The Market Today

Data-Filled Week to Set Stage for June 14 FOMC Decision

by Craig Dismuke, Dudley Carter

This Week’s Calendar – Packed with Income, Spending, Manufacturing, Auto Sales, Construction, Confidence and Jobs: This week’s calendar is packed with data, beginning today.  April’s Personal Income and Spending reports were in the early releases and came in as-expected, both rising 0.4% MoM.  Both are positive reports, both out-pacing their 12-month trend rates.  Looking at the income side, tax and non-tax payments rose just 0.1% (0.3% 12M average rate) helping push disposable income up 0.4%.  Netting out the effect of inflation, real disposable income rose 0.20% MoM (0.16% MoM 12M average rate). On the spending side and adding the inflation effects, real personal spending rose 0.2%.  It is not a great start to the quarter for the consumer but the potential remains for an acceleration in May and June.  Given the solid earnings data, the savings rate held steady at 5.3%.  PCE inflation for April rose fractionally more than expected, up 0.2% MoM.  However, the growth in prices was not enough to keep the YoY rate from dropping from 1.6% to 1.5%.  The more core PCE moves away from 2.0%, the louder the doves will become who are concerned about the Fed not defending its inflation target.


At 8:00 a.m., the S&P CoreLogic Home Price index is expected to show home prices gains slowing from 5.85% YoY to 5.70%.  At 9:00 a.m. CT, the Conference Board’s report on consumer confidence is scheduled to be released, expected to show a slight pull back in very high levels of confidence.


The data does not slow down as the week progresses.  Thursday will bring the May ISM manufacturing report, April construction spending data, and May vehicle sales report.  Three big reports covering major categories of the economy.  Before those reports are released, the ADP Employment report will give the market’s the first estimate of May payroll growth.  On Friday, the BLS’s payroll data will be released and is expected to show nonfarm payrolls up 185k, the unemployment rate holding at 4.4%, and average hourly earnings picking up from 2.5% to 2.6% YoY.  By the end of this week, the markets will have a good idea of just how strong several sectors of the economy are as we near the June 13-14 meeting.


Overnight Activity – Draghi’s Policy Comments Pull the Euro, Banks Stocks Lower: Stocks in Europe moved lower overnight with shares of financials near the bottom of the Stoxx Europe 600. The move follows Monday comments from ECB President Draghi before European Parliament. Draghi stated, “We remain firmly convinced that an extraordinary amount of monetary policy support, including through our forward guidance, is still necessary. …Domestic cost pressures, notably from wages, are still insufficient to support a durable and self-sustaining convergence of inflation toward our medium-term objective.” The comments took some air out of the story that the ECB may substantially shift its tone on policy at next week’s meeting. Consistent with his commentary was weaker-than-expected German inflation data this morning showing prices pulled back 0.2% in May, dragging the YoY rate down from 2.0% to 1.4%. Also in Europe, outlets reported on bickering between Greece and its creditors ahead of the next bailout meeting (June 15), the growing potential for early Italian elections, and apparent tensions between the U.S. and Germany at this weekend’s G7 meeting. The net effect has the Euro lower against most major currencies. After this morning’s as-expected U.S. economic data, Treasury yields are little changed and equity futures are off 0.1% to 0.2%.

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