A pivotal few days are underway for investors expectantly watching the Federal Reserve this week as it tees up for a long-anticipated liftoff on interest rates likely to come Wednesday, following the central bank’s two-day policy-setting meeting. Possible revisions to its forecast on rate hiking plans will be on the radar as war in Eastern Europe hangs over the global economy.
The latest print on producer prices and February retail sales are also on traders’ agenda this week, along with some lingering earnings results from companies including FedEx (FDX) and GameStop (GME).
Russia’s invasion of Ukraine has tempered worries around a hefty 50-basis point bump in rates this month, but escalating geopolitical tensions complicate the Fed’s path forward on taming inflation as the conflict introduces a new set of uncertainties for the U.S. economy.
After Federal Reserve Chair Jerome Powell signaled with unusual clarity in recent Congressional testimony that he supports an increase of 0.25% on short-term interest rates, investors may be little surprised by the outcome of the bank’s March 15-16 meeting. Instead, attention will be directed to possible changes to the Fed’s outlook on hiking plans for the rest of the year as Russia-Ukraine turmoil and resulting sanctions against Moscow roil markets.
“The bottom line is we will proceed, but we will proceed carefully as we learn more about the implications of the Ukraine war,” Powell told the House Financial Services Committee on March 2.
The Fed’s job is not getting any easier,” said Aberdeen Standard Investments’ senior global economist James McCann in a note. “Russia’s invasion of Ukraine has sparked market turmoil and sent commodity prices soaring, both of which present headwinds to the economy.”
Indeed, oil prices have surged roughly 23% since Russia’s invasion of Ukraine. Brent crude oil prices traded around $112 a barrel Friday, off highs of nearly $139 a barrel earlier in the week as investors continued to weigh the Biden administration’s ban on Russian energy imports. Some Wall Street strategists have warned prices could surge to $200 a barrel.
“Higher energy and food prices will also exacerbate an already deeply uncomfortable inflation backdrop, and the Fed is unlikely to tell markets that it can slow its plans for policy tightening in the face of the worsening outlook,” McCann added.
Although geopolitical risk has likely derailed the Fed from an aggressive double-bump this week, pressure is still on for the central bank to mitigate price levels that appear to show no signs of slowing. In February, the Consumer Price Index (CPI) rose 7.9% compared to last year, marking the fastest annual jump since 1982 and surpassing January’s previous rate of 7.5%.
The Fed will most likely raise rates at several meetings and start quantitative tightening (QT) as planned, but more extreme scenarios (50bp, inter-meeting, sharp QT) are out of the picture as the oil impact is being assessed,” Bank of America said in a recent note.
Rising energy prices contributed to the latest CPI print. Oil and gas prices were already pressured by supply and demand imbalances even before Russia’s invasion of Ukraine. The energy index soared 3.5% in February to mark the largest monthly jump since October, and was up 25.6% over the last year. Further impacts from the crisis are expected to show up in the March CPI data.
“We were expecting there to be improvements in supply chains, probably starting later this year,” U.S. Bank Chief Economist Tendayi Kapfidze told Yahoo Finance Live. “[The Russia-Ukraine conflict] puts into question some of the supply chain improvements that were supposed to lower inflation.”
On the economic data front, traders will get another snapshot of the U.S. inflation picture this week from the Producer Price Index (PPI) due out Tuesday. The latest print on PPI, which like CPI serves as a gauge of changes in prices of goods and services but from the viewpoint of product-makers rather than consumers, is expected to show another red-hot figure as inflationary pressures and supply-chain snafus persist. Economists surveyed by Bloomberg expect a PPI, excluding food and energy, read of 8.7% for February, up from the already higher-than-expected 8.3% last month.
Meanwhile on Wednesday, consensus economists are expecting to see retail sales excluding autos, released by the U.S. Census Bureau, to rise in February by 0.9% compared to January’s increase of 1.0%, according to Bloomberg data. Bank of America attributes the gain to spending on gas and food services. The institution anticipates, however, core control sales, which excludes gas, autos, building materials and food services, to fall by 0.5% month-over-month.
