the market reacts to macro drivers, tracking geopolitical events and Fed rate policy
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An economic driver is anything related to the macroeconomic environment. This could include monetary policy, interest rates, lending activity, yield curve analysis, relative GDP growth analysis, and myriad others.
The most recent economic numbers revealed that China’s economy has been struggling. Exports have fallen in the past six straight months. They dropped by 6.4% in October. Similarly, imports have been in the red in the 12 months to October.
With Fed officials in a blackout period ahead of their meeting on March 19 and 20, traders are looking for clues about the health of the US economy and the central bank’s path from here. In addition to CPI, data on producer prices, retail sales and consumer sentiment are all due before policymakers meet.
Several key US economic data points can indicate signs of easing inflation and cooled monetary policy expectations:
Consumer Price Index (CPI): A slowdown or moderation in the CPI, which measures the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services, can signal easing inflationary pressures.
Producer Price Index (PPI): Similar to the CPI but measures the average change in selling prices received by domestic producers for their output, indicating changes in inflationary pressures at earlier stages of production.
Core Inflation Measures: Excluding volatile components like food and energy prices, core inflation measures provide a clearer picture of underlying inflation trends. A decline or stabilization in core inflation can suggest easing inflationary pressures.
Employment Situation Report: If the labor market shows signs of softening or slower job growth, it can alleviate concerns about wage pressures driving inflation and potentially lead to cooled expectations for aggressive monetary policy tightening.
Consumer Confidence Index: A decrease in consumer confidence may suggest weaker demand and reduced pricing power for businesses, leading to less upward pressure on prices and possibly prompting a more cautious approach to monetary policy.
Retail Sales: A slowdown in retail sales growth can indicate weakening consumer demand, which may alleviate concerns about overheating in the economy and lead to tempered expectations for interest rate hikes.
GDP Growth: If GDP growth slows down, it could suggest that the economy is operating below capacity, reducing the likelihood of sustained inflationary pressures and leading to a more dovish monetary policy stance.
Federal Reserve Communications: Statements from Federal Reserve officials indicating a shift towards a more accommodative monetary policy stance or a willingness to tolerate temporarily higher inflation can also influence expectations for future policy actions.
Monitoring these indicators can provide insights into the trajectory of inflation and help gauge expectations regarding future monetary policy decisions.