Market’s will be focused on FOMC this week

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Published Date 7/24/2023

The Fed has essentially guaranteed a 25 bp increase on Wednesday. The issue is what comes out of Powell’s press conference. The question getting more attention now is, will the Fed have to tolerate an inflation level that is higher than the 2.0%. The Fed can’t push inflation down to 2.0% without creating economic suffering. At 4.8% now based on June core CPI. Rising hopes of a soft landing for the US economy likely hinge on the Federal Reserve’s willingness to tolerate inflation markedly higher than it would prefer.

On Thursday, the European Central Bank will deliver its decision. Another increase in borrowing costs is expected, but the ECB’s aggressiveness might be tempered by reports released today that showed economic activity in the Eurozone slumped to an eight-month low in July. The Financial Times reports that economists think the ECB could accelerate its quantitative tightening efforts alongside raising interest rates. The Eurozone composite PMI index fell to an eight-month low of 48.9 in July, from a downwardly revised 49.9 in June, (the WSJ estimate was 49.7). The Bank of Japan on Friday might leave rates unchanged but could say something about removing elements of its ultra-loose policy, such as buying bonds to suppress yields.

At 9:30 am the DJIA opened +83, NASDAQ +59, S&P +17. 10 year 3.82% -2 bps. FNMA 6.0 30 year coupon at 9:30 am +6 bps and +3 bps from 9:30 am Friday. The gains were quickly erased; FNMA 6.0 coupon at 9:45 am -14 bps and down 20 bps from 9:30 am Friday.

At 9:45 am the PMI composite flash index; the composite at 52.0; manufacturing 49.0 and services 52.4.

This Week’s Economic Calendar:

Monday the Chicago Fed National Activity Index expected +0.3 dropped to -0.32. The July Flash PMI, manufacturing expected at 46.0, services at 54.0, (as reported manufacturing 49.0, services 52.4). At 1 pm $42B 2 year note auction.

Tuesday May Case/Shiller home price index expected +0.8%, Conference Board’s consumer confidence index expected 111.8 from 109.7 in June, Treasury will auction $43B of 5 year notes.

Wednesday June new home sales (727K from 763K), FOMC and Powell at 2 pm.

Thursday weekly jobless claims (235K from 228K), June durable goods orders (+0.5% from +1.8%, ex transportation -01% from +0.6%, core goods -0.1% from +0.7%). Advance Q2 GDP +1.5% from +2.0% in Q1, June US trade deficit (-$91.8B). June pending home sales (+0.3% after declining 2.7% in May. Treasury will sell $35b of 7 year notes.

Friday inflation data; (month/month PCE +0.2% from +0.1% in May, year/year +3.0% from 3.8%; core PCE month/month +0.2% from +0.3%, year/year 4.2% from 4.6%). Q2 employment cost index 9+1.1% from +1.2% in Q1). The U. of Michigan final consumer sentiment index (72.6 unch from mid-month).

Source: TBWS

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