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Trade war, inflation data, retail sales — What to know in the week ahead

Heidi Chung

This week’s economic data and the ongoing trade war will be the focal points for market watchers.

Friday’s weaker-than-expected jobs report boosted stocks, and investors cheered, as the probability of a Fed rate cut increased. The S&P 500 closed out its best week in about six months.

Despite the positive market reaction, the U.S. economy added only 75,000 nonfarm payroll in May, significantly missing economists’ expectations. The weak jobs report further fueled arguments that the U.S. economy could be cooling down more meaningfully than previously estimated, and the escalating trade war is to blame.

“In the midst of rising prospects of a prolonged and more pronounced trade war, data this week seemed to lend some credence to the idea that the domestic economy is beginning to succumb more materially to all the uncertainty,” Wells Fargo wrote in a note Friday. “The majority of economic data lags. The cyclical parts of the economy are already slowing, and the uncertainty over the entire economy is already here.”

Investors are looking for more clues to gauge the overall health of the U.S. economy, and thus the incoming data this week will play a crucial role.

People enter the US at the Otay Mesa port of entry at the US-Mexico border in San Diego, California on June 8, 2019. (Photo by Frederic J. BROWN / AFP)

Many argue it’s not if but when the Fed will cut rates ahead. On Wednesday, the Bureau of Labor Statistics will be releasing May’s Consumer Price Index (CPI) inflation data.

“Looking to May, we project headline CPI to rise a more moderate 0.2% as energy price gains eased considerably last month. Excluding food and energy, the core CPI should register a trend-like 0.2% increase. We see little change to the overall trend in inflation as Fed officials prepare to meet later this month,” Wells Fargo said.

Economists surveyed by Bloomberg expect core CPI in May to have risen 0.2% from April and 2.1% from last year.

Then on Friday, the Census Bureau will release the retail sales data for May. “Retail sales were volatile to start the year and unexpectedly fell in April. Meanwhile, consumer sentiment has proved resilient to trade uncertainty so far,” Credit Suisse wrote in a note Thursday. “Although we expect a solid rebound in consumption in May, labor income growth has moderated slightly, suggesting a slowdown in trend consumption growth is likely.”

Core retail sales in May is expected to have jumped 0.5%, according to economists polled by Bloomberg.

Meanwhile on Friday evening, President Donald Trump announced on Twitter that the U.S. tariffs on Mexican goods would be “indefinitely suspended.”

Then on Saturday morning, President Trump tweeted about the deal reached with Mexico in a series of tweets.

The ongoing trade war between the U.S. and China as well as Mexico will likely continue to be monitored by investors and Wall Street, where some economists warn irreversible damage will force the Federal Reserve to lower interest rates.

“We continue to expect precautionary rate cuts from the Fed beginning in July,” Barclays economist Michael Gapen said on Sunday. “Downward revisions to our outlook for growth in US economic activity and expectations of 75bp in precautionary rate cuts this year from the Federal Reserve were not predicated on adverse direct effects from a major escalation in protectionism against Mexico; they were based primarily on incoming data on manufacturing production, business sector spending, durables orders, and capital goods imports that pointed to a more pronounced slump in goods production than we estimated previously. These data arrived in advance of the migration dispute arose.”

Economic Calendar

Monday: JOLTS Job Openings, April (7488 prior)

Tuesday: NFIB Small Business Optimism, May (103.5 prior); PPI Final Demand month-on-month, May (+0.1% expected, +0.2% prior); PPI excluding Food & Energy month-on-month, May (+0.2% expected, +0.1% prior); PPI Final Demand year-on-year, May (+2.1% expected, +2.2% prior); PPI excluding Food & Energy year-on-year, May (+2.3% expected, +2.4% prior)

Wednesday: MBA Mortgage Applications, week ended June 7 (1.5% prior); CPI month-on-month, May (+0.1% expected, +0.3% prior); CPI excluding Food & Energy month-on-month (+0.2% expected, +0.1% prior); CPI year-on-year, May (+1.9% expected, +2.0% prior)

Thursday: Import Price Index month-on-month, May (-0.3% expected, +0.2% prior); Initial Jobless Claims, week ended June 8 (218,000 prior); Continuing Claims, week ended June 1 (1.682 million prior)

Friday: Retail Sales Advance month-on-month, May (+0.6% expected, -0.2% prior); Retail Sales excluding Auto month-on-month, May (+0.5% expected, +0.1% prior); Retail Sales excluding Auto & Gas month-on-month, May (-0.2% prior); Industrial Production month-on-month, May (+0.2% expected, -0.5% prior); Capacity Utilization, May (78% expected, 77.9% prior); University of Michigan Sentiment, June (96.8 expected, 100.0 prior)

Earnings calendar

Monday: N/A

Tuesday: Dave & Buster’s (PLAY) after market close

Wednesday: Lululemon (LULU) after market close

Thursday: Broadcom (AVGO) after market close

Friday: N/A

Heidi Chung is a reporter at Yahoo Finance. Follow her on Twitter: @heidi_chung.

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