Fed in Focus This Week After Roller Coaster for Markets
With earnings season basically wrapped up for markets, investor focus next week turns to the Fed announcement on Wednesday and geopolitics.
Market expectations for next week are heavily focused on the highly anticipated Federal Reserve interest rate decision Wednesday and the G7 Summit in France (Monday-Wednesday), both serving as critical barometers for global inflation, monetary policy, trade and geopolitics.
What will the Federal Reserve Do?
Markets are pricing in a near-100% probability that the Federal Reserve will hold interest rates steady at its upcoming meeting. However, the spotlight will fall squarely on new Fed Chair Kevin Warsh and his first press conference. Earlier in the year, traders were pricing in multiple rate cuts, but a combination of resilient macroeconomic fundamentals and energy price spikes forced a massive recalibration. Investors will scrutinize the Fed's dot plot and policy statements to gauge if a rate hike is in the cards.
The CPI and PPI inflation data last week reflect rising costs and make the new Fed Chair’s commentary important for markets. The headline year-over-year CPI came in at 4.2%, which is far above the Fed’s 2% mandate. A 6% slide in oil prices last week may help future inflation data, but costs are still elevated. Expectations for a rate cut have gone away for the year and the CME FedWatch Tool is pricing in a more than 50% chance of a rate hike into the December meeting.
Geopolitics: The Roller Coaster for Stocks, Energy
Geopolitical news continues to dictate the pace of equity and commodity markets. The equity market was a roller coaster last week but ended on a positive note after headlines skewed to a potential resolution to the conflict. Crude Oil prices fell sharply on the potential for a deal to end the conflict and the S&P 500, Nasdaq-100 and Dow Indexes all finished the week in positive territory.
On the domestic economic data front, next week features a slate of key economic reports, headlined by May's Retail Sales on Wednesday. Despite the ongoing inflation headwinds and pressure on the consumer, expectations are for an increase of 0.5% for May. Housing Starts and Permits, Pending Home Sales and ongoing regional manufacturing indexes (such as the Empire State and Philadelphia Fed surveys) are also due next week.
The Market Remains Near Record Highs
With this macroeconomic backdrop, the S&P 500 continues to hover near record highs. But market leadership remains intensely concentrated on artificial intelligence (AI) infrastructure and mega-cap tech. Positive geopolitical news may provide further optimism for risk-on assets, but any resolution to the conflict in the Middle East may need more time.
Investors will need to keep an eye on commentary from the Fed along with the ongoing geopolitical headlines next week.
Economic Calendar, June 15-19 (ET)
Monday, June 15
- 08:30 AM NY Empire State Manufacturing Index
- 09:15 AM Industrial Production
- 10:00 AM NAHB Housing Market Index
- 10:00 PM China industrial production
- 10:00 PM China retail sales
- 10:00 PM China unemployment rate
Tuesday, June 16
- FOMC meeting cycle begins
- 08:15 AM ADP Employment Change Weekly
- 08:30 AM Building Permits
- 08:30 AM Housing Starts
- 08:30 AM Export Prices
- 08:30 AM Import Prices
- 04:30 PM API Crude Oil Stock Change
Wednesday, June 17
- 07:00 AM MBA 30-Year Mortgage Rate, Applications
- 08:30 AM Retail Sales
- 10:00 AM Business Inventories
- 10:00 AM Pending Home Sales
- 10:30 AM EIA Crude Oil Stocks Change
- 10:30 AM EIA Gasoline Stocks Change
- 02:00 PM Fed Interest Rate Decision
- 02:00 PM FOMC Economic Projections
- 02:30 PM Fed Press Conference
Thursday, June 18
- 08:30 AM Initial Jobless Claims
- 08:30 AM Philadelphia Fed Manufacturing Index
- 04:00 PM Net Long-term U.S. Treasury International Capital (TIC) Flows
Friday, June 19
- U.S. stock and bond markets closed for Juneteenth
