Another hot inflation report and the start of earnings season make for a challenging week ahead
Consumer inflation data and the start of the second-quarter earnings season could be two catalysts that make for a bumpy ride in markets in the week ahead.
PepsiCo’s earnings are the first major report of the week Tuesday, and Delta Air Lines reports Wednesday. JPMorgan Chase and Morgan Stanley kick off bank earnings season Thursday, and Wells Fargo, Citigroup and PNC Financial, among others, follow on Friday.
A cluster of inflation reports could affect markets, since they help set the tone for how aggressive the Federal Reserve will have to be in its battle to calm inflation.
The June consumer price index looms large on Wednesday, and economists expect it could be hotter than May’s 8.6% year-over-year pace. It is also the report that could move markets most.
“The headline is expected to be higher. That’s mostly because of energy,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group. He added that core inflation, excluding food and energy, could be lower. West Texas Intermediate crude futures were as high as $122 per barrel in June, but have since fallen back in July and was just under $105 per barrel Friday.
“The question is to what extent the moderation in goods prices is going to be offset by continued increasing services prices, predominantly driven by rent,” Boockvar said. “The government stats still have a lot of catchup room to the upside on rent.”
There is also the June producer price index Thursday, and investors are closely watching Friday’s University of Michigan consumer sentiment report for July. That report contains consumer expectations about future inflation, an important metric watched by the Federal Reserve. June retail sales, another measure of the consumer, is also released Friday.
“PPI is the seed for CPI ... and it could have another 10% handle,” said Boockvar.