Markets Await Inflation Numbers...And The Fed
Equities barely held on to gains made early in the week last week. Fed speakers last week doused water on hopes the Fed would pivot soon. Overall, economic data was positive last week.
The U.S. consumer remains resilient in light of higher inflation and higher interest rates. Redbook Sales year-over-year were strong last week. Total Vehicle sales were higher than expected last week, and have increased 3 of the last 4 months. The Jobs Report also showed that the current recession is not like previous recessions. Employers added more than 200,000 jobs in September, which was more than expected and certainly not indicative of a deep recession. In fact, the Unemployment Rate fell back to 3.5% in September after inching up the previous month. The Services and Manufacturing PMIs were improved month-over-month, and while Job Openings did decline, there are still more open jobs than those on unemployment insurance.
It wasn't all rosy in terms of economic data. Construction Spending was down in September, which is no surprise given the cooling in the Housing Market.
Factory Orders were improved over July's report, but still flat for the month of August. The biggest threat to the economy at this point is the Federal Reserve. There are more Fed speakers this week, both before and after some of the inflation numbers from September are released. In addition, the minutes from last month's Fed Meeting will be released on Wednesday of this week. Right now, markets are still pricing in a 75 basis point rate hike in November. If the inflation numbers show a 3rd consecutive month of year-over-year declines, the market will be looking for dovish Fed comments. If the minutes from last month's meeting contrast with lower September inflation and slightly dovish comments from Fed speakers this week, markets may trade choppy.
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