- Markets are waiting on a key inflation report due out Friday, as they remain closed for Memorial Day.
- President Donald Trump said that a deal over the U.S.-Iran conflict may be resolved, but there was no rush.
- Global oil prices dipped below $100 a barrel early Monday.
There were conflicting signals over the weekend whether the U.S. and Iran have agreed to a deal to end a conflict that has driven gasoline prices to $4.50 a gallon this Memorial Day – the traditional start of the summer vacation season.
After teasing that it was a largely a done deal on Friday, Trump said negotiations were ongoing but that he was not in a hurry to get an agreement signed.
“The negotiations are proceeding in an orderly and constructive manner, and I have informed my representatives not to rush into a deal in that time is on our side,” Trump said Sunday in a social media post.
Oil prices, meanwhile, have backed off their highs for the moment with the global price of a barrel just under $100. Financial markets in the U.S. are closed for the holiday.
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The week ahead does include one important data point, a report on an inflation metric for April that is closely followed by officials at the Federal Reserve – the personal consumption expenditures price index. That is expected to show overall inflation at 4%, with the core index that omits gasoline and food prices hovering around 3.75% – both numbers well above the Fed’s 2% target.
Indeed, inflation is now the No. 1 concern for the central bank at a time when a new chairman, Trump appointee Kevin Warsh, is set to take over. At its recent meeting, the Fed made clear it was not close to lowering interest rates at the moment.
“Inflation as measured by the PCE price index likely rose to around 4% in April as gas prices climbed; the PCE is the Fed’s preferred inflation gauge,” ComericaBank Chief Economist Bill Adams wrote early Monday. “April likely delivered more solid gains in personal income and spending, but those gains were largely swallowed by inflation. The core PCE price index was likely little changed, hovering around three and a quarter percent. The Fed has made clear they are unhappy to see it stuck above their 2% target.”
Other reports will shed some light on the housing sector and the overall economy with a report on home prices for March on Tuesday and new home sales for April on Thursday. Friday brings the second estimate of gross domestic product for the second quarter. The GDP number is likely to be unchanged from the initial 2% annual estimate. Home prices will probably reflect the slowing that has been ongoing for a year or more now, while home sales likely dipped a little amid high mortgage rates.
The Iran conflict and rising inflation can be expected to weigh heavily on consumers when the Conference Board’s consumer confidence survey for May is released on Tuesday.
“American consumers are angry about the economy,” Heather Long, chief economist at Navy Federal Credit Union, said on Friday. “They don’t like high costs for so many basics of life – gas, food, electricity and housing. Consumer sentiment is at a record low. Even more alarming is inflation expectations are shooting up as the war in Iran shows little sign of ending anytime soon. Consumers now expect 4.8% inflation in the next year and 3.9% inflation for the next decade. This is a warning sign for the Federal Reserve. Fed leaders cannot take for granted that inflation expectations will remain low.”
All in all, it means the key factor driving the markets and the economy at the moment remains the high price of oil and the state of the conflict in the Middle East. There are already reports of supply constraints for jet fuel and other oil derivative products in Europe and Asia.