The Market Today
Markets Still Digesting Fed; Turn Focus to Iran, G20 Meeting, and PCE Inflation This Week
by Craig Dismuke, Dudley Carter
THIS WEEK’S CALENDAR
Regional Fed Reports, Chicago Fed Index Points to Softer Inflation: Today’s only economic releases include the Chicago Fed’s National Activity Index and the Dallas Fed’s Manufacturing Index. The Chicago Fed Index actually beat expectations in May, improving from -0.48 to -0.05 in May, the fourth month of five in 2019 that the index has been negative. The CFNAI is an aggregation of 85 different economic indicators including reports on 1) production and income, 2) the labor market, 3) personal consumption, 4) housing, and 5) sales and inventories. For context, when the CFNAI’s three-month average is above +0.70 following an expansion (or a one-month reading above 1.00), a period of more rapid inflation is expected to occur. The 3-month average for the CFNAI is now back up to -0.17 after hitting the weakest level in three years in the April report, although it continues to point to more disinflation than inflation pressure (see Chart of the Day).
Key Economic Events Later in the Week: The calendar picks up some steam later in the week. Fed Chair Powell and New York Bank President Williams are both scheduled to speak tomorrow. Personal income, spending, and PCE inflation (the Fed’s preferred measure of consumer inflation) are all slated for Friday. With inflation running well below the Fed’s 2.0% target once again, the PCE inflation report will be key to the Fed’s next policy decision. This will be the first of two PCE reports before the Fed’s July 31 policy decision. Also important will be the G-20 Summit which kicks off on Friday. President Trump and Xi are expected to pick back up trade negotiations at the Summit.
Overnight – Yields Decline as Investors Watch Iran Tensions and Await G-20 Summit Start on Friday: Global sovereign yields have moved down overnight as investors continue to monitor U.S. tensions with Iran and look ahead to this week’s important G-20 meeting in Japan. U.S. yields reached multi-year lows last week, European yields hit all-time nadirs in some cases, after major global central banks signaled that monetary policy around the world is leaning toward more accommodation in the weeks and months ahead. Overnight, most mainland European yield curves were modestly flatter with 10-year yields down just over 2 bps. An important survey of business confidence in Germany dipped as expected in June and is now at its lowest level since November 2014. Yields in the U.K. declined more than 3 bps across the curve and leading the way lower amidst the continued battle for who will become the next prime minister. Oil prices were mixed but remain near their highest levels in weeks after President Trump announced on Saturday that the U.S. would be “putting major additional Sanctions on Iran on Monday.” Also overhanging market sentiment this week will be the two-day G-20 meeting that starts Friday. Presidents Trump and Xi are expected to have an “extended meeting” that markets hope will diffuse current tensions and set a way forward for a final deal. U.S. equity futures were 0.2% firmer after a mixed global session saw small gains for most markets in Asia prior to a decline across most of Europe.