Fed Minutes & March CPI Headline the Week
This week will be headlined by the minutes from the FOMC March meeting and the March CPI numbers. Recall the Fed surprised most investors with its across-the-board dovishness at that meeting and the minutes will be scoured to see the list of concerns mentioned by officials, and whether they went even further and discussed the possibility of rate cuts in the near future. We tend to think the swing from the hawkishness in December to the dovishness in March was extreme enough without officials beginning to discuss cutting rates, but we shall see. The March CPI report will be given a once over too for any signs that the recent pick-up in wage gains is starting to filter into higher prices. Expectations are that that isn’t the case with fairly docile readings expected.
|Treasury Curve||Today||Week Change|
|3 Mo LIBOR||2.59%|
|6 Mo LIBOR||2.65%|
|12 Mo LIBOR||2.75%|
|Date||Statistic||For||Briefing Forecast||Market Expects||Prior|
|Apr 8||Factory Orders||Feb||0.1%||-0.5%||0.1%|
|Apr 9||NFIB Small Biz Optimism||Mar||101.7||102.0||101.7|
|Apr 9||JOLTs Job Openings||Feb||7.581m||7.550m||7.581m|
|Apr 10||CPI (MoM)||Mar||0.3%||0.4%||0.2%|
|Apr 11||CPI Ex-Food & Energy (MoM)||Mar||0.2%||0.2%||0.1%|
|Apr 10||FOMC Meeting Minutes||Mar 20||NA||NA||NA|
|Apr 12||Import Price Index (MoM)||Mar||0.6%||0.4%||0.6%|
|Apr 12||U. of Mich. Sentiment||Apr P||98.4||98.1||98.4|
|Apr 12||U. of Mich. Inflation Forecast||Apr P||2.5%||2.5%||2.5%|
Top 5 Events for the Week
APR 8 - 12, 2019
1. March FOMC Meeting Minutes – Wednesday
2. March CPI – Wednesday
3. April U. of Mich. Sentiment – Friday
4. February JOLTs Job Openings —Tuesday
5. February Factory Orders — Monday
1. March FOMC Minutes —Wednesday
Given the degree to which the Fed surprised markets with its across-the-board dovishness at the March meeting the minutes will be surveyed to detect any inclination to move from the patient pause posture to an even more dovish direction. While the Fed revised its rate forecast to only one more hike, in 2020, the minutes will be reviewed to see if any rate-cutting talk crept into the discussions. We think shifting that much-- from the hawkishness displayed in the December minutes— is a bit much, and expect the minutes will show a grudging shift to the patient pause posture with mention that future policy actions will be driven by the data.
2. March CPI —Wednesday
While the labor market has continued to impress, at least from a wage gain perspective, inflation readings have failed to show the expected Phillips Curve bump to inflation. It’s with that backdrop that the March CPI release on Wednesday will be viewed as confirmation that inflation pressures continue to remain modest at best. Expectations are for the overall reading to increase 0.4% versus 0.2% in February as energy costs continue to rebound. The core rate (ex-food and energy) is expected to increase 0.2% after a 0.1% gain in February that broke a streak of five straight months of 0.2% gains. On a year-over-year basis, CPI is expected to increase 3/10ths to 1.8% while core CPI YoY is expected to remain at 2.1% for a second straight month. The Fed’s preferred inflation measure, core PCE, remains under 2% at 1.788%. The trend for PCE is to run 30bps below CPI so with core CPI unchanged at 2.1% that implies core PCE also staying around 1.8% and another month below the 2.0% target.
3. April University of Michigan Consumer Sentiment–Friday
Recent consumer confidence readings—University of Michigan and Conference Board—took hits due to the market volatility in the fourth quarter but with the rebound in stocks this year, and a continued solid labor market, the preliminary April read from the University of Michigan is expected to show some stabilization. Expectations are for a 98.1 read versus 98.4 in March. The high print was a 101.4 in March of 2018 when tax cut euphoria was running high. Inflation estimates are expected to be unchanged at 2.5% for both short-and long-term horizons.
4. February JOLTs Job Openings—Tuesday
The monthly JOLTs reports are always a little dated as they run a month behind the employment report but they do add a few additional details to the state of the labor market. For February, expectations are that job openings will total 7.550 million which is just off the all-time high reading of 7.626 million back in November. One of the other metrics measured in the JOLTs is the Quits Rate, or the rate that workers voluntarily quit their jobs. It’s a measure of confidence in finding another job and that rate has been 2.3% ( quits to total employed) for the past five months and is the cycle high. Thus, the JOLTs numbers reflect strength both in the raw job opening numbers and in worker confidence, with not many recessionary indicators in the labor market.
January factory orders broke a string of three straight months with negative prints but it was ever-so-slight at a 0.1% increase. The negative prints in the fourth quarter were probably a combination of the inventory overbuild that occurred in the second half of the year and the slowing global growth story, along with the second-half slowing in domestic growth. The February report is expected to show another decrease, this time at -0.5%. Thus, continued softness in factory orders is expected to have persisted into February.
Investment Yield Ranges Over Last Year
Thomas R. Fitzgerald
Director, Strategy & Research