A Week of Fed Speakers and Key Retail Sales Data

Quincy Krosby:

Hello from LPL Financial. Welcome to the Talking Point. I'm your host, Quincy Krosby. Good morning everyone. This is Quincy Krosby. It is June 17th, Monday, and this is the Talking Point. Right now as I do this call, well before the market opened, the futures are inching higher. I do want to point out though, this week we will have another parade of Federal Reserve speakers. And it will be interesting because the Federal Reserve meeting that we had, the so-called dot plot, was inconclusive in terms of, you know, what they thought about rate cuts. It was actually all over the map, so to speak. Chairman Powell, during a press conference, basically answered every question from the reporters almost in exactly the same way. It was a pretty interesting, he was very well coached, so to speak. So we're going to hear what the Federal Reserve speakers have to say.

Quincy Krosby:

And do they go rogue? Do they give their own ideas or will they be on the same page as Chairman Powell? And that is, look, we're happy that the CPI came down a bit. They acknowledge that in the statement, he acknowledged it, but the point was they need more. Now, they did get more, actually, after the Fed meeting when the Producer Price Index came down. And that was also good news for the bond market, the Treasury market. And let's go back even before that, we had the Institute for Supply Management service sector and what did we see there in the service sector, which is the largest component for this country. It was, we saw expansion in the service sector, but prices paid came down, all very good news. Also, let me add this because I know I mentioned it last week, and that is the small businesses, the National Association of Small Businesses.

Quincy Krosby:

They actually said, by the way, that they have been seeing prices leveling off overall and they were a little bit more optimistic. So we're going to hear what the Fed had to say, but this week, again, we will see what happens with the U.S. consumer looking back over the last month and what are we spending money on? Remember when we went through the earnings season, retailer, retailer after another, basically saying we have become more careful, we've become more discerning. And I will also mention that again, we have been worried about the lowest wage earners because we see it in the credit card reports, the delinquencies, the late payments are picking up. But now we are beginning to see a snapshot of not just the lowest wage earners, but the low middle class also hurting because of the higher interest rates. So we're keeping an eye on that.

Quincy Krosby:

Remember too, when we had the payroll report and we saw a good headline number, but underneath the hood we also saw that unemployment had ticked up to 4%. Now that's still healthy, but what we're keeping our eye on is that ticking up more and more because when it does historically, it tends to move rather quickly with unemployment gaining, gaining momentum. But where it is right now, it still shows strength, it still shows health and resiliency. I do want to add, however, that the initial unemployment claims last Thursday morning were higher than expectations. And there is, as we always see when these numbers come out, there is, oh my goodness, the unemployment rate is now going to tick higher because the initial unemployment claims were higher than expectations versus those who were saying, wait a minute, hold off for a second. First of all, it was the issue with Memorial Day and folks not able to go out there and apply for unemployment.

Quincy Krosby:

Then there was another element, another perspective, and that is that a number of school districts, those who basically pick up children, who work in the school districts, but in the summer they take off that they are allowed to go and apply for unemployment. So this is why this week's unemployment, initial unemployment claims that come out on Thursday morning, we will be watching very carefully to see where that goes. Why is that so important? Because it is a leading indicator. That's why it's important. It's the leading indicator about the labor market and we know that how important the labor market is because it helps underpin, ultimately, consumer spending. We also know, Chairman Powell said it again, if the labor market deteriorates at a faster clip, they will be prepared to come in and cut rates. So this week we have the retail numbers, consumer spending, essentially, it'll include autos and then there'll be another one that does not include automobiles.

Quincy Krosby:

We will also have industrial production. Very important obviously. And we will start off this week with the Empire Fed Survey. We all know what that is. That is the New York state and the region beyond New York state Manufacturing. And you know, it's not if the Empire Survey, Fed survey, is the most important one in the series we will have around the country, but it leads off and what we will be looking for is one prices paid. Is that coming down also? That would be important. We're looking at new orders and we are also looking at hiring expectations. Also this week we will get the Philadelphia Fed Survey, which has a much stronger positive correlation with the rest of the sort of the heartland of manufacturing. And there the market pays very close attention to the same exact things, new orders, prices paid, and hiring expectations.

Quincy Krosby:

So it'll be an interesting week as far as that's concerned. In addition, this week we will have a number of housing related information, but we will also hear from Lennar, the home builder. Very important. It's going to be interesting. Again, given the high interest rates, what are they seeing? Now remember many of the home builders have their own mortgage products. They work with mortgage companies or they are associated with mortgage companies and they offer better rates for those who are coming in and buying new homes. So we'll hear what they have to say. What's the foot traffic like? What are they seeing? Overall, this week though, it is going to be about what the Federal Reserve speakers have to say. Remember, it is a shortened week. It will be about, again, I want to repeat, we will be keeping our eye on those initial unemployment claims and I also want to mention continuing claims because the more the continuing claims pick up, the more it suggests that folks are having a harder time finding a job.

Quincy Krosby:

No stress there right now, but we're watching that. But remember those initial unemployment claims extremely important. The other area I want to mention too about China, because it is the world's second largest economy and it is important. Is that they have already answered the European Union. The European Union slapped tariffs, more tariffs, high tariffs on their electric vehicles saying, hey, you know what? You subsidize those electric vehicles, we don't want to deal with that. You know, we don't subsidize our manufacturers. Why should we allow you to send in your electric vehicles? Well, they just answered with their own tariffs and that is on pork products coming in from the EU. We will watch to see what happens with the United States because the U.S. has also pushed tariffs on the electric vehicles that they want to send into the United States. But in addition, we saw industrial production coming down in China.

Quincy Krosby:

It also then helped to push down commodity prices. Keep that in mind and that includes oil prices. We look to see what China is doing in terms of their manufacturing, in terms of how their economy is progressing. I also want to add here that they have made it clear that the property market, which I keep repeating, is about 25% of their economy, 25% of their GDP, is deteriorating at a faster clip. The market wants to see more. What else can you do to salvage that property market and not have it as this decaying quagmire of problems. In addition to this, go over to Europe right now because this is important. The election snap election coming up in France, remember it will come in two phases, but over the weekend there were a number of surveys, polling surveys, suggesting that Macron's party, Emmanuel Macron, who is president of France, is coming in the third after the first leaders right now in the survey, the polling survey, the right wing, far right party of Marine Le Pen, and then the left wing party also trying to form a coalition.

Quincy Krosby:

It looks like they're going to do it. All betting against Macron. So this is extremely interesting for the markets. As I do this call, the French stock market is actually up a little bit after just coming down dramatically on Friday. But the bond market, remember the bond market sees everything. The bond market is saying, whoa, this doesn't look very good. And it looks as if there could be chaos after all of this, and you're seeing as a result, money flowing into the German bond market. So we're watching our eyes on that. The fear in Europe is that there'll be contagion. We all know what that means, that the chaos spreads, if there is chaos and so on. Overall, again, here in the U.S. there will be Fed speak, Fed speak, Fed speak. But as I'm looking at it, data dependency, right, is for the Fed, but it is also for the bond market, our Treasury market.

Quincy Krosby:

And it is if the Treasury market here in the U.S. is looking at data more so and digging deeper to find out what is actually happening in the economy. Is the economy slowing dramatically or is it really just inflation starting to come down, perhaps at a faster clip? And then if that is what the determination is ultimately, the market is probably thinking, you know what, that Fed meeting where Chairman Powell was basically inconclusive where the dot plot didn't say anything, maybe we will have actually some more rate cuts more than just one. Have a very good week. We will be back next week. Thank you so much. Goodbye.

Speaker 2:

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Speaker 2:

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