Investors are preparing for busy week ahead in the midst of corporate earnings season with Apple reporting on Tuesday, a Federal Reserve interest rate decision arriving on Wednesday, and other economic data such as March PCE inflation and first quarter 2016 GDP results coming into focus later in the week.
The Federal Reserve is not expected to raise interest rates on Wednesday at the conclusion of their 2 day policy meeting this week.
Although Fed officials are projecting 2 interest rate hikes in 2016 after deciding to raise interest rates with the Federal funds 0.25 percent for the first time in 10 years during their December FOMC meeting, the market only expects 1 interest rate hike in 2016.
The U.S. labor market has undeniably improved since the global recession hit global markets in 2008 as evidenced by a 5 percent U.S. unemployment rate in March combined with 215,000 non-farm payroll jobs and an average of 209,000 jobs per month over the past 3 months.
Even with strong gains in the labor market and inflation levels that are rebounding closer to Federal Reserve’s 2 percent inflation target, Fed Chair Janet Yellen expressed caution about raising interest rates during the Fed’s last meeting in March when Fed policymakers lowered their projected rate hikes to 2 in 2016, down from 4 rate hikes at their December meeting while citing global headwinds as a primary reason to avoid raising interest rates.
Rising U.S. Inflation
The Fed’s preferred method for gauging inflation, core PCE (minus food and energy), rose 1.7 percent in February on an annualized basis, the highest level since February 2013 while the headline PCE index for February was 0.1 percent.
Since the December Federal Reserve meeting, crude oil prices have bounced off their lows in January-February, boosted by falling oil production levels in oil markets such as the U.S. and despite a glut in oil across the globe, weaker demand, and a failed April 17th meeting in Doha, Qatar between OPEC and non-OPEC countries that couldn’t strike a deal to freeze oil production at January levels.
The world’s second largest economy, China has shown continued signs of cooling in 2016 as its debt levels rise.
China’s economy grew 6.7 percent in Q1 2016, down from 6.8 percent in the fourth quarter of 2015 while inflation held steady at 2.3 percent in March.
The IMF is forecasting 6.5 percent GDP for China in 2016.
ECB Keeps Monetary Policy Steady During Its April Meeting
On Thursday ECB President Mario Draghi said in a statement that the ECB’s overnight deposit rate wouldn’t be pushed further into negative territory following the ECB’s decision last month to cut it further to negative- 0.4 percent in March from -0.3 percent, lower its benchmark rate to zero from 0.05 percent, and expand their monthly asset purchase programme to €80 billion, from the previous amount of €60 billion.
Inflation remains sluggish inside the 19 member euro area although it improved slightly in March.
According to Eurostat, euro area annual HICP inflation in March 2016 was 0.0 percent, compared with -0.2 percent in February.
U.S. Economic Calendar This Week
New Home Sales for March will be reported on Monday.
Durable Sales for March will be released on Tuesday along with consumer confidence for April and the Case-Shiller 20 city index for February.
On Wednesday the Federal Reserve will make their interest rate decision at the conclusion of their 2 day policy meeting.
Some of the other economic data that will surface on Wednesday includes pending home sales (March), crude inventories, and MBA Mortgage Index.
First quarter GDP results will be released on Thursday.
The consensus Q1 GDP estimate from briefing.com is for a 0.9 percent increase in the first quarter of 2016 when crude oil prices tumbled.
During the previous quarter (Q4 2015), U.S. GDP expanded 1.4 percent.
Initial and continuing jobless claims will also be announced on Thursday along with natural gas inventories.
On Friday PCE inflation for March will be reported alongside Chicago PMI (April) and Michigan Sentiment (April).