Stocks Week Ahead: Yield Curve to Keep Driving Markets Despite Data-Heavy Calendar
The week promises a plethora of economic data, starting this morning with the ISM manufacturing data at 10 AM. This will be followed by Jay Powell participating in a roundtable discussion with Philly Fed President Patrick Harker at 11 AM ET. The week concludes with the September job report. Each day presents new data: JOLTS data on Tuesday, ADP and ISM services on Wednesday, and jobless claims on Thursday.
What Powell shares today will be pivotal. However, it’s hard to envision him deviating from the remarks at the Fed meeting approximately two weeks prior. This session will involve a Q&A with business leaders from the Philadelphia area.
Thus, price stability and labor imbalances will likely remain the subjects. NY Fed President John William’s speech on Friday, September 29, indicated that the Fed is nearing its peak policy rate, emphasizing that the rates might remain restrictive for a significant period. Some attribute this statement to Friday’s market sell-off.
One only needs to examine the Fed Funds Futures curve to realize that the market doesn’t anticipate the Fed Funds rate dropping below 4.1% anytime up to August 2028, while the Fed projects the long-run rate at 2.5%.
This is likely why we’re observing a rise in the 30-year breakeven inflation rates. They have exceeded the average rate of the past three years and are on the verge of surpassing the one-standard deviation boundary. While some might attribute this to oil, it seems that this trend has been consistent since May, predating the recent surge in oil prices.
This might also explain why, as of Friday, the inflation swaps market was pricing in the CPI remaining above 3% from now until April of the following year and not dipping back to that June 2023 3.0%
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