This week, U.S. equity market participants are laser-focused on crucial economic metrics, particularly consumer and wholesale price inflation data, which will play a pivotal role in evaluating the potential for upcoming interest rate adjustments in September. The eagerly anticipated August Consumer Price Index (CPI) and Wholesale Price Index (WPI) figures are scheduled for release on Wednesday and Thursday, respectively.
According to insights provided by Scotiabank, these readings are expected to be the last 'major' dual mandate indicators prior to the Federal Open Market Committee's (FOMC) policy announcement and updated economic forecasts on September 18. Most analysts anticipate a seasonally adjusted month-over-month increase of 0.2% for both headline and core inflation, which could lead to a moderation in year-over-year rates—projecting a decline in the headline CPI from 2.9% to 2.6% while keeping core inflation steady at 3.2%.
Scotiabank's report noted, 'Upside risk could come from a possible further rebound in core service price inflation,' reminding investors that volatility remains a distinct possibility. Furthermore, the economic readings released this week are not expected to substantially shift the likelihood of the FOMC opting for a 50 basis-point rate cut as opposed to a more conservative 25 basis-point decrease, as highlighted by Derek Holt, the head of capital markets economics at Scotiabank.
He mentioned in his analysis: 'The FOMC has largely pre-committed to a cut, but the sentiment reflected in Fed communications, the absence of market disruptions, and prevailing data trends support our expectation for a quarter-point reduction.' As of early Monday, the likelihood of a 25 basis-point cut scheduled for September 18 was sitting at around 75%, as indicated by the CME Group's FedWatch Tool, while the remaining 25% represents the possibility of a more aggressive 50 basis-point decrease. In addition to inflation figures, traders are keeping a keen eye on the fluctuations of the CBOE's Volatility Index (VIX), commonly referred to as the fear index.
At the close of trading on Friday, the VIX was hovering around 22, reflecting a sharp rise from approximately 15 by the end of the previous week; however, it experienced a 6.6% dip by early Monday. Bond market participants are also monitoring Treasury yields, especially as both the 10-year and 2-year yields touched 52-week lows on Friday, a direct consequence of relatively disappointing job data. Meanwhile, in the tech sector, Apple Inc.
(AAPL) is set to kick off its highly anticipated annual iPhone event on Monday, a highlight that typically garners substantial investor interest. Additionally, this week marks the release of quarterly earnings reports from key industry players, including Oracle Corporation (ORCL), Adobe Inc. (ADBE), and The Kroger Co.
(KR). These financial disclosures are poised to provide further insight into sector performance in the current economic climate, potentially impacting stock prices and market momentum in the days ahead..