Markets pulled back to start the week with the S&P 500 losing 0.91% Monday.
Investors await the Federal Reserve meeting on Wednesday where the central bank is expected to speed up its tapering of asset purchases in response to elevated levels of inflation. Roughly 20 central banks across the world are set to hold meetings this week with balancing economic recovery and holding inflation steady amid the pandemic of central concern. Meanwhile, earnings reports are relatively light this week with just a few notable firms set to report quarterly.
Inflation Remains in Focus
Concerns about inflation have been in the news since early in the recovery from the coronavirus pandemic as central banks enacted extremely aggressive monetary measures in combination with expansive fiscal stimulus packages from governments.
The latest metric to grab investors’ attention was the Consumer Price Index (CPI) which rose 6.8% over the past year, the highest increase since June 1982. The CPI report last Friday showed prices rising 0.8% in November versus estimates for a smaller 0.6% increase. The monthly rise was actually down from the previous month’s jump of 0.9%.
The Federal Reserve recently pulled back from its “transitory” inflation comments as supply-chain disruptions and other factors have led to continued high inflation. Meanwhile, core CPI has risen significantly less but still rose 0.5% last month and is 4.9% higher year-over-year.
The biggest driving factors of overall inflation in the CPI report come from motor fuel prices rising 6.1% each of the last two months while energy prices rose 4.8% and 3.5% in October and November respectively.
Many other areas of the economy experienced significant price increases as price pressures are broad based. The new data suggest that the Fed will announce a more aggressive tapering policy this week and a third rate hike may occur in 2022.
Key Data
Following the CPI report on Friday, investors will be keeping close attention to the Producer Price Index (PPI) on Tuesday this week. PPI is expected to rise 0.5% in November with a 0.4% increase in core PPI. The estimates are mostly in line with the previous month’s report of a 0.6% and 0.4% rise in PPI and core PPI respectively.
Other key data outside of inflation metrics this week include Retail Sales data for November which is expected to increase 1.0% after October’s 1.7% jump. Housing Starts and Building Permits data on Thursday are both expected to rise from October’s numbers with 1.57 million and 1.67 million expected in November respectively. Lastly, economists expect initial claims to rise slightly from a very low 184,000 claims to 195,000 claims. Despite an estimated small increase in claims, initial unemployment claims are now hovering decently below where they were before the pandemic of roughly 210,000-220,000 weekly claims.
Light Earnings
Earnings for this week are fairly light with just a few notable names set to report earnings such as FedEx (FDX), Accenture (ACN), Adobe (ADBE), and Rivian Automotive (RIVN) among others. Traders will be paying extra close attention to the Amazon (AMZN)-backed EV truck company Rivian with its first public earnings report.
Economic Events this Week
Tuesday
- 8:30 a.m. - PPI and Core PPI
Wednesday
- 8:30 a.m.- Retail Sales
- 10:30 a.m. - EIA Crude Oil Inventories
- 2:00 p.m.- FOMC Rate Decision
Thursday
- 8:30 a.m. - Housing Starts
- 8:30 a.m. - Building Permits
- 8:30 a.m. - Initial & Continuing Claims
Earnings Reports This Week
Wednesday:
Before the bell:
ABM, TTC, REVG
After the bell:
LEN, TCOM, NDSN, HEI
Thursday:
Before the bell:
ACN, JBL, ADBE, WOR
After the bell:
FDX, NX, RIVN, SCS
Friday:
Before the bell:
DRI, WGO
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