This week, the focus of US markets shifts back to inflation, with investors anticipating potential rate cuts sooner rather than later. Last week, Wall Street saw a temporary halt as Federal Reserve Chair Jay Powell hinted at the possibility of rate cuts in the coming months.
Powell’s remarks, while not confirming any specific actions, underscored the Fed’s desire for milder inflation data to justify such measures. The upcoming release of the US Consumer Price Index (CPI) for February holds particular significance, especially after January’s figures exceeded expectations.
Analysts anticipate that another high CPI reading for February could dampen market sentiment, as it may undermine hopes for rate cuts in the near term. Additionally, the Producer Price Index (PPI) for February, along with key indicators such as retail sales, will heavily influence market movements throughout the week.
According to AMP Chief Economist Shane Oliver, expectations for the CPI suggest a modest rise of 0.4% from January, with annual inflation remaining unchanged at 3.1%. However, core inflation is anticipated to dip to an annual reading of 3.7% from 3.9%.
Economists caution that the ongoing impact of recalibrating house costs within the Shelter component of the CPI could slightly elevate the overall index. January’s increase in the shelter component had notably boosted both headline and core CPI figures, prompting a reaction in financial markets.
Moody’s economists anticipate a softening in the February data, projecting a moderation in both headline and core inflation readings. This forecast aligns with their expectation of inflation steadily moderating throughout the year.
In addition to inflation data, the US will also witness the release of industrial production data and manufacturing conditions survey results for the New York region later in the week.
Meanwhile, quarterly earnings reports from major tech firms such as Oracle and Adobe, alongside a lineup of retailers including Dollar General, Guess, and Target, are eagerly awaited. Notably, retailers have shown resilience in recent weeks, outperforming tech stocks amidst shifting market dynamics.
Shares in prominent retailers like Kroger, Target, and Burlington Stores surged last week, buoyed by better-than-expected sales and earnings figures, as well as improved margins. Conversely, tech stocks like Nvidia, Apple, and Tesla experienced mixed performance.
Looking ahead, analysts are optimistic about retail sales, citing favorable economic conditions including healthy job growth, low unemployment, and manageable debt burdens. In Australia, attention will also turn to key economic indicators such as the monthly business survey from the National Australia Bank and the latest consumer confidence survey from Westpac.
Additionally, the public debut of RBA Chief Economist Sarah Hunter in a discussion panel marks a significant event ahead of the second RBA board meeting of the year next week. Hunter’s insights will likely provide valuable context for understanding Australia’s economic outlook amidst global market trends.