What you need to know this week

A package of economic data awaits Wall Street this week as investors approach the Federal Reserve’s final rate-setting meeting for the year.

Fresh readings on the producer price index (PPI), which measures inflation at the wholesale level – steady goods orders and consumer sentiment add weight to the economic calendar. Meanwhile, a few more earnings reports will close the curtain on the third quarter reporting season.

US central bank officials are scheduled to meet on December 13-14 and are expected to raise the benchmark interest rate by 50 basis points. Members of the Federal Reserve entered a blackout period ahead of the meeting, which limits public speaking ahead of policy-setting meetings.

The most closely watched data releases for Fed clues include Friday’s monthly jobs report for November, which beat expectations, and Consumer Price Index data from Dec. 13, as they are two of the most comprehensive economic publications used by officials to set policy. . Until fresh CPI data comes out, the measure of producer prices will give traders another look at where inflation is headed.

Economists polled by Bloomberg expected November’s PPI to rise 0.2% from the previous month, while also expecting an annualized range of 8.0% to 7.1% over the period. Core PPI, which strips out volatile food and energy components, is expected to rise by the same monthly margin as the headline reading, falling to 6.7% from an annualized 5.8%.

The inflation picture might have looked different had the US not avoided a nationwide strike by rail workers, a shutdown expected to wreak havoc on the economy and hit wholesalers particularly hard. A preliminary agreement reached in September.

As with everything, the forecast for a 50-basis-rate hike next week is shared by markets and Wall Street megabanks, especially after the view was largely endorsed by Fed Chairman Jerome Powell during a speech in Washington on Wednesday.

“Monetary policy is affecting the economy and inflation with uncertain lags, and to date the full impact of our rapid tightening has yet to be felt,” he said. “Thus, it makes sense to ease the pace of our rate hikes as we approach the level of restraint that would be sufficient to bring down inflation.”

Powell added that “the time to ease the pace of rate hikes may come after the December meeting.”

WASHINGTON, DC – NOVEMBER 30: Fed Chairman Jerome Powell looks at notes during a speech at the Brookings Institution in Washington. (Photo by Drew Angerer/Getty Images)

While expectations for a cut below the 0.75% hike given in the last four meetings were largely priced in, investors are now wondering how long the central bank’s tightening campaign will last, how high the federal funds rate will go, and for how long. stay there before any interruptions.

While Michael Gapen, chief economist at BofA, speculated in a call with reporters last week that the interest rate could rise to 6, Bank of America predicts the terminal rate will reach a range of 5.00-5.25%. % due to the enormous speed of the labor market.

“Risks to Fed policy are skewed toward higher terminal rates given the persistent imbalance between labor supply and labor demand,” Bofa strategists led by Gape said in a note released Friday after November’s hot jobs report. “A slower rate of growth seems appropriate from a risk management perspective, but strength in the labor markets, in our view, will likely require the Fed to do more, not less, to put inflation on a sustainable downward trajectory. .”

With the slower pace and resulting rate freeze seemingly continuing, Wall Street’s focus has turned to the longer-term effects of the higher pace environment on growth. Baird’s Ross Mayfield and Nicholas Bohnsack, president and chief portfolio strategist at Strategas, a Baird company, predicted in a weekly note that even if inflation continues its downward trend, it will be worth it to reach the Federal Reserve’s long-term price stability of 4%. The 2% target is “increasingly higher”.

“This is likely to come with a significant upheaval between businesses and the labor market,” they said. “Ultimately, we think they will slow down the pace at which they raise rates and then take a long time to observe the landscape and the potential impact.”

This view was shared by Larry Fink, CEO of BlackRock, who expressed confidence that inflation will not fall to 2% and will fall during a period of economic stagnation at a conference held last week.

At the Dealbook Summit in New York on Wednesday, Fink expressed his fear of waking up to a world of “2-3%” interest rates with “3-4%” inflation.

Elsewhere in the week ahead, this weekend’s OPEC+ meeting will keep energy markets in focus. The oil cartel has agreed to maintain current production levels to gauge the global oil market as uncertainty over China and Russia loom over the commodity. The United States on Friday joined the European Union, the Group of Seven and Australia in capping the price of Russian oil at $60 a barrel.

Headlines set to finish the season on the earnings front include Campbell Soup ( CPB ), GameStop ( GME ), Broadcom (AVGO), Chewy ( CHWY ), lululemon athletica ( LULU ), and Oracle ( ORCL ).

