(Monday Pre-Market) This coming week is packed with important economic data, meetings of the U.S. Fed and the Bank of Japan, and a quadruple witching, giving investors plenty to digest in the days to come. Economists don’t expect the Fed to make any interest rate moves.
The Fed meeting takes central stage at mid-week, but even before that, investors get a read on the U.S. economy, with February retail sales and PPI due out before the market open on Tuesday. Retail sales can often give investors insight into the health of the U.S. consumer, so that report looms large. January’s retail sales report showed a larger-than-expected jump of 0.2%.
On Wednesday morning, it’s CPI and housing starts before the open. Both PPI and CPI are important measures of inflation, and give the Fed more data points as it assesses the state of the economy. The most recent reading on core inflation (excluding food and energy) as measured by the personal consumption expenditures index was 1.7%, near the Fed's 2% target.
Last week, two Fed speakers addressed inflation in separate remarks. Fed Vice Chairman Stanley Fischer said, “We may well at present be seeing the first stirrings of an increase in the inflation rate—something that we would like to happen.” Lael Brainard, a member of the Fed’s Board of Governors, said she expects inflation to move toward 2%, but also said the Fed “should put a high premium on clear evidence that inflation is moving toward our 2% target.” She added, “Given weak and decelerating foreign demand, it is critical to carefully protect and preserve the progress we have made here at home through prudent adjustments to the policy path.” Some analysts told the media they interpreted Brainard’s remarks as somewhat dovish.
Fischer’s and Brainard’s comments followed the February U.S. jobs report, which came in higher than consensus estimates at 242,000 new jobs. The unemployment rate was steady at 4.9%.
All that sets up the Fed’s meeting, which comes after the European Central Bank (ECB) increased stimulus last week. The Fed raised rates in December for the first time in nearly a decade, and at that time signaled there would be further increases in 2016. Futures markets indicate more chance of an increase later this year, even as soon as the Fed’s June meeting, but not likely this week. Though Fischer’s remarks about “stirrings of inflation” are one side of the coin, the other side is that global economies remain relatively weak, with the ECB’s decision to lower rates last week a sign that officials hope to stimulate better economic growth in the region. China also delivered weak trade data recently, and the Bank of Japan, which instituted negative rates earlier this year, meets this week as well, with officials there caught between public concern about how negative rates affect the economy and calls by government officials to lower rates even further.
The Fed meets on Tuesday and Wednesday, and is scheduled to issue its statement at 2 p.m. ET Wednesday. The question is whether the Fed at that time gives investors any clear reading of its thoughts on possible future rate increases and their timing.
Witching Hour Ahead Friday: On Friday, it’s quadruple witching, which happens when three related classes of options and futures contracts expire, along with the individual stock futures options. Typically, there’s a little more volatility in the market ahead of quadruple-witching days. The CBOE’s Volatility Index (VIX), which rose above 19 during Thursday’s turbulent trading day, fell on Friday and was trading under 17 by midday. Looking back a little farther, the VIX is well below its high of near 30 in mid-February.
Market Update Webcast
Join JJ Kinahan and Craig Laffman of TD Ameritrade today at 4:15 p.m. ET as they review recent market activity and discuss what to look for in this week's Fed announcement.