Wednesday, June 15, 2022
In the middle of the last month of the second calendar quarter, we await the Fed’s latest decision on monetary policy, to be released today at 2 pm ET. Until just a couple of days ago, it was a fact that the result would be a 50 basis point (bp) increase in the Fed funds rate, which has already been raised 75 bp (from 0.00% to 0.25 %) since the beginning of March. .
But it leaked to The Wall Street Journal this week is a story showing a Fed willing to consider a 75bp hike instead. The Fed itself is in a blackout period, so it was not officially available to adjust expectations for the last week and a half. Within that closed window, the year-over-year CPI came in at +8.6% at the end of last week. This scared the markets a lot, and it may have scared the Fed too.
In any case, despite Fed Chairman Jay Powell’s claim to the contrary after last month’s meeting, it looks like 75 bps could be what the Fed decides today. Additionally, the Fed’s program to dry up the awash balance sheet by $30bn per month through September, when it doubles, will also get an update in today’s release.
In short, the Fed has the world on its shoulders today. And what keeps the decisions so mysterious is that it is difficult to predict the market’s reaction to any of the possible decisions made this afternoon. It’s not that the Fed has an obligation to keep the stock market healthy, it doesn’t. But if monetary policy comes out as previously expected with a 50bp hike, does this give markets a sigh of relief…or a sign of weakness from the Fed?
Fortunately, we have answers to several questions this morning, and they come in the form of retail sales, import/export prices, and the Empire State Manufacturing Survey. Each of these came out lower than expected, but only retail sales were down from the previous month’s levels:
retail sales for May it reached only -0.3%, after a downward adjusted +0.7% the previous month and below the +0.1% expected by the analyst consensus. Excluding vehicle sales, this figure jumps to +0.5%, just 10 bps below expectations. Excluding autos and gasoline, we see +0.1%, which may come as a surprise with how gasoline prices have dictated retail sales of late. The Control number arrived unchanged, down +1% from last time.
If we subtract last month’s gasoline sales, Retail Sales sink to -0.7%. This goes to show how prices at gas stations have spiked for consumers in recent times, and the May printout doesn’t even include $5 worth of gas nationally, meaning more trouble ahead regarding retail sales in the coming season. publication. Motor vehicles illustrate continued supply problems, -3.5% last month.
the Import Price Index for May it came to +0.6%, below the +1.0% expected but above the 0.0% for April. Ex-gasoline, this drops to -0.1%, although year-over-year in the headline it remains very high: +11.7%. This is not exactly where we were in March, +13%, but that impression represented a 10-year high.
Exports more than double last month’s forecast: +2.8% vs. +1.3% expected. Once again, we are off the March highs of +4.1%, but that reading was an all-time high dating back to the beginning of these metrics in 1984. Year over year, exports came in at a whopping +18 .9%, which in itself sets a new all-time high. Looking for an illustration that inflation is a global problem? Look no further.
Empire State Manufacturing for June another negative headline appeared this morning: -1.2 vs expectations of 0.0. This has been a tough year for manufacturing in the fourth most populous US state, posting negative results in four of the first six months. However, today’s headline is much improved from -11.6 in May and -11.8 in March, and a strong rebound in April sees the Empire State’s year-to-date productivity remain in positive territory. in mid-2022.
All that said, premarkets have not budged from their moderately higher futures prior to any of these reports. This strongly suggests that we remain in a holding pattern ahead of today’s Fed news. At that time, who knows? Right now the Dow is at +260 points, the S&P 500 is at +40 and the Nasdaq is at +150 points.
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