Markets enter Monday in muted fashion after last week’s nearly 700-point drop in the Dow Jones Industrial Average, as President Donald Trump tries to salvage a shaky ceasefire with Iran.
Over the weekend, the Middle East conflict passed its 100th day, with Iran and Israel trading attacks and Trump calling for the two sides to stop hostilities. Oil prices, meanwhile, were trading higher early Monday with the global benchmark of Brent crude at $97 a barrel.
Reports Monday morning indicated that Iran had ended attacks on Israel, but there were few details.
The week will provide markets and economists with plenty to be concerned about, with updates on consumer and wholesale prices due Wednesday and Thursday, respectively. Forecasts call for the former to top a 4% annual rate – a key threshold that is likely to keep inflation in the forefront of the minds of consumers this summer.
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On Friday, the University of Michigan releases its June estimate of consumer sentiment. Concerns over prices and the Iran war are likely to leave consumers in a sour mood.
In contrast, last Friday’s bumper jobs report – 172,000 new jobs were created in May, more than double what economists had forecast – removed worries over the state of the labor market for now.
“Investor ebullience is largely missing from the clients we talk to who grow more nervous by the moment as markets continue to reach new highs,” Carol Carol Schleif, chief market strategist at BMO Wealth Management, wrote in an email Monday. “There is still anxiety out there fueled by the continual flow of negative headlines on the Middle East, tariffs, and contentious politics, which all add to the psychological unrest. Oddly enough, this skepticism coupled with strong fundamentals and powerful secular trends is the combination of factors that can allow the markets to continue to climb the wall of worry higher.”
But it is inflation that dominates the mind of most Americans, and the psychological toll of a 4% annual CPI could be significant.
“Headline CPI is expected to top 4% year-over-year in the May release, reaching a three-year high on last month’s rise in gasoline prices,” Bill Adams, chief economist at Comerica Bank, wrote on Monday. “Core CPI should run cooler, near 3% year-over-year.”
“Prices rose faster than average hourly earnings in May, eroding consumers’ purchasing power,” Adams added. “The PPI (producer price index) likewise registered another outsize increase and outpaced the CPI, reflecting the larger shares of petroleum products, metals, and shipping costs in the producer price basket.”