Personal Income & Outlays for April; U. Michigan Final Consumer Survey for May
Stock index futures traded modestly higher Friday, as investors looked ahead to an update on the Federal Reserve's favorite inflation indicator, with major indexes poised for weekly gains.
All three indexes are looking at gains of 3-4% for the week. The S&P 500 is poised for its first weekly gain in eight weeks, according to FactSet.
Investors will focus on a heavy load of economic data, with the core personal consumption expenditure index deflator in the spotlight. Investors will also get disposable income and consumer spending, along with advance international trade in goods, all at 8:30 a.m. Eastern Time. The University of Michigan's final consumer sentiment index for May is due at 10 a.m. Eastern.
"Personal spending is expected to be up 0.7% in April, compared with 1.1% in March," Sophie-Lund Yates, lead equity analyst at Hargreaves Lansdown, told clients in a note. "A weaker number in today's announcement would give further reason to expect that the Fed's next rate decision will be to pause, rather than increase - as it suggests inflation's core is having some of its energy sapped on its own."
While major stock indexes are poised for gains his week, wariness remains among strategists over whether Wall Street volatility may have ebbed for now.
"The equity market reacted exuberantly to the near term recession fears abating, but the haven bid has not faded from the Treasury market," said Michael O'Rourke, chief market strategist at JonesTrading,
"It is only a matter of time before yields are back above 3%. If it happens in the next few days, that month end rebalance will flip. Fading recession fears and the prospect of China reopening is setting the stage for energy to breakout," as crude and natural-gas prices remain elevated, he said.
Despite rising recession risks, historically elevated inflation means the bar for the Fed to abandon its aggressive rate hike plans is high, said SEB.
"To stop rate hikes the Fed will need to see convincing evidence of slowing consumer demand together with a less overheated labour market."
For now, SEB sticks to its expectations that the Fed will raise rates by 50 basis points over the coming three meetings in June, July and September, envisages the peak policy rate at 3.25%-3.50% in mid-2023 but acknowledge that increasing recession risks have made the pace beyond the Fed's coming two meetings more uncertain.
Speculation of a possible pause in Fed interest-rate rises in September "was surely contributing to keeping the dollar soft," said ING currency analysts.
In the past week, market interest-rate pricing showed a reduction in Fed rate expectations of around 10 basis points, while "the likes of the ECB have seen all but a consolidation of expected tightening plans."
However, the Fed's rhetoric is "still very hawkish" and ING expects U.S. rate expectations to recover and the DXY Dollar Index to push back toward 103.00.
Crude futures edged higher in early European trade, with Brent at a more- than two-month, as supply uncertainty continued to support prices.
Stephen Innes, managing partner at SPI Asset Management, said there "is likely a lot of short-term length in crude markets as speculators...position for the EU Russian embargo bounce," adding that there may be a reluctance to push the market higher because of this.
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Base metals gained in London on modestly improving overall market sentiment and despite consumption in Asia remaining weak due to the Covid-19 lockdowns. But prices were still lower for the week.
Inventories have moved higher in recent weeks, given the lack of consumption in Asia, said Fitch. "A recent slew of negative global economic readings has revived growth concerns, driving industrial metals back into decline following a muted attempt at recovery early on in May."
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