Week Ahead on Wall Street: New Inflation Numbers

Estimated reading time: 4 minutes

Now that the dust has settled on the May jobs report, Wall Street turns its undivided (ok, very divided) attention to the other half of the Federal Reserve’s dual mandate: inflation.

• The news: All eyes are on back-to-back inflation reports: Wednesday’s Consumer Price Index (CPI) and Thursday’s Producer Price Index (PPI).
• The context: Federal Reserve policymakers have been sounding the alarm that price pressures are building and they may have to raise benchmark interest rates to get inflation down. The target is currently at a range of 3.50%-3.75%. 
• Your move: Watch out for the bond vigilantes. If inflation continues accelerating, Treasury yields could surge as investors price in higher interest rates. Growth stocks and companies with high valuation multiples could suffer in this scenario.

This week we’ll get the consumer and wholesale inflation reports. The key question is whether higher fuel prices are metastasizing into consumer prices for “supercore” items like healthcare and personal services (i.e. core services excluding housing). And any spike in costs for businesses like farmers and factories could get passed down the supply chain to the end consumer. 

Ultimately, any upside surprises in either report would suggest higher oil prices are becoming embedded in everyday costs. And as the Federal Reserve prepares to meet next week (with Kevin Warsh taking the reins), interest rate hikes may be in the offing. The odds of any adjustment this month are effectively zero, but the upcoming inflation data could go a long way in influencing future decisions.

On the Docket

Monday

• May New York Fed Survey of Consumer Expectations: This is a measure of peoples’ expectations for inflation, jobs prospects, earnings growth, and more.
• Earnings: Campbell Soup (CPB)

Tuesday

• May NFIB Small Business Optimism: This measures how small business owners feel about current and future economic conditions. 
• ADP Weekly Employment Change: This survey offers insight into weekly private sector employment trends. 
• April Trade Balance: Trade, made up of exports and imports, is an important driver of economic activity.
• May Existing Home Sales: Most home transactions in any given month tend to come from the existing market, and as a result set the tone for the broader housing market. 
• April Wholesale Inventories and Sales: Wholesalers often operate as an intermediary between manufacturers and retailers, serving as a key part of the goods supply chain.
• Earnings: Casey’s General Stores (CASY), JM Smucker (SJM)

Wednesday

• May Consumer Price Index: The CPI is one of the most popular indicators for tracking consumer price trends and is a marquee release for market watchers. 
• May Treasury Statement: This summarizes the U.S. federal government budget by tracking government revenues and expenditures.
• Earnings: Oracle (ORCL)

Thursday

• May Producer Price Index: The PPI tracks price trends that producers face and is down significantly from its peak earlier in the cycle.
• Earnings: Adobe (ADBE), Lennar (LEN)

Friday

• June University of Michigan Consumer Sentiment: How consumers feel about economic conditions affect their spending habits. This survey places a particular focus on inflation and its trajectory.

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