Earnings season is winding down with a few more reports trickling in this week from names including shipping giant FedEx and meme-stock darling GameStop. FedEx is expected to report adjusted earnings of $4.65 per share on revenue of $23.44 billion after the bell Thursday. GameStop earnings per share are projected to come in at $0.84 per share on revenue of $2.23 billion also after Thursday’s close.
- Monday: No notable reports scheduled for release
- Tuesday: Empire Manufacturing, March (7.0 expected, 3.1 during prior month), PPI final demand, month-over-month, February (0.9% expected, 1.0% during prior month), PPI excluding food and energy, month-over-month, February (0.6% expected, 0.8% during prior month), PPI excluding food, energy, and trade, month-over-month, February (0.6% expected, 0.9% during prior month), PPI final demand, year-over-year, February (10.0% expected, 9.7% during prior month), PPI excluding food and energy, year-over-year, February (8.7% expected, 8.3% during prior month), PPI excluding food, energy, and trade, year-over-year, February (7.3% expected, 6.9% during prior month), Net Long-Term TIC Outflows, January ($114.5 billion during prior month), Total Net TIC Outflows, January (-$52.4 billion during prior month)
- Wednesday: MBA Mortgage Applications, week ended March 11 (8.5% during prior week), Retail Sales Advance, month-over-month, February (0.4% expected, 3.8% during prior month), Retail Sales excluding autos, month-over-month, February (0.9% expected, 3.3% during prior month), Retail Sales excluding autos and gas, month-over-month, February (0.4% expected, 3.8% during prior month), Import Price Index, month-over-month, February (1.6% expected, 2.0% during prior month), Import Price Index excluding petroleum, month-over-month, February (0.7% expected, 1.4% during prior month), Import Price Index, year-over-year, February (11.3% expected, 10.8% during prior month), Export Price Index, month-over-month, February (1.4% expected, 2.9% during prior month), Export Price Index, year-over-year, February (15.1% during prior month), Business Inventories, January (1.1% expected, 2.1% prior), NAHB Housing Market Index, March (81 expected, 82 in February), FOMC Rate Decision, lower bound, March 16 (0.25% expected, 0.00% prior), FOMC Rate Decision, higher bound, March 16 (0.50% expected, 0.25% prior), Interest on Reserve Balances Rate, March 17 (0.40% expected, 0.15% prior)
- Thursday: Housing starts, February (1.700 million expected, 1.638 million in January), Building permits, February (1.850 million expected, 1.899 million in January, downwardly revised to 1.895 million), Housing starts, month-over-month, February (3.8% expected, -4.1% in January), Building permits, month-over-month, February (-2.4% expected, 0.7% in January, downwardly revised to 0.5%), Philadelphia Fed Business Outlook Index, March (15.0 expected, 16.0 in February), Initial jobless claims, week ended March 12 (220,000 expected, 227,000 during prior week), Continuing claims, week ended March 5 (1.480 million expected, 1.494 during prior week), Industrial Production, month-over-month, February (0.5% expected, 1.5% during prior month), Capacity Utilization, February (77.9% expected, 77.6% during prior month), Manufacturing (SIC) Production, February (1.0% expected, 0.2% during prior month)
- Friday: Existing Home Sales, February (6.10 million expected, 6.50 million during prior month), Existing Home Sales, month-over-month, February (-6.2% expected, 6.7% during prior month), Leading Index, February (0.4% expected, -0.3% in during prior month)
Before market open: No notable reports schedule for release
After market close: Vail Resorts (MTN), Coupa Software (COUP)
Before market open: Volkswagen (VWAGY), Dole plc (DOLE)
After market close: No notable reports schedule for release
Before market open: Jabil (JBL)
After market close: Williams-Sonoma (WSM), Lennar (LEN)
Before market open: Warby Parker (WRBY), Dollar General (DG)
After market close: FedEx (FDX), GameStop (GME)
No notable reports scheduled for release