Good Tuesday AM,
The first domino to fall this week was the CPI report this am.
It was about as tame as markets had hoped for and were expecting. Economists expected and got a gain of 0.4% month-over-month for the core number. For the headline number, the rise was expected to be just 0.1 Bonds rallied on the initial print and have since pulled back on the realization that this is just the first report and while the Fed will certainly be aware and reflect on it for tomorrow’s rate decision and statement, it isn’t the only report this week and we need to hear what the Fed has to say. Trading will likely remain in a tight range until the Fed announcement tomorrow at 11am pacific.
Some Talk about the Fed from around…
From the WSJ:
Federal Reserve officials’ concerns about stubbornly high inflation could lead them to signal that they are prepared to lift interest rates again this year even if they hold them steady on Wednesday. Policy makers’ new quarterly economic projections, due to be released after their meeting on Wednesday, provide them one way to underscore that they are likely to raise rates more if the economy and inflation don’t soon show signs of slowing.
Today’s US CPI print may work in favor of Federal Reserve doves, according to Bloomberg Economics, which expects to see moderating inflation bolstering the case for a pause in tightening. Falling energy prices in May should help offset upward pressure elsewhere, they said. Excluding food and energy, prices probably rose 0.3% — a deceleration from April’s 0.4% increase, which ought to be enough to keep the FOMC from opting for an 11th-straight increase in its benchmark interest rate on Wednesday.
Now before going any further, this chart here is a nice snapshot of where we’re at these days. It shows WTI oil trading near a 52-week low and the S&P 500 trading at a more than 52-week high. Not bad. A very different vibe from last summer.
We’ll see what today’s CPI tells us, but the widespread assumption right now is that the Fed isn’t done hiking rates. Consensus is that we’ll get a “skip” at this Wednesday’s meeting, and then the expectation is that the Fed will resume hiking at the subsequent meeting.
And maybe goods are going to get even a little cheaper.
China’s central bank unexpectedly trimmed a key lending rate, a sign of policy makers’ growing unease over a sputtering recovery that likely foreshadows further steps to nudge China’s economy back on track. Economists, though, say lower borrowing costs might not do much to help China’s weak recovery, as households and businesses have so far shown little appetite to borrow amid already high debt levels and subdued prospects for growth
Please remain safe and stay healthy, make today great!