US equity investors are turning their attention to inflation this week, assessing the potential for monetary policy easing in the upcoming year while closely observing quarterly earnings from major technology companies. Investors will keep a close eye on the price data set to be released on Wednesday, following last week's nonfarm payrolls report, which revealed that the US economy added more jobs than anticipated in November, with the unemployment rate slightly increasing to 4.2%.
The consumer price index is likely to play a significant role in determining the Federal Reserve's pricing strategies, though Scotiabank notes that a 'high bar' has been established to disrupt markets, as they have already factored in much of a quarter-point reduction. Scotiabank projects that November's headline and core Consumer Price Index (CPI) readings will rise by 0.3% month-over-month, leading to a year-over-year increase of 2.7% for the headline and 3.3% for the core.
Following the strong payrolls report, 'if the inflation estimates are accurate, it could at the very least spark some dissenting opinions at the upcoming meeting,' according to the Scotiabank note. This reading could serve as one of the last substantial indicators that will shape the Fed's Summary of Economic Projections scheduled for release soon.
Fed Chair Jerome Powell emphasized last week that policymakers can proceed cautiously regarding monetary policy easing, given the robust state of the US economy. The Fed is currently in a blackout phase leading up to its policy decision on December 18. Early Monday morning data reflected an increased likelihood of a 25 basis-point interest rate cut, which surged to 87%, up from 62% a week prior, as indicated by the FedWatch Tool.
However, expectations for December next year suggest that the Fed's target rate may only dip to between 3.75% and 4%, indicating limited cuts from the existing rate. This week will also see earnings reports from key players such as Oracle, Adobe, Costco, and Broadcom, while last week's performance from heavyweights like Tesla, Meta Platforms, Amazon.com, and Microsoft contributed to the S&P 500 and Nasdaq Composite seeing gains for the third consecutive week..