We usually try to stop leaning on Marc Chandler for insights over the weekend but today I can't resist linking to his "The Week Ahead" post from Saturday, May 7:
The Fed's 50 bp rate hike is behind us. Another 50 bp hike is expected next month. The April employment report will do little to calm the anxiety about the "too tight" labor market. The decline in the participation rate was disappointing and this coupled with decline in Q1 productivity raies questions about the economy's non-inflationary speed limit.
One of the fascinating things about the markets is that sometimes the cause take place after the effect. This is an interesting way to express the observation that investors anticipate, discount, futures scenarios. The dollar has been bought and fixed income sold on ideas that the Fed had taken a hawkish turn. The market now accepts that the Federal Reserve will bring it Fed funds target rate within the range regarded as neutral before the end of the year. The hikes will be front-loaded with the next 50 bp hikes discounted for the next two meetings (June and July) and a strong leaning for the same in September (~66%). The balance sheet will begin shrinking next month at roughly the same pace that it peaked in the 2017-2019 experience before ramping up to twice the pace ($95 bln).
The week ahead is important because it may be the first signs that may be peak inflation is at hand. For the first time since April 2020, the headline reading of consumer prices and producer prices are expected to have fallen on a year-over-year basis. To be sure, it may not be a large move. By any measure price pressures remain elevated, but the direction is important.
It would be the first decline in headline CPI since last August. Core CPI will also likely ease as well. Recall that after the March report, many economists suggested that could be the high-water mark. - Producer prices, both the headline and core, are also expected to have softened a little. In April 2021, they had increased by 1.0%....
....MUCH MORE
Earlier from Mr. Chandler:Capital Markets: "New Week Same Refrain: Stocks Down, Yields Up, Stronger Greenback"
If interested see also:
"By that measure there's plenty of room for the stock market to go even lower...."
