Earnings Call, Conference Presentation
Payroll call
Bank of AmericaSphia Salim, Zviya Salim, Aditya Abbas, Shruti Mishra, Alex Cohen, Mark Havana, Bruno Brasenia
- The Federal Reserve is projected to remain on hold with a neutral stance on inflation provided unemployment exceeds its estimate of the neutral rate, while core CPI is expected to print at 0.20% month-over-month.
- Wage inflation is forecast to trend downward at 3.4% year-over-year as activity slows with a lag following the fading of fiscal stimulus, potentially weakening labor demand.
- Private job creation is estimated to average 100,000 over five months, with a three-month base of 160,000, though a World Cup hiring boost of 60,000 to 100,000 is anticipated to be reversed in August.
- The unemployment rate is expected to hover around 4.3%, prompting the Fed to focus on its inflation mandate by looking through potential increases in University of Michigan inflation expectations.
- Hawkish shifts on the FOMC and incoming data have increased the probability of a rate hike this year, with the June dot plot potentially showing two to three individuals penciling in hikes.
- Market pricing currently reflects approximately 14 basis points of rate hikes through the October FOMC meeting and nearly 24 basis points for the December meeting, following the midterms.
- There is a roughly 50% probability of a second Fed hike occurring by the middle of next year, driven by expectations that Jerome Powell will adopt a more inflation-concerned tone in his upcoming remarks.
- The dollar is expected to rally by 0.5% to 0.75% against most G10 currencies to align with economic surprise indices and rate differentials, contingent on the market reassessing the timing for earlier hikes.
- The Canadian dollar is forecast to outperform other G10 currencies, supported by a similarly hot Canadian jobs report.
- Upside risks for the dollar include a potential decline in the unemployment rate, while downside headwinds involve the market pricing in a higher bar for hikes than fundamentals suggest.
- Geopolitical factors, specifically the status of the Strait of Hormuz and the Iran war situation, are expected to keep oil prices contained but may cause market paralysis that prevents decisive dollar movement.