Traders Get No Respite From Data During Fed Week

The June FOMC meeting isn’t the only notable event on the docket this week, although it’ll certainly feel like it.

Markets will cringe at what’s almost sure to be another scorching-hot PPI report out of the US on Tuesday. If recent PMI anecdotes are any indication, input cost pressures remain acute and that’ll be reflected in factory-gate prices.

Additional evidence of pipeline inflation is the last thing nervous investors need. The figure (below) underscores how far afield we are.

As a reminder, April’s above-consensus PPI report presaged May’s CPI overshoot.

Also on Tuesday, macro watchers will get a fresh look at small business optimism. “Fresh” is probably a misnomer. So is “optimism.” “Acrid” and “pessimism” are more apt.

The mood among small businesses is grim. In the last NFIB survey, a forward-looking sentiment indicator hit a new all-time low, while the headline gauge loitered at its worst levels since the onset of the pandemic (figure below).

Consensus expects a slight deterioration in Tuesday’s update.

Markets will look for any clues as to the trajectory of hiring. The last ADP report suggested small firms continued to shed jobs in May. Small business owners are struggling in an environment where competition for scarce labor is fierce and deep-pocketed corporates have an insurmountable advantage. Wage growth for job switchers is very high.

On Wednesday, a few hours prior to the FOMC decision, May retail sales data is due. Needless to say, any evidence that the American consumer is rolling over would bolster the stagflation narrative, as would another egregious miss on the Empire survey, released concurrently.

Consensus expects retail sales rose 0.2% MoM in May (figure above). April’s figures, you’ll recall, beat estimates, which some argued was bad news to the extent it suggested the Fed has more work to do to curtail demand.

Unfortunately, the macro is locked in a lose-lose dynamic currently. If the numbers are solid, the market hears “Fed hikes.” If the numbers are lackluster, the market hears “recession.” Spending data is especially vulnerable to that kind of spin.

On Thursday, traders will warily eye jobless claims which, while still subdued, have moved higher of late. The Philly Fed survey may manage to garner a passing mention from the financial media in the context of May’s vintage, which was truly dour.

All of this will be contextualized via the Fed decision, the new dots and Jerome Powell’s efforts to placate anxious markets. Stocks are hobbled. Last week was the second-worst of 2022 for the S&P and the ninth weekly loss in 10. Friday’s jump in two-year US yields was the largest single-session increase since 2009.

Also on deck stateside: The first of this month’s key housing data (starts and permits), import prices and mortgage apps, which will be watched closely after a key index plunged to a 22-year low.