% compared to a loss of 20% in H2 2022.
Eurozone inflation rates
Preliminary June inflation numbers will be released by the eurozone on Friday. The issue the ECB is facing is highlighted by the fact that, while the headline inflation rate is anticipated to drop, underlying inflation is predicted to edge higher.
Following the bank’s most recent policy meeting, ECB President Christine Lagarde adopted a more hawkish stance than anticipated, repeating that rates would need to be raised once more to bring inflation down to the bank’s 2% target and that they “will be kept at those levels for as long as necessary.”
Traders are currently predicting an increase by the ECB in July and another move to raise rates to 4% in October.
At a panel discussion on Wednesday at the ECB’s annual meeting in Sintra, Portugal, investors will have the opportunity to hear from Lagarde, Fed Chair Jerome Powell, and other top central bankers from across the world. During that conversation, inflation is probably going to take center stage.
PMI for China
The world’s second-largest economy, China, will disclose its purchasing manager indices for June on Friday. The data is anticipated to support the idea that the recovery there is stalling.
In an effort to support economy, China lowered its major lending criteria last week, but due to worries over the housing sector, the easing was not as significant as anticipated.
As long as it eventually happens, traders may use bad news as a method to pressure the government to provide additional assistance for the economy.
However, if optimism is high, patience is waning: A number of international investment banks reduced their projections for China’s GDP growth in 2023 after May’s economic statistics fell short of expectations.
Conflicts in Russia
Following a failed uprising on Saturday, investors will be watching developments in Russia out of fear for the possible effects on safe-haven assets like U.S. Treasuries and on commodity prices.
Yevgeny Prigozhin, a former ally of Putin and the creator of the Wagner army, led a group of Russian mercenaries who had almost reached Moscow when they unexpectedly stopped their advance.
Gennadiy Goldberg, head of U.S. rates strategy at TD Securities in New York, told Reuters: “It certainly remains to be seen what happens in the next day or two, but if there remains uncertainty about leadership in Russia, investors may flock to safe havens.”
Global economic calendar for week ahead
MONDAY
EURO AREA
ECB Forum on central Banking
JAPAN
BOJ Summary of options
Tuesday
USA
Buildings permits, Durable goods order, New Home sales (May); House Price Index (apr)
EURO AREA
ECB Forum on central Banking
Wednesday
USA
API & EIA Crude oil Stock Change, MBA Mortgage Applications (For week ended June 23)
EURO AREA
ECB Forum on central Banking
Thursday
USA
Bank Stress Tests, Q1CY23 GDP Growth Final, Initial Jobless claims (for week ended June 24), Real consumer Spending (Q1CY23), Pending Home Sales (May)
EURO ZONE
ECB Economic bulletin, Consumer confidence (June), Economic & Industrial Sentiment (june)
JAPAN
Retail sales (May), consumer confidence (June)
Friday
USA
Personal Income & Spending (May)
EURO ZONE
Unemployment Rate (May)
JAPAN
Unemployment Rate, Housing Starts, construction Order (May)
WEEKLY U.S. ECONOMIC AND EARNINGS CALENDAR
Monday, June 26
The June Dallas Fed Manufacturing Index.
Earnings
Sigma Lithium Corp. (SGML) and Carnival Corporation (CCL)
Tuesday, June 27
S&P Case-Shiller National Home Price Index (April):
House Price Index for FHFA (April)
May New Home Sales
Consumer Barometer Index for June
Manufacturing Index, Richmond Fed, June
The June Dallas Fed Services Index
Orders for durable goods (May)
Earnings
Jefferies Financial Group (JEF) and Walgreens Boots Alliance (WBA).
Wednesday, June 28
May Retail Inventories
May Wholesale Inventory
May Goods Trade Balance
Results of the Bank Stress Test will be published.
Earnings
Micron Technology (MU), General Mills (GIS), Concentrix Corporation (CNXC), H.B. Fuller Company (FUL), and Unifirst Corporation (UNF).
Thursday, June 29
U.S. GDP Growth Rate – Final Reading (Q1 2023)
Prospective Home Sales (May)
Earnings
Nike (NKE), Paychex Inc. (PAYX), McCormick & Company (MKC), and Acuity Brands Inc. (AYI)
Friday, June 30
Individual Income and Expenditures (May)
Index of Prices for Personal Consumption Expenditures (PCE) (May)
Index of Purchasing Managers in Chicago (PMI) for May
Final (June) University of Michigan Consumer Sentiment Index
Euro Area Inflation Rate – Flash Estimate (Jun)
May Unemployment Rate in the Euro Area
Earnings
Constellation Brands Inc. (STZ)