Although the third quarter saw better-than-feared results, Wall Street strategists warned of zero earnings growth ahead.

S&P 500 Bottom-Up EPS Estimates: September 30-November 30 (Source: FactSet Research)

S&P 500 Bottom-Up EPS Estimates: September 30-November 30 (Source: FactSet Research)

Analysts cut fourth-quarter earnings estimates for S&P 500 companies by a larger-than-average margin in October and November, according to FactSet Research. Bottom-up earnings per share for the 4th quarter fell 5.6% to $54.58 from $57.79 in the September 30 to November 30 period.

“There’s something to be said for the idea that inflation creates this monetary illusion, where sales and profit levels stay high simply because prices are higher, especially with what can be considered a normal-sized decline in earnings associated with a recession.” Mayfield and Bohnsack also said in their weekly notes. “When you include that, it doesn’t look like the economy will hurt that much.”

As a result, they added, “What we’ve been very focused on is corporate profit margins and profitability levels, and there we’re starting to see some real sharp pains across the landscape. We’ve been expecting earnings estimates to be coming down corporately, as management softens and costs continue to rise.” “

Economic Calendar

Monday: S&P Global US Services PMINovember final (46.1 expected, 46.1 in previous month); S&P Global US Composite PMIthe November finale (46.3 in the previous month); Factory OrdersOctober (0.7% expected, 0.3% in the previous month); Durable Goods OrdersEnd of October (1.0% over the previous month); Non-Transportable Durable GoodsEnd of October (expected 0.5%, 0.5% in the previous month); Orders for Non-Defense Essential Goods Except for Aircraftthe end of October (0.7% in the previous month); Carriage of Non-Defense Goods, Except Aircraftthe end of October (1.3% in the previous month); ISM Services IndexNovember (53.5 expected, 54.4 last month)

Tuesday: Trade balanceOctober ($-77.0 billion, expected $73.3 billion)

Wednesday: MBA Mortgage Programsthe week ending December 2 (-0.8% over the previous week); Non-farm productivityEnd of Q3 (expected 0.3%, 0.3% during the previous quarter); Unit labor costsEnd of Q3 (expected 3.5%, 3.5% during the previous quarter); Consumer loanOctober ($26.5 billion expected, $24.976 in previous month)

Thursday: Initial Unemployment ClaimsWeek ending December 3 (225,000 during previous week); Continuing ClaimsWeek ending November 26 (1.608 million in previous week)

Friday: PPI Last Demandmonth-on-month, November (expected 0.2%, 0.2% in the previous month); PPI excluding Food and Energymonth-on-month, November (expected 0.2%, 0.2% in the previous month); Excluding Food, Energy and Trade PPImonth-on-month, November (expected 0.2%, 0.2% in the previous month); PPI Last DemandNovember (expected 7.1%, 8.0% in the previous month); PPI excluding Food and EnergyNovember (expected 5.8%, 6.7% in the previous month); Excluding Food, Energy and Trade PPIyear-on-year, November (5.4% in the previous month); Wholesale Tradein monthly comparison, October (0.4% in the previous month); Wholesale Suppliesin monthly comparison, the end of October (0.8% in the previous month); University of Michigan Emotion, December Preliminary (56.8 expected, previous month 56.8)

Earnings Calendar

Monday: GitLab (GTLB), Sumo Logic (SUMO)

Tuesday: AeroVironment (AVAV), AutoZone (AZO), Casey’s General (CASY), Conn’s (CONN), Dave & Buster’s (PLAY), MongoDB (MDB), Signet Jewelers (SIG), Stitch Fix (SFIX), Smith & Wesson Brands ( SWBI), Toll Brothers (TOL)

Wednesday: Brown-Forman (BF.B), Campbell Soup (CPB), C3.ai (AI), GameStop (GME), Korn/Ferry (KFY), Lovesac (LOVE), Ollie’s Bargain Outlet (OLLI), Sportsman’s Warehouse (SPWH ) ), Thor Industries (THO), United Natural Foods (UNFI), Verint Systems (VRNT)

Thursday: Broadcom (AVGO), Chewy (CHWY), Ciena (CIEN), Costco Wholesale (COST), DocuSign (DOCU), Domo (DOMO), Hello Group (MOMO), lululemon athletica (LULU), National Beverage (FIZZ), RH (RH) , Vail Resorts (MTN)

Friday: Li Auto (LI), Oracle (ORCL)

Alexandra Semenova is a correspondent for Yahoo Finance. Follow him on Twitter @alexandraandnyc

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