Fed, Inflation Issues
Traders will be closely watching a host of central bank speakers this week after Chair Jerome Powell on Wednesday played down the option of 75 basis-point rate hike.
Fed Bank of Atlanta President Raphael Bostic told Bloomberg Television he favors policy makers continuing to raise rates by half-point increments rather than doing anything larger. In a later interview with Reuters broadcast on Twitter, Bostic added that he while he saw low odds for a 75-basis-point hike in the next several months, “I am not taking anything off the table.”
The April consumer-price index report on Wednesday is the highlight of an otherwise quiet week for economic releases. Inflation is projected to have moderated on both a monthly and annual basis, partly reflecting a dip in gasoline prices that have since picked back up.
While inflation likely peaked in March at 8.5%, the hottest in four decades, price pressures are expected to remain elevated, keeping Fed officials on track to steadily lift borrowing costs in the months ahead.
High inflation readings, a slowing economy and aggressive tightening by the Fed to tame soaring prices have weighed on risk appetite and valuations. Even if an outright recession is avoided, the outlook for U.S. stocks isn’t particularly bright, according to Goldman Sachs Group Inc. strategists.
“Swings will remain large until the path of inflation is clarified,” strategists led by David Kostin wrote in a note to clients, adding that “tightening financial conditions and poor market liquidity make it difficult to argue for a short-term rally similar in size to the one in late March.”
- “The big question is if inflation can head below 3% without the Fed causing a recession,” wrote Dennis DeBusschere, founder of 22V Research. “Until that question is answered, financial conditions are biased tighter, and markets will struggle despite oversold conditions.”
- “Sentiment is bearish, but not at capitulation levels, market liquidity is poor which leads to greater volatility, and investors are pulling money out of equity and bond funds rather than putting it in,” wrote Solita Marcelli, chief investment officer Americas at UBS Global Wealth Management. “These technical factors can dominate economic news over a few weeks or couple of months, and it will probably take that long for inflation improvement to become apparent.”
Key events to watch this week:
- Cleveland Fed President Loretta Mester, Atlanta Fed President Raphael Bostic, New York Fed President John Williams, Fed Governor Christopher Waller speak, Tuesday
- Atlanta Fed President Raphael Bostic speaks, Wednesday
- U.S. CPI, Wednesday
- EIA crude oil inventory report, Wednesday
- San Francisco Fed President Mary Daly speaks, Thursday
- U.S. PPI, initial jobless claims, Thursday
- University of Michigan consumer sentiment, Friday
Main Market Moves
- The S&P 500 fell 2.7% as of 2:38 p.m. New York time
- The Nasdaq 100 fell 3.6%
- The Dow Jones Industrial Average fell 1.5%
- The MSCI World index fell 2.8%
- The Bloomberg Dollar Spot Index rose 0.4%
- The euro was little changed at $1.0556
- The British pound fell 0.1% to $1.2333
- The Japanese yen rose 0.1% to 130.39 per dollar
- The yield on 10-year Treasuries declined five basis points to 3.08%
- Germany’s 10-year yield declined four basis points to 1.09%
- Britain’s 10-year yield declined four basis points to 1.96%
- West Texas Intermediate crude fell 6.1% to $103.03 a barrel
- Gold futures fell 1.5% to $1,855.30 an ounce
(Image: Sergey Nivens/Shutterstock)