The Lookout | Week of April 11, 2022

The Lookout | Week of April 11, 2022

It’s a short but packed week with several U.S. data releases, an ECB interest rate decision and press conference, and more ahead. This week we’re featuring insights from Matt Ferratusco of Lyons Wealth Management, Simon Lack and his team at SL Advisors, and Daniel Rudnitsky of SMH Capital Advisors on what they’re watching in the week ahead in this edition of The Lookout.

Major Market Events:

Tuesday, April 12: US Core CPI Report

Wednesday, April 13: US Crude Oil Inventories, GBP CPI Report, Bank of Canada Press Conference

Thursday, April 14:   ECB Monetary Policy Statement and Interest Rate Decision, US Initial Jobless Claims

Friday, April 15:  Holiday (Good Friday)

Matt Ferratusco of Lyons Wealth Management, portfolio manager of a tactical allocation strategy

• Inflation and monetary policy continue to dominate market sentiment. This week’s headliner will be Tuesday’s release of March CPI data, with year-over-year inflation expected to eclipse 8%, driven largely by the March spike in oil prices as the Ukraine situation intensified. The goal posts continue moving on whether we are seeing peak inflation.
• Market forces may serve to slow the pace of inflation by suppressing consumer demand. This week brings March retail sales data which are expected to show a flat pace of growth in core goods spending when excluding the impact of energy and durable goods such as cars. The looming question for investors is whether the Federal Reserve can appropriately accomplish a similar objective by tightening monetary policy, without overshooting and causing a sharp contraction that stifles economic activity too much.
• We continue to revert back to the root cause of our current inflationary environment – supply chain disruptions slow to cure themselves from the depths of the coronavirus crisis – as perhaps the more influential key to slowing inflation.

Simon Lack, SL Advisors, and Portfolio Manager of an energy infrastructure fund

• The economy is more responsive to long term yields than the Fed Funds rate. Most residential mortgages are fixed rate. Corporate capital spending is partly financed with bond issuance. The Fed is trying to make financial conditions less accommodative, but even though their own forecast is for the Fed Funds rate to reach nearly 3% by late next year, 10-year treasury yields remain stubbornly low at around 2.7%, a level that hardly translates into tight monetary conditions.
• Having decided to operate directly in the bond market to lower yields during a recession, it’s logical for the Fed to take steps to increase bond yields when trying to slow growth – such as now.
• Nobody wants a flat yield curve. The Fed will likely conclude a steeper curve is a necessary element of their effort to curb inflation. Mortgage rates have likely bottomed for good.

Daniel Rudnitsky, SMH Advisors, and Senior Portfolio Manager of an income strategy

• This week will begin the Q1 earnings season. The Consumer Price Index report will be released on April 12 and is expected to show inflation increase by 1.1% in March month over month and up 8.4% from a year ago.
• We’re also watching the expected updates on producer prices, retail sales and consumer sentiment.

Thank you for reading The Lookout. Come back next Monday for more insights on what investors can expect in the markets.