Markets will be focused on foreign and domestic inflation data this week

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Published Date 8/7/2023

Yesterday Fed Governor Michellle Bowman at a Kansas Bankers conference said she expects “that additional rate increases will likely be needed to get inflation on a path down to the [Federal Open Market Committee]’s 2% target”… “The recent lower inflation reading was positive, but I will be looking for consistent evidence that inflation is on a meaningful path down toward our 2% goal as I consider further rate increases and how long the federal funds rate will need to remain at a restrictive level.” Her comments were nothing different from what most all Fed officials have been saying for months.

What we are looking at these days are wages that are increasing, not what the Fed wants to see. Last week the UAW launched its wants; higher pay and a 4-day week, pointing to auto executives pay increases of 40%. Skirmishes from other unions also heating up, some about wages others about the negative impact of AI. The possibility of deflation, high rates and weakening economic outlooks, is not out of the question and being debated in the back rooms of financial institutions. In July wages increased 4.0% year/year with forecasts of +3.0%; Powell has preached about is concern that wage pressures pose a threat to inflation. Recent reports pointing to consumers’ debt is increasing with high-rate credit cards (revolving credit), this afternoon at 3 pm June consumer debt will be released.

The investment community still trying to get a handle on the impact of last week’s Fitch Ratings downgrade of US debt from AAA to AA+. New concerns over the mounting government debt; Bank of America strategist Michael Hartnett, referencing the CBO projections that the US debt will increase daily by $5.2B every day for the next decade. Debt is set to grow much faster than the broader economy. On the CBO’s numbers, the debt held by the public will reach 118.9% of GDP by 2033, up from 98.2% this year. Occasionally, the expanding debt gets mentioned but never lasts long because no official or politician wants to make a case about it.

At 9:30 am the DJIA opened +178, NASDAQ +72, S&P +24. 10 year at 9:30 am 4.07% -2 bp. FNMA 6.0 20 year coupon at 9:30 am -6 bps from Friday and +25 bps from 9:30 am Friday.

The calendar this week is light, inflation data on Thursday and Friday and new 10 year and 30 year auctions Tuesday and Wednesday.

This Week’s calendar:

Monday,

3 pm total June consumer debt is expected at $14.1B from +$7.3B in May.

Tuesday,

6 am July NFIB small business optimism (91.5 from 91.0)

8:30 am June US trade deficit (-$65.4B from -$69.0B in June)

1 pm $42B 3 year note auction.

Wednesday,

7 am weekly MBA mortgage applications

1 pm $38B 10 year note auction, new 10 year.

Thursday,

8:30 am July CPI (month/month +0.2%, year/year +3.3% from 3.0% in June; the core month/month +0.2%, year/year +4.8% unch from June)

Weekly jobless claims (230K from 227K)

1 pm $23B 30 year bond auction, new 30 year.

2 pm July Treasury budget

Friday,

8:30 am July PPI (month/month +0.2% from +0.1% in June, year/year +0.7% from +0.1% in June; core month/month +0.2% from +0.1%, year/year +2.3% from +2.4%)

10 am mid-month U. of Michigan consumer sentiment index (71.3 from 71.6)

Source: TBWS

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