In the upcoming week, the US market will be closely watching the release of September’s Consumer Price Index (CPI) report and the Federal Open Market Committee (FOMC) Meeting Minutes, both of which are expected to provide crucial guidance on the future direction of interest rates.
This week also marks the beginning of the third quarter (3Q) 2024 earnings season, with major US banks such as JPMorgan Chase (NYSE:JPM) and Wells Fargo (NYSE:WFC) leading the way. Other notable companies reporting earnings include PepsiCo (NYSE: PEP), Delta Air Lines (NASDAQ: DAL), and Domino’s Pizza (NYSE: DPZ).
In addition to the CPI report, several other important data releases are scheduled. These include the September Producer Price Index (PPI) and the preliminary consumer sentiment report for October from the University of Michigan. The US August Trade Balance, Consumer Credit Change for August, and Wholesale Inventories for August will also be released.
Anticipated CPI Report and Fed Rate Cut Prospects
The CPI report is the most anticipated economic release of the week. Consensus expectations are for overall inflation to increase by 2.3% year-on-year (YoY) and 0.1% month-on-month (MoM) in September.
In August 2024, US core CPI, rose by 0.3% from the previous month, slightly above forecasts of a 0.2% increase. The annual core CPI rate stood at a three-year low of 3.2% in August, matching July’s figure and aligning with market expectations.
The overall CPI in the US edged up 0.2% MoM in August, the same as in July, and in line with expectations. The annual inflation rate slowed for the fifth consecutive month to 2.5% in August, the lowest since February 2021, down from 2.9% in July and below forecasts of 2.6%.
Last week’s stronger-than-expected US jobs report eased fears of an economic slowdown, boosting confidence that the Fed can achieve a ‘soft landing’. However, the report also tempered hopes for a large interest rate cut at the Fed’s November 6-7 meeting, with traders now expecting a smaller 25 basis points (bps) cut instead of 50 bps.
The Fed cut the target range for the federal funds rate by a substantial 50 bps to 4.75%-5% in September 2024, marking the first reduction in borrowing costs since March 2020.
Investor Sentiment and Market Volatility
Investors should stay informed as they look for fresh market catalysts in the week ahead. Caution remains due to the upcoming US presidential election and heightened tensions in the Middle East. Oil prices have been a clear beneficiary of the conflict, with geopolitical risk premiums increasing on expectations of potential supply disruptions in the region.
According to CGS International’s technical view, the S&P 500 Volatility Index (VIX) spiked last week due to escalating Middle East tensions, moving into the “worry zone” above 20.00. Although the VIX pulled back below 20.00 by the end of the week, the move into the “worry zone” is a troubling sign for the S&P 500, especially in a seasonally weak October. This indicates that the market remains watchful of developments in the Middle East.
Disclaimer: ProsperUs Manager of Content Hailey Chung doesn’t own shares of any mentioned companies.
