Pre-market equities: Pay attention to this in today’s US inflation report

This would signal to investors that the Federal Reserve may continue to aggressively raise interest rates through the end of the year as it attempts to rein in inflation.

“Upcoming inflation data will be most important in determining the pace of increases beyond July,” Citi economists said in a note to clients this week.

The big question for policymakers and Wall Street is whether inflation has peaked. Excluding volatile food and fuel prices, inflation in May should ease slightly.

“I am confident that inflation will be significantly lower by this time next year and that we will be back to something we will feel comfortable with soon after,” wrote Mark Zandi, chief economist at Moody’s. Analytics, in a column for CNN Business.

He pointed to the waning impact of the pandemic and said that following the European Union’s announcement of its oil embargo on Russia, “the worst economic fallout from Russia’s aggression also appears within reach. hand”.

But what happens in the meantime remains murky. High fuel and food prices affect inflation in other sectors of the economy. U.S. gasoline prices are hovering just a cent below $5 a gallon, and oil prices could rise further this summer, Goldman Sachs said this week.

One factor I have watched closely is the cost of housing, also known as “housing inflation”.

Housing accounts for about one-third of the value of the basket of goods and services that the US Bureau of Labor Statistics uses to track consumer prices, giving it a significant weight in the overall inflation picture. At the start of 2022, it was contributing to higher inflation alongside food and energy.

The housing index has climbed 5.1% over the past year, according to April data. It should show a similar increase in May.

It is already noticeable. But Citi economists warn that data may be slow to reflect the environment for renters, meaning there’s a chance housing costs will rise even more than expected in the coming months.

Check it out: Rents in Manhattan hit an all-time high in May for the fourth month in a row. The median rent for an apartment has soared to $4,000 a month, up 25% from a year ago — and that’s ahead of the peak summer season for lease signings.

Buyers also continue to feel the effects of record home prices, although rising mortgage costs are encouraging some Americans to delay purchases.

“Generally, while housing demand has only just shown signs of slowing down, house prices continue to rise at a healthy pace and suggest that it will be some time (well before next year) before housing prices are only starting to slow further,” the Citi team said.

On the radar: The Federal Reserve Bank of San Francisco wrote in February that rents and house prices can drive up the CPI “up to 24 months into the future.” This could complicate “peak inflation” hopes.

The Chinese economy is doing better. It’s not clear yet

From big gains in tech stocks to strong trade data, China has had plenty of good economic news this week.

The positive developments come after the world’s second largest economy was battered by widespread Covid lockdowns, a sweeping crackdown on tech companies and a housing crisis. Consumer spending and factory production both fell sharply in April, while unemployment hit its highest level since the first coronavirus outbreak in early 2020.

As China takes steps to gradually reopen businesses and authorities introduce a series of measures to stimulate activity, there are signs that a recovery could be imminent, reports my CNN Business colleague Laura He.

Remember: Earlier this week, the Wall Street Journal reported that Beijing’s cybersecurity review of Didi was nearing completion. The move would allow the ride-hailing giant to return to app stores in mainland China, nearly a year after Didi was removed for a data privacy breach. Chinese tech stocks surged.

There were other signs that Beijing’s efforts to rein in tech companies could also be waning. Bloomberg said Chinese regulators have entered preliminary discussions about a possible relaunch of Ant Group’s public offering, citing people familiar with the matter.

China also released strong trade data for May, following a slump in April. The country’s exports jumped nearly 17% in May from a year ago, compared to growth of just 3.9% in April. Imports increased for the first time in three months.

Still, analysts say much more needs to be done to restore investor confidence in China, and some significant risks have not gone away.

“It will take time to restore business confidence, and Chinese asset sales could resume if Chinese data proves disappointing again,” said Ken Cheung, chief Asian currency strategist for Mizuho Bank.

Americans lost half a trillion dollars in wealth at the start of 2022

Sometimes stock price fluctuations can seem abstract. But this year’s market turmoil has had real consequences, wiping billions of dollars from Americans’ wealth.

Net worth of households and nonprofits fell half a trillion dollars to about $149 trillion in the first quarter, according to Federal Reserve data released Thursday.

This is a notable reversal from the solid wealth gains that began in mid-2020, fueled by soaring home and stock prices.

Fast rewind: The Dow Jones and S&P 500 each fell nearly 5% in the first three months of the year, while the Nasdaq fell nearly 9%. This is the worst quarterly performance for markets since the first quarter of 2020, when the Covid-19 pandemic upended the US economy.

The decline in equities was partly offset by a $1.7 trillion increase in real estate values ​​and a still-high personal savings rate. The ratio of household net worth to disposable income remained near its all-time high and continues to be well above its pre-pandemic level in 2019.

But the data is a reminder of why so many Americans feel bad about the health of the economy.

Even though spending remains robust and most economists don’t expect a recession this year, the market’s sell-off has clouded the overall mood as the value of trading portfolios and retirement accounts decline. About 58% of Americans own stocks, according to Gallup.

Next

The latest reading for the US Consumer Price Index comes at 8:30 a.m. ET.

Also today: The University of Michigan’s first reading of consumer sentiment data for June releases at 10 a.m. ET.

Coming next week: The European Central Bank’s bellicose turn rocked markets on Thursday. Now, attention will turn to the Federal Reserve, which announces its latest policy decision on Wednesday.


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