U.S. equity markets fell deeply in the red this week, as a higher-than-expected CPI inflation reading raised expectations of monetary tightening by the Federal Reserve at its upcoming policy meeting. For the week, the Dow fell over 4%, the S&P 500 declined 4.8%, while the Nasdaq contracted 5.5%. Treasury yields rose to their highest levels since mid-June, with the yield on the 10-year note closing at 3.45%. The two-year yield soared to 3.87%, its highest level in 15 years, with the yield curve inversion between the two-year and ten-year notes widening, often considered a leading indicator of a recession. Crude oil prices remained under pressure amid concerns a global recession could impact demand, with the price of West Texas Intermediate (WTI) crude trading near $85 per barrel.
Monetary policy will be in the spotlight next week, as global central banks including the U.S. Federal Reserve, Bank of England (BoE), and Bank of Japan (BoJ) will conduct monetary policy meetings, with interest rate decisions expected. August housing starts and building permits will also be released, along with existing home sales, providing further updates on the U.S. housing market. S&P Global will release the flash estimate of its Purchasing Managers’ Index (PMI) for the U.S. and eurozone on Friday, gauging the recent performance of the manufacturing and services sectors across both economies. Earnings reports will come from AutoZone, General Mills, Trip.com, Costco, Accenture, FedEx, and Darden Restaurants, among others.
Monday, September 19
- AutoZone (AZO), Legend Biotech (LEGN), NextDecade Corp. (NEXT) and Azure Power Global Ltd. (AZRE) report earnings
- NAHB Housing Market Index (Sep)
Tuesday, September 20
- Neogen Corp. (NEOG) and Apogee Enterprises Inc. (APOG) report earnings
- Housing Starts (Aug)
- Building Permits (Aug)
- Day 1 of September FOMC Meeting
- ECB President Lagarde Speech
Wednesday, September 21
- General Mills (GIS), Lennar Corp. (LEN), and Trip.com (TCOM) report earnings
- Existing Home Sales (Aug)
- Day 2 of September FOMC Meeting; Interest Rate Decision and Press Conference
- FOMC Economic and Interest Rate Forecasts Issued
- Bank of Japan (BoJ) Policy Meeting; Interest Rate Decision
Thursday, September 22
- Costco (COST), Accenture (ACN), FedEx (FDX), FactSet Research Systems (FDS), and Darden Restaurants (DRI) report earnings
- Kansas Fed Composite Index (Sep)
- Bank of England (BoE) Policy Meeting; Interest Rate Decision
Friday, September 23
- S&P Global Composite PMI – U.S. – Flash Estimate (Sep)
- S&P Global Composite PMI – Eurozone – Flash Estimate (Sep)
- Fed Chair Powell Speech
Global Central Bank Policy Meetings
The U.S. Federal Reserve will conduct its two-day policy meeting on Tuesday and Wednesday, with an interest rate decision and press conference scheduled for Wednesday. Markets are widely anticipating a rate hike of 75 basis points (bps), according to the CME Group’s FedWatch Tool, with some investors anticipating an even larger hike of 100 bps. The Fed has raised its benchmark federal funds rate by a cumulative 225 bps since March, in an effort to combat rising prices as the rate of inflation has soared to 40-year highs in recent months.
Central banks in the U.K. and Japan will also be conducting meetings on monetary policy. The Bank of England (BoE) is expected to raise its benchmark interest rate further on Thursday, with inflation in the U.K. rising at the fastest rate in over 40 years, and the highest among G-7 countries. The BoE previously hiked interest rates by 50 bps in August—its biggest rate increase since 1995, setting its benchmark rate at 1.75%. The Bank of Japan (BoJ), in contrast to other major central banks, has held interest rates at record lows, as inflation in Japan is among the lowest of major economies. Policymakers have indicated the BoJ may undertake further easing measures if necessary.
Housing Market Updates
On Tuesday, the U.S. Census Bureau will release data on August housing starts and building permits, tracking construction of new housing units. Housing starts are projected to have fallen to 1.44 million units in August, down slightly from 1.446 million in July, as rising materials costs and falling demand from potential home buyers have affected new construction in recent months. Building permits are projected to have edged down to 1.61 million in August, down from 1.685 million in July.
On Wednesday, the National Association of Realtors (NAR) will also release an update on existing home sales in August. Existing home sales are projected to have fallen further to 4.7 million units in August, down from 4.81 million in July. Existing home sales have declined for six consecutive months from a recent peak of 6.49 million units in January, as rising mortgage rates and declining affordability have weighed on housing demand. Freddie Mac reported this week that the average rate on a 30-year fixed-rate mortgage rose above 6% for the first time since 2008, putting further pressure on potential homebuyers.
[read more] Original Article By: Michael Wilowski
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