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Consumer sentiment, Fed speakers – What to know in markets Friday

Emily McCormick

On Friday, investors will receive a snapshot on consumer sentiment in October and hear from several Federal Open Market Committee members ahead of the central bank’s next rate-setting meeting.

The University of Michigan’s consumer sentiment survey will be released at 10 a.m. ET, providing a preliminary picture of consumers’ views on current and future economic conditions in the first two weeks of the month.

Consensus economists expect the headline index of consumer sentiment will register at 92.0 for the period, according to Bloomberg-compiled consensus data, edging lower from September’s 93.2 print. Such an outcome would come in below the 12-month average for the headline index on consumer sentiment, which was 96.5 through September.

The consumer has so far remained a major bastion of strength in the domestic economy, with consumer spending having grown 4.6% in the second quarter, the fastest pace since late 2014. Consumer spending comprises about two-thirds of total domestic economic activity.

But the consumer optimism that had been reflected in “soft” economic data like the University of Michigan’s sentiment survey has since begun to show cracks as the overhang of a lingering trade war weighs on the outlook. In August – the month the U.S. declared China a currency manipulator and both the U.S. and China announced more tariffs on one another’s imports – consumer sentiment fell by the most since 2012.

A near-record one-third of all consumers negatively mentioned trade policies in September when asked to explain factors driving economic expectations, Richard Curtin, University of Michigan Surveys of Consumers chief economist, said last month. And in October-to-date, the trade narrative has only become more complicated, with the Trump administration adding more Chinese firms to a “black list” preventing them from doing business in the U.S., and imposing a travel ban on some Chinese officials over their alleged connections to human rights violations.

People cross Broadway with shopping bags in Manhattan, New York City, U.S. December 27, 2016. REUTERS/Andrew Kelly
People cross Broadway with shopping bags in Manhattan, New York City, U.S. December 27, 2016. REUTERS/Andrew Kelly

Other concerns have increasingly been thrown into the mix.

“Recent news about an impeachment inquiry and the decline in the stock market are likely to dampen consumer optimism. Sentiment has been range-bound in the past few months, consistent with a slowdown in consumption growth after extreme strength in Q2,” Credit Suisse analysts led by James Sweeney wrote in a note last week. “However, we expect consumer demand can hold up during the ongoing current manufacturing slump as the labor market remains resilient.”

The University of Michigan’s subindex capturing consumers’ expectations for future conditions is also anticipated to have weakened, to 82.5 in October from 83.4 in September. Economists believe consumers’ assessments of current conditions will have moved up slightly to 109.0 in October, from 108.5 in September.

Some other economists are more upbeat on the outlook for the consumer. They note that despite the trade-related uncertainty, hard data on factors most salient to Main Street – namely, the employment situation – remain robust. Last week, the Department of Labor’s September jobs report showed the unemployment rate falling to a fresh 50-year low of 3.5%. And Thursday’s most recent print on initial unemployment claims unexpectedly declined for the week, underscoring a job market that remains tight.

“It’s true that most of the recent news headlines about the economy have been pretty gloomy, but the fundamental drivers of consumer confidence have actually remained fairly strong. Initial jobless claims are still close to a 50-year low. Gasoline prices have edged up, but are no higher now than they were in the summer,” Paul Ashworth, chief U.S. economist for Capital Economics, wrote in a note last week.

Against a patchwork of mixed economic data, investors remain largely of the opinion that the Federal Reserve will step in and ease monetary policy further to keep the economy humming along. As of Thursday afternoon, market participants priced in a more than 80% probability of a rate cut after the Fed’s October 29-30 meeting, up from around a 30% probability just a few weeks ago.

On Friday, three Federal Open Market Committee members will deliver public remarks, and may hint at their inclinations as to whether they believe further rate cuts are appropriate.

Minneapolis Fed President Neel Kashkari will speak at 8 a.m. ET in a moderated Q&A on the economy in New York, a day after speaking at Yahoo Finance’s All Market Summit: Generational Opportunities and noting that rates are “close to neutral.” Dallas Fed President Robert Kaplan is set to deliver remarks at an event in San Francisco at 3 p.m. ET.

Boston Fed President Eric Rosengren – one of three dissenters of the Fed’s last decision to cut rates, and one of two that had called for rates to have remained unchanged from their previous band of 2.00% to 2.25% – will speak at an event in Madison, Wisconsin at 1:15 p.m. ET.

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Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck

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