U.S. equity markets are on course to open slightly in the red at the start of what should be another big week for the world’s largest economy. The S&P 500 and the Dow both made decent gains again on Friday and ended at record closing highs, so the fact that we’re seeing futures pare these isn’t too surprising. Especially when you consider the week the US has ahead of it, which includes almost a quarter of S&P 500 companies reporting earnings, the Federal Reserve monetary policy decision and Friday’s jobs report, to name just a few notable events.
Naturally, the start of the week is looking a little quieter but even then, we’ll get inflation, income and spending figures ahead of the open which will be of interest to traders. The core PCE price index comes a couple of weeks after its CPI alternative ticked higher to 1.8%, but with this being the Fed’s preferred measure of inflation, traders will be paying close attention to it. Inflation has struggled below target for too long as with some policymakers becoming anxious about this, we may need to see evidence of it approaching target soon or interest rate hike expectations will likely be pared.
The income and spending data is also of note to traders as ultimately, improvements in both of these areas should typically feed into the end goal of 2% inflation, not to mention stronger economic growth. With the data covering December, it's too soon for tax reform to have had a positive impact, something we should see over the course of this year. Still, we are expecting to see continued, albeit marginal, progress on both of these even in the absence of reforms.
Wednesday's Fed decision is widely being viewed as a write-off in terms of the odds of a rate hike, with it being Janet Yellen's last meeting as Chair and following December's increase. However, with tax reform having passed towards the end of the year, it may be interesting to see whether it has influenced policymakers views on the economy and inflation, particularly given the challenges with regards to the latter.
Friday's jobs report will ensure traders are kept on their toes this week. As ever, focus will likely be on the earnings component given the challenges the central bank is facing, but we'll also get figures on job creation and unemployment. Again, with tax reform having just passed, we'll likely have to wait a little while before the impact is seen in the jobs data.