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Summary
- The latest consumer and producers price index figures will be out this week.
- The Federal Reserve might announce a timeline for tapering monetary stimulus.
- The robust July jobs report released on August 6 will play a role in Fed’s decision.
Investors’ focus has turned towards inflation as two primary inflation reports, Consumer Price Index (CPI) and Producers Price Index (PPI), will be released this week. CPI will be out on August 11, while PPI on the next day.
The federal government generally considers the CPI and PPI figures and the job market before making major economic decisions. For example, the July jobs report was out on August 6, which showed that nonfarm payrolls rose to 943000 in the month from 938,000 in June.
Source: Pixabay.
What can investors expect from inflation data?
Investors would be interested to know when and how much the central bank would withdraw the stimulus programs. They also include the monthly purchase of treasury bonds and mortgage-backed stocks worth US$120 billion.
The Fed aims at keeping inflation below two percent. The bank had said that June’s sharp spike in consumer inflation to 5.4 percent was temporary. However, experts in a recent poll projected that inflation could go up further.
Also read: How hospitality sector desires to overcome ‘Pingdemic’ hurdles
How are July Job reports seen?
The Fed might announce whether it will begin tapering bond purchases from September or at the end of the year. A reduction in bond buying would eventually lead to an interest rate hike. The Federal Reserve’s current near-zero interest rates helped maintain adequate liquidity, which helped the markets bounce back from the depths of pandemic slowdown.
Fed might also consider the latest jobless claims figures. However, the increasing cases of the delta variant of Covid-19 might spoil the progress.
Expected comments from Fed officials
Investors will be keen on listening to what fed officials comment during the release of these reports. Their comments would give clues or clarity over the bank’s next move on its stimulus policy, although the action will happen later. Experts say the tapering process will be slow and could run for a year or more.
Fed Governor Lael Brainard and Chicago Fed President Charles Evans are among the top officials expected to talk during the release of CPI and PPI data.
How will the bond market respond?
The bond market will be affected in case inflation goes up further. For example, the 10-year Treasury yield went up by 1.29 percent on August 6 after hitting a low of 1.13% mid-week after reports that Fed might cut back stimulus.
The bank’s bond purchase has been continuing as part of the pandemic relief. As a result, the yield has been rising and might go further up on the back of optimism from solid jobs growth, say experts. They predict the yields could rise in the range of 1.20%-1.40%.
Strong market momentum on economic outlook
The stock markets have been witnessing strong momentum for some time now. The S&P 500 and the Dow Jones had reached a new closing high on August 6. The S&P 500 jumped 0.9 percent to 4436, while the Dow Jones soared 0.8 percent to 35,208 on August 6. The Nasdaq Composite went up by 1.1 percent to 14,835. Market watchers believe they continue to see positive momentum this week.
Meanwhile, the earnings season is almost coming to an end. Of the 427 S&P 500 companies reported so far, 87.6 percent have reported better than expected earnings. It is a positive sign as far as the market recovery is concerned. In the coming days, companies like Airbnb (Nasdaq:ABNB), eBay (Nasdaq:EBAY) etc., were expected to report their quarterly earnings.
Please note: The above constitutes a preliminary view, and any interest in stocks/cryptocurrencies should be evaluated further from an investment point of view.
