A flurry of big bank earnings and fresh inflation data out of Washington are expected to keep investors busy this holiday-shortened trading week. Market participants will also tune in Wednesday for a key economic report on March retail sales activity.
Despite a four-day trading session, with Wall Street closed for Good Friday, a pivotal week is underway for investors as mega-banks including JPMorgan Chase, (JPM), Goldman Sachs (GS), and Citigroup (C) get the ball rolling on Q1 earnings season. On the economic data front, markets will get the latest gauge of U.S. inflation with Tuesday’s closely-watched Consumer Price Index (CPI) and the Producer Price Index (PPI) set for publication Wednesday.
The Bureau of Labor Statistics’ (BLS) March read on CPI is expected to come in red hot again, with inflation unlikely to show any signs of abating as supply chain snarls continue to flare up prices, particularly with Russia’s war in Ukraine weighs on flows of global energy and commodities.
Consensus economists anticipate headline CPI will again accelerate to show an 8.4% year-over-year increase, surging higher from February’s 7.9% rise, according to Bloomberg consensus data. The figure would mark another decades-high rate of inflation, with the index, even excluding volatile food and energy prices, set to climb as much as 6.6%, up from February’s 6.4% increase.
On a month-over-month basis, economists are looking for a 0.5% rise — a print that would mark 22 consecutive monthly advances on consumer prices across the U.S.
“The upcoming Consumer Price Index for March will not be pretty,” Bankrate chief financial analyst Greg McBride said in a note. “Inflation has continued to accelerate in recent months and with the higher gasoline and food prices stemming from the war in Ukraine, the worst is likely still to come.”
The newest CPI print is due out as markets grapple with the likelihood Federal Reserve officials will act more aggressively to rein in inflation after a hawkish readout of minutes last week from the central bank’s March meeting suggested “many” policymakers favored a double-bump interest rate hike to combat surging price levels. Conversations detailed in the March 15-16 Fed minutes indicated the bank will soon begin to unwind its $9 trillion balance sheet and signaled members of the Federal Open Market Committee (FOMC) “would have preferred a 50 basis point increase” in benchmark interest rates last month when the Fed raised rates for the first time since 2018.
The minutes also echo recent public remarks from Fed leaders, including commentary on Thursday from St. Louis Fed President James Bullard who said he wanted the central bank to get to between 3% and 3.25% on the Fed funds rate in the second half of this year, implying more aggressive, front-loaded interest rate hikes in the near-term. Fed Governor Lael Brainard also said last week that the FOMC was “prepared to take stronger action,” should inflation readings remain elevated and warrant such moves.
“With prices increasing everywhere you look and both consumers and businesses bracing for more, it is time for the Federal Reserve to take the gloves off,” McBride said. “The Fed is now much more inclined to boost interest rates by one-half percentage point at their meeting in May, and very possibly beyond.”
Inflation numbers are underway this week not only on the consumer side but from the perspective of costs to producers supplying goods. The Producer Price Index (PPI) set for release Wednesday is expected to show another elevated figure, with Bloomberg economists expecting a reading of 10.6% year-over-year, up from the already higher-than-expected 10.0% in the prior month. Last month, economists at Bank of America said the headline number was “boosted by blistering strength in commodities” as energy and food prices jolted higher.
“Underlying inflation pressures likely remain elevated given constrained supply chains and tightening labor markets,” BofA said in the note from last month.
Meanwhile on Wednesday, investors will be watching for March retail sales numbers. Consensus economists are expecting retail sales excluding autos, released by the U.S. Census Bureau, increased slightly last month by 0.6%, compared to February’s advance of 0.3%, according to Bloomberg data. The number, however, remains low compared to a rise of 1.0% in January. Bank of America economists attributed a window in retail sales activity to slower auto purchases but expect rising gas prices will offset weakness in auto related spending. According to BofA data, gas spending surged by 6.5% month-over-month in March as retail gas prices reached historic highs.
On the earnings front, investors will see a pick-up in releases of quarterly results with some of the largest U.S. banks commencing a new corporate reporting season. JPMorgan is the first set to unveil its Q1 numbers on Wednesday, with a lineup of other industry heavyweights following suit before the bell on Thursday: Wells Fargo (WFC), Goldman Sachs (GS), Morgan Stanley (MS), and Citigroup (C).
Banks stand to benefit from the backdrop of monetary tightening by the Fed, with higher interest rates poised to increase banks’ net interest income (the bank’s earnings on its lending activities and interest it pays to depositors) and net interest margins (calculated by dividing net interest income by the average income earned from interest-producing assets.)
However, analysts are expecting a lackluster year for the industry’s earnings despite the profitability boost, specifically compared to the profit boom last year. In 2021, bank balance sheets benefited significantly from releasing COVID-era credit loss allowances, reserves financial institutions accumulated at the start of the pandemic to absorb the potential shock of borrowers being unable to pay their debts. This year, that financial boost will be absent from results. Bank profits were also lifted by exceptionally strong dealmaking and trading in 2021, but investment banking revenues stalled after the Russian invasion of Ukraine in late February.
