Is the Fed Beating Inflation: New Data on Deck

What to Watch for This Week

Now that the FOMC has opted to maintain the Fed Funds rate at current levels for consecutive meetings, this seems to indicate that they are confident they have raised the policy rate enough to combat inflation. This week we are expected to get a new series of inflation reports which will provide some evidence about how effective the Fed has been. One additional major release that we are keeping our eye on this week is the U.S. Treasury’s Monthly Statement.

CPI – On Tuesday, the BLS will deliver the new CPI (Consumer Price Index) data for the month of October. CPI is a gauge of price inflation at the consumer level. CPI measures the price inflation that consumers are faced with when purchasing goods or services.
- In last month’s report, CPI came in slightly hotter than expected at 3.7% compared to an expectation of 3.6%.

PPI – Following Tuesday’s CPI report, on Wednesday, we will get the new PPI (Producer Price Index) data from the BLS. PPI is a gauge of wholesaler price inflation. This can be a good indicator of inflation to come as it is measuring the output cost at which producers have sold their goods.
- In last month’s report, PPI came in at 2.2%, above the 1.6% expectation.

Should either CPI or PPI come in higher than the expectation, this could help build the case that the Fed’s current hiking cycle may not have gone far enough. The stock market will of course be hoping for a report that is either in-line or lower than expectations.

Monthly Treasury Statement– Every month the U.S. Treasury Dept. releases their monthly statement which is the U.S. Federal budget from the previous month. This report is watched closely by bond investors as it features the Treasury’s budget deficit (or surplus). The deficit has a direct tie to the amount of debt the Treasury Dept. will have to auction off in order to ensure that the deficit is funded.
- October’s Monthly Treasury Statement is due to be reported on Monday afternoon. This report could be a new catalyst for bond prices, either up or down, depending on the trend of the Treasury’s deficit.

Federal Reserve Watch

Last week, investors heard from various Fed members who reiterated the message from their November meeting, that they do not have any further hikes penciled in for this year and that any future policy decisions will be made meeting-by-meeting based upon new data. One Fed member clarified that the committee has not yet begun to discuss a rate cut, supporting their narrative of ‘higher for longer’. You can bet that the committee will be closely watching the inflow of fresh economic data that is expected this week.

The markets will be keyed into the new economic data expected this week, which could influence the FOMC’s policy decision at their upcoming meeting scheduled for December 13^th, the last of the year. It seems there is still some hesitation from investors to fully buy-in that the Fed is done with rate hikes in this current hiking cycle.
- The CME Group now projects a 90.9% probability that at the next FOMC meeting the committee will opt to maintain the current target range between 5.25%-5.50%. This is a decrease from the previous week’s projection. Additionally, Fed Funds Futures indicate that investors believe that the earliest we could see a rate cut from the Fed is either May or June.

All About the Earnings

The latest quarterly earnings are expected this week from a diversified group of major retailers, including Walmart Inc. & Home Depot, Inc. One key cybersecurity name, Palo Alto Networks Inc. is also scheduled to report their Q3 earnings. Additionally, investors will hear from Applied Materials, Inc., a semiconductor equipment-maker.

Beginning on Tuesday, the markets will begin to digest a group of major retailers’ third quarter earnings as Home Depot, Inc. is set to report. This report will be followed up by TJX Companies, Inc. & Target Corp. as they are expected to post Q3 earnings on Wednesday. Finally, on Thursday, prior to the market open, Walmart Inc. will make their latest quarter’s earnings available to the public.
- HD earnings are expected to come in at $3.81 EPS.
- TJX earnings are expected to come in at $0.97 EPS.TGT earnings are expected to come in at $1.47 EPS.
- WMT earnings are expected to come in at $1.51 EPS.

Once the market closes on Wednesday, Palo Alto Networks, Inc. is due to report their Q3 results. With cyber-attacks becoming a more common threat, this has been a major boost to PANW’s business. Consensus estimates expect PANW to post Q3 results that are 300% higher than Q3 in ’22.
- PANW earnings are expected to come in at $0.48 EPS.

Applied Materials, Inc., a major semiconductor equipment-maker, is set to post their latest quarterly results after the bell on Thursday. This company’s products are in high demand since most of the major chip manufacturers use AMAT’s fabs to make semiconductors.
- AMAT earnings are expected to come in at $1.98 EPS.

Thank you for reading this week’s edition of the Weekly Market Periscope Newsletter, I hope you enjoyed it. Please lookout out for the next edition of the newsletter as we will give you a preview of the upcoming week’s important market events.

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