Inflation is the big challenge for the markets and the Fed in the coming week – fr

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Inflation is the big challenge for the markets and the Fed in the coming week – fr


Traders on the floor of the New York Stock Exchange.
Source: NYSE
After the disappointing April jobs report, the market’s attention will shift squarely to inflation in the coming week.
The standoff over tech stocks will also continue to be a dominant force in the stock market, after Friday’s rebound more than halved the week’s losses in the S&P tech sector.

The April jobs report was extremely disappointing with just 266,000 jobs created, well below the expected million. Friday’s report cast doubt on some investors’ expectations that the Fed will cut its purchases of so-called quantitative easing bonds later this year.

The idea is that if inflation data looks warm when the Consumer Price Index is released on Wednesday, it could ignite the debate over whether the Fed will need to tighten policy sooner than it does. would like. For now, the market views April’s jobs data as a single distorted report.
“It all depends on the inflation numbers. It’s all about the transitional nature and the extent to which we see it, ”said Peter Boockvar, chief investment officer at Bleakley Advisory Group. “It is more relevant for changes in the CPI from month to month. If month-to-month gains start to accelerate, and we see between 0.3% and 0.4%, it’s not transient and it’s a problem for the Fed. “

Economists expect the CPI for April to rise 0.2% from March, after gaining 0.6% the month before. But on a year-over-year basis, the CPI should look scorching, jumping 3.6%, according to Dow Jones. This compares to 2.6% the month earlier. Excluding food and fuel, the CPI is expected to rise 0.3% month over month.

The central bank has argued that the inflation pop should be transient.

Several Fed speakers are on the calendar, including Vice President Richard Clarida, who speaks half an hour after the CPI was printed on Wednesday. Federal Reserve Governor Lael Brainard, New York President John Williams and Dallas Fed Chairman Rob Kaplan also spoke.

The Producer Price Index is released on Thursday, and that should confirm an upward price trend that is showing up in corporate earnings publications. Another important data point, retail sales are released on Friday.

Boockvar said the retail sales report was not as important as it had been artificially boosted by one-off stimulus checks.

“It’s like the era of baseball steroids,” he says. “Who knows how many home runs he would have hit without stimulus. »

Technological battlefield

The S&P 500 and the Dow ended last week with gains. The S&P rose 1.2% to 4,232 and 2.7% to 34,777. But the technology-laden Nasdaq fell about 1.5% to 13,752, even with a gain of 0.9 % of Friday.
In the commodities market, inflation fears continued to grow.

Copper futures are at an all time high, as are lumber futures, up 13% last week. Corn futures rose 8.6% last week, ending at the highest level since 2013.

West Texas Intermediate crude futures gained 2% to $ 64.90 a barrel.

The yield on the 10-year notes, which moves opposite to price, was 1.55%, down from 1.63% a week ago.

Commodities fueled equity market gains this week, with the S&P energy sector outperforming by far, rising 8.9%. Materials rose 5.9%, followed by financials, which rose 4.2%. Industrial products advanced 3.4%. But the S&P tech sector fell 0.5%, for the same week with a gain of 0.8% on Friday.

“I think one thing people forget is that the tech sell-off that we’ve seen the last few days… isn’t just the reaction to the adverse earnings pricing reactions we’ve seen from certain names. technology, ”said Julian Emanuel, Chief Equities and Derivatives Strategist at BTIG.

“But that’s also the idea in a world where we assume that capital gains taxes could go up, that’s where the capital gains are,” he added. “So they’re likely to come under more and more pressure on that base. “

President Joe Biden has proposed to increase capital gains taxes to 39.6% for taxpayers earning more than $ 1 million. This is up from the current maximum rate of 20%.

Emanuel said the next federal tax filing date, May 17, could also increase pressure on technology, as investors could sell winners to pay their taxes.

“With the tax bill due May 17 for the 2020 calendar year, people are just going to use it as an excuse in the context of rising capital gains taxes to sell these stocks in order to pay their bill. tax, ”Emanuel said. “I think people overlook this as part of the reason. “

Boockvar said tech names could also face new headwinds from higher interest rates, particularly if inflation data is warmer than expected.

“I think the last couple of weeks tells you that the foam is coming out of the more expensive part of the tech and that large cap earnings are as good as they can get in terms of growth rates. The market tells you, ”he said. . “If you get another change in rates, it’s a headwind. “

The earnings season continues into the coming week, although most of the rush for the quarter is over. Disney, Marriott, Wynn Resorts, Airbnb are among the companies that should give an overview of the economic reopening.

Calendar for the upcoming week

Monday

Gains: Marriott, BioNTech, Jacobs Engineering, Simon Property Group, International Flavors and Fragrances, Wynn Resorts, SmileDirectClub, Duke Energy, Air Products, Tyson Foods, Party City, Energizer, Coty

Mardi

Gains: Arts électroniques, Chesapeake Energy, Hanesbrands, Aramark, International Game Technology, Palantir Technologies, Perrigo, Unity Software, Opendoor Technologies, Kinross Gold, Lemonade, Vizio

6:00 am NFIB survey

10h00 JOLTS

10:30 a.m. John Williams, President of the New York Fed

12:00 p.m. Fed Governor Lael Brainard

1:00 p.m. Mary Daly, President of the San Francisco Fed

1:15 p.m. Raphael Bostic, President of the Atlanta Fed

2:00 p.m .: Patrick Harker, president of the Philadelphia Fed

Wednesday

Gains: Toyota, Wendy’s, Fossil, Bumble, Allianz, Jack in the Box, Vroom, SoftBank, Sonos, Bayer, 1Life Healthcare

8h30 CPI

9:00 a.m. Vice-President of the Fed, Richard Clarida

14h00 Budget de la Fed

13h00 Bostic de la Fed d’Atlanta

1:30 p.m. Philadelphia Fed Harker

Thursday

Gains: Walt Disney, Airbnb, Plantronics, Burberry, Casper Sleep, Brookfield Asset Management, Door Dash, Petrobras, Aurora Cannabis, Alibaba

8:30 a.m. Initial jobless claims

8h30 PPI

1:00 p.m .: Christopher Waller, Fed Governor

4 p.m. James Bullard, President of the Saint-Louis Fed

Friday

Gains: Honda, Rosneft

8:30 am Retail sales

8:30 am Import price

9:15 am Industrial production

10:00 a.m. Consumer sentiment

10:00 a.m. Business inventory

1:00 p.m .: Robert Kaplan, president of the Dallas Fed

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