The Week Ahead (JPM, DAL, C, and PEP Earnings; Canadian Housing Data and US CPI)

In the upcoming week, Federal Reserve Chair Jerome Powell will deliver his semiannual monetary policy report to the Senate Banking Committee and the House Financial Services Committee. The key macroeconomic event will be the release of the CPI inflation data on Thursday. Additionally, the US earnings season begins, with major banks reporting their results, drawing attention amid a period of low market volatility.

The June headline CPI, due on July 11, is expected to rise by 0.1%, primarily due to a significant seasonally adjusted decline in gasoline prices. Monthly core CPI is projected to grow by 0.2%, driven by disinflation in used cars and recreation. Year-over-year, the headline CPI should decrease to 3.0% from May's 3.3%, with core CPI remaining at 3.4%. This core CPI forecast corresponds to a 0.1%-0.2% increase in the June core PCE deflator, the Fed’s preferred inflation gauge, due later this month. This would mark the second consecutive month with a core PCE reading aligning with the Fed’s 2% target. If two more similar inflation reports follow before the September FOMC meeting, the market anticipates officials will be prepared to cut rates then.

Federal Reserve Chair Jerome Powell will present his semiannual monetary-policy report to the Senate Banking Committee on July 9 and the House Financial Services Committee on July 10. Republican members are expected to question him on the economic impact of the past four years of inflation, while Democrats will likely push for rate cuts to prevent rising unemployment. Powell is anticipated to adopt a dovish tone, acknowledging progress in curbing inflation. He is also expected to express concerns about the US's unsustainable fiscal trajectory and emphasize the importance of the Fed's political independence, while avoiding specific comments on tax and spending policies.

Producer prices likely showed little change in June, with rising oil prices reversing May's decline in PPI inflation. Core PPI prices are expected to have rebounded after being flat in May. The ISM Services PMI commentary indicated that costs have stabilized, limiting the extent of any increase in producer prices. However, producers remain concerned about potential rising costs. Respondents to the June ISM surveys noted ongoing increases in chemical and freight costs, and continued volatility in commodity prices.

In Canada, there is no economic news this week, with nothing on the calendar of note. The fallout from the weaker jobs data this past week will still be resonating in markets, but the reality is that cementing the July rate cut in forecast, and which the economy very much needs, will have to await the next CPI reading, after May’s 0.3% core price increases created some risks to the 3-month trend.