Still, strategists anticipate a solid earnings season overall. According to data from FactSet’s John Butters, analysts have slightly lowered bottom-up EPS estimates on S&P 500 companies in aggregate for the first quarter (a 0.7% decrease from $52.21 to $51.83), from year-end 2021 through March 31. However, they lifted EPS forecasts for the second quarter by 1.6% from $55.16% to $56.07, by 2.4% from $57.82 to $59.23 for the third quarter, and by 3.9% from $58.31 to $60.59 for the fourth quarter. Given the increases in estimates for the second, third, and fourth quarters, analysts also increased EPS estimates for all of 2022, lifting projections by 2.0% for the year from $223.43 to $227.80.
“In this environment, with valuation expansion potentially tough to come by due to rising interest rates and high inflation, earnings take on more importance,” said LPL Financial equity strategist Jeff Buchbinder in a recent note. “The good news is corporate America is in excellent shape — earnings estimates are higher in 2022 now than they were at the start of the year, which is no small feat.”
Monday: No notable reports scheduled for release
Tuesday: NFIB Small Business Optimism, March (95.0 expected, 95.7 during prior month), Consumer Price Index month-over-month, March (1.2% expected, 0.8% during prior month), CPI excluding food and energy month-over-month, March (0.5% expected, 0.5% during prior month), CPI year-over-year, March (8.4% expected, 7.9% during prior month), CPI excluding food and energy year-over-year, March (6.6% expected, 6.4% during prior month), CPI Index NSA, March (287.410 expected, 283.716 during prior month), CPI Core Index SA, March (289.188 expected, 287.878 during prior month), Real Average Hourly Earnings, year-over-year, March (-2.6% prior, revised to -2.5%), Real Average Weekly Earnings, year-over-year, March (-2.3% prior, revised to -2.2%), Monthly Budget Statement (-185.5 billion expected, -$216.6 billion prior)
Wednesday: MBA Mortgage Applications, week ended April 8 (-6.3% during prior week), PPI final demand, month-over-month, March (1.1% expected, 0.8% during prior month), PPI excluding food and energy, month-over-month, March (0.5% expected, 0.2% during prior month), PPI excluding food, energy, and trade, month-over-month, March (0.5% expected, 0.2% during prior month), PPI final demand, year-over-year, March (10.6% expected, 10.0% during prior month), PPI excluding food and energy, year-over-year, March (8.4% expected, 8.4% during prior month), PPI excluding food, energy, and trade, year-over-year, March (6.6% expected, 6.6% during prior month), Net Long-Term TIC Outflows, January ($114.5 billion during prior month),
Thursday: Retail Sales Advance, month-over-month, March (0.6% expected, 0.3% during prior month), Retail Sales excluding autos, month-over-month, March (1.0% expected, 0.2% during prior month), Retail Sales excluding autos and gas, month-over-month, March (0.0% expected, -0.4% during prior month), Retail Sales Control Group, March (-0.1% expected, -1.2% during prior month), Import Price Index, month-over-month, March (2.3% expected, 1.4% during prior month), Import Price Index excluding petroleum, month-over-month, March (1.0% expected, 0.7% during prior month), Import Price Index, year-over-year, March (11.9% expected, 10.9% during prior month), Export Price Index, month-over-month, March (2.2% expected, 3.0% during prior month), Export Price Index, year-over-year, March (16.6% during prior month), Initial jobless claims, week ended April 9 (173,000 expected, 166,000 during prior week), Continuing claims, week ended April 2 (1.500 million expected, 1.523 during prior week), Business Inventories, February (1.3% expected, 1.1% prior), NAHB Housing Market Index, March (81 expected, 82 in February), University of Michigan Consumer Sentiment, April preliminary (59.0 expected, 59.4 during prior month), U. of Mich. Current Conditions, April preliminary (67.0 expected, 67.2 during prior month), U. of Mich. Expectations, April preliminary (54.0 expected, 54.3 during prior month), U. of Mich. 1 Year Inflation, April preliminary (5.6% expected, 5.4% during prior month), U. of Mich. 5-10 year Inflation, April preliminary (3.0% during prior month)
Friday: Empire Manufacturing, April (1.0 expected, -11.8 during prior month), Industrial Production, month-over-month, March (0.4% expected, 0.5% during prior month), Capacity Utilization, March (77.8% expected, 77.6% during prior month), Manufacturing (SIC) Production, March (0.5% expected, 1.2% during prior month), Net Long-Term TIC Outflows, February ($58.8 billion during prior month), Total Net TIC Outflows, February (-$294.2 billion during prior month)
No notable reports scheduled for release
After market close: No notable reports scheduled for release
After market close: Rent the Runway (RENT)
Before market open: PNC Financial (PNC) at 6:45a.m. ET, Wells Fargo (WFC) at 7:00 a.m. ET, Goldman Sachs (GS) at 7:30 a.m. ET, Morgan Stanley (MS) at 7:30 a.m. ET, Ally Financial (ALLY) at 7:30 a.m. ET, Citigroup (C) at 8:00 a.m. ET, State Street (STT) at 8:30 a.m. ET, Rite Aid (RAD)
After market close: No notable reports scheduled for release
No notable reports scheduled for release; Markets closed for Good Friday
Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc