Weekly | FED: Anchoring Inflation Expectations
Your weekly summary with the most important news for your investments
Your weekly summary with the most important news for your investments:
Performance of stock indexes.
Highlights of the week.
Economic outlook and future events that you could take into account for your investments.
In a week with very low trading volume, due to the long weekend in the United States, the main stock indexes continued to rise:
With the Dow returning year-to-date +6.8%.
The S&P 500 up +18.7%.
The tech-heavy Nasdaq climbing +36.2%.
In a month where expectations of more rate hikes by the Federal Reserve (FED) were waning accompanied by lower inflationary pressures as the price of oil, as measured by WTI, eased towards US$75 a barrel. Despite this the Fed continued to express high inflation concerns through its minutes released last Wednesday, a topic we will address in more detail below.
In between:
Nvidia's share price gave way, a company at the center of Artificial Intelligence (AI)-focused microprocessor development, as it announced that development to meet export requirements to China would be delayed, this to comply with changing requirements set by the U.S. government.
The saga of Sam Altman as CEO of OpenAI had several edges as Microsoft chose to step in and take care of the US$10 billion investment it managed for almost half of the company's ownership. Altman was once again appointed as CEO of the company and the board, with whom he had major differences and removed him from the position, was quickly reconfigured to keep the company under Altman's management.
And a story that received little coverage through different media outlets, was the nearly US$4 billion fine suffered by Binance.com in the United States, the largest crypto exchange platform worldwide, and the criminal conviction of its CEO, Changpeng Zhao, as a result of the failure to implement oversight mechanisms for money laundering. It is estimated that Zhao will end up incarcerated for at least 18 months in an environment where the Bitcoin cryptocurrency climbed above US$37 thousand.
This week, with the quarterly earnings season having formally come to an end, the focus will be on PCE inflation data, the Fed's preferred inflation reading, to be released on Thursday. For now, headline PCE inflation is expected to close at 3.1% (from 3.4%) while the core reading, which excludes food and energy prices, is expected to close at 3.5% (from 3.7%). In addition, Fed Chairman Jerome Powell will be speaking at a conference on Friday, December 1, where he is expected to reiterate his anti-inflationary stance if Thursday's data comes in above market estimates. On the corporate front, Foot Locker, Kroger, Salesforce and Snowflake among others will be reporting in an environment where pre-Christmas weekend sales expanded +2.5% year-over-year. At the same time, headlines will continue to focus on the hostage handover between Israel and Hamas in exchange for a transitional period of peace in the Gaza Strip. This has allowed humanitarian aid to enter during the weekend from Egypt, however, only a misunderstanding between the parties will be enough for the warlike interaction to take root again. Meanwhile, in Argentina, the president-elect, Javier Milei, continues to form his cabinet to take control of the government on December 10.
With U.S. inflation data already easing, the market consensus, with almost 100% probability, is that the FED will leave the monetary instance rate at 5.5% at its next monetary policy meeting on December 12 and 13. The Beige Book will be published this Wednesday, which will give us, two weeks in advance, a glimpse of the country's economic activity as we enter the final stretch of the year. However, in the minutes of its last monetary policy meeting, the issuing institute was extremely cautious in anchoring long-term inflation expectations at 2% by mentioning the following:
"Participants felt that the current stance of monetary policy was tight and was putting downward pressure on economic activity and inflation. In addition, they noted that financial conditions had tightened significantly in recent months. Participants noted that inflation had moderated over the past year, but emphasized that current inflation remained unacceptably high and well above the Committee's 2 percent long-term objective. They also stressed that additional evidence would be required for them to have confidence that inflation was clearly on track to meet the Committee's 2 percent objective. Participants continued to believe that a period of below-potential real GDP growth and some additional weakening in labor market conditions would be needed to reduce inflationary pressures sufficiently to bring inflation back to 2 percent over time."
Thus, Powell can be expected to continue to manage verbal interventions aligned with the stance presented by the Committee last Wednesday to avoid misunderstandings. Even so, market participants are already starting to work with a potential interest rate cut at the March 2024 policy meeting on the understanding that inflation would ease toward 2.5 percent, something with which the central bank could justify a change in its discourse. However, the expectation of market agents is that inflation continues to be an intrinsic problem of the economy and that it will not yield to 4.5% in the next 12 months, according to the University of Michigan survey.
In conclusion, in a week in which there will be little corporate news, it is expected that the FED, through the Beige Book and Powell's subsequent intervention, will play a central role as we close the month of November, which brought extraordinary returns.
This Week
Monday (November 27)
Quarterly Reports
Zscaler, Inc.
Korea Electric Power Corporation
KT Corporation
National Steel Company
Seadrill Limited
Economic Reports
Dallas Fed Manufacturing Index Report
Home Sales Report
Home Sales Monthly Change Report
Tuesday (November 28)
Quarterly Reports
BHP Group Limited
Intuit Inc.
PDD Holdings Inc.
Workday, Inc.
Hewlett Packard Enterprise Company
Economic Reports
Red Book Annual Change Release
S&P/Case-Shiller Home Price Index Monthly Change Report
S&P/Case-Shiller Home Price Index Annual Change Report
Richmond Dallas Manufacturing Index Report
Speech by Fed Governor Michelle Bowman
Speech by Fed Governor Christopher Waller
Speech by Fed Board Vice Chairman for Oversight Michael Barr
Wednesday (November 29)
Quarterly Reports
Salesforce, Inc.
Dollar Tree, Inc.
Hormel Foods Corporation
Okta, Inc.
Pure Storage, Inc.
Economic Reports
Gross Domestic Product Quarterly Change Report
Gross Domestic Product Price Index Quarterly Change Report
Balance of Trade Report
Wholesale Inventories Report
Thursday (November 30)
Quarterly Reports
Royal Bank Of Canada
Toronto Dominion Bank (The)
Dell Technologies Inc.
Marvell Technology, Inc.
Canadian Imperial Bank of Commerce
Economic Reports
Personal Consumption Expenditures Price Index Monthly Change Report
Personal Income Monthly Change Report
Personal Spending Monthly Change Report
Friday (December 01)
Quarterly Reports
Genesco Inc.
Nutriband Inc.
Economic Reports
ISM Manufacturing Report
Speech by Fed Chairman Jerome Powell
Now you have more information about your investments. See you next week with more news.
*This is an illustrative example and does not represent an investment recommendation.