The GBP is the strongest and the USD is the weakest as the North American session begins. The US CPI data will be released at 8:30 AM ET. The expectation is for CPI to rise 0.2% on the month with the core rising by a larger 0.4%. The YoY is expected to decline to 4.1% from 4.9% last month. The Core is expected to dip to 5.2% from 5.5% underscoring the sticky inflation ex food and energy. Will rents move lower this month or remain eleva soonted?
The release is the last key data point ahead of the Fed meeting on Wednesday where the Fed is expected to "skip" a meeting after 10 consecutive hikes that took the target from 0.25% to 5.25%. Although the Fed is expected to skip, the expectation is for the Fed to hike in July by another 25 basis points, but will be dependent on data as well. At the meeting, the Fed will also update their projections for GDP, employment, and inflation in their central tendencies report (see last estimates from the March meeting here). They will also release their projections for the terminal rate (was projected at 5.11% when last projected - which is the midpoint of the current target range).
In a Wall Street Journal article by Nick Timiraos today, various aspects of the current economic scenario were discussed as Federal Reserve officials navigate the complexities of inflation anxieties and potential interest rate hikes. The key points from the article include:
- Federal Reserve officials, due to concerns about high inflation, might signal readiness to raise interest rates again this year, even if they decide to hold them steady in the current week.
- Policy makers like Jerome Powell are expected to use their new quarterly economic projections to underscore their readiness to raise rates more if the economy and inflation don’t soon show signs of slowing.
- A significant minority of officials in the March projections thought the rate would need to rise higher, to around 5.5%, amidst the failure of two midsize banks.
- Some policymakers, who were not named in the article, have expressed concern that the economy hasn’t responded to rapid rate rises over the past year and are keen to nudge rates higher to ensure a slowdown.
Comments from former Fed members and other economists added the following:
- Former Fed governor Jeremy Stein highlighted the increased risk of a monetary policy mistake at this stage due to economic resilience and the lagged effects of past rate increases.
- Former Fed governor Daniel Tarullo mentioned the need for a more complex analysis when deciding how much further and faster to raise rates.
- Stephen Cecchetti, an economist at Brandeis University, noted the effects of banking stress on the economy, mentioning that rising funding costs for banks could be reducing lending and slowing down the economy.
- Narayana Kocherlakota, who was president of the Minneapolis Fed from 2009 to 2015, argued that the Fed should continue raising rates to prevent high inflation from becoming entrenched in public psychology, and mentioned a possible need to go as high as 7% on interest rates.
In premarket trading, U.S. stock futures are implying a modest rise in the major indices. Yesterday the major indices were higher with the NASDAQ leading the way with a gain of over 1.5%. The S&P index rose nearly 1% yesterday. The Nasdaq is on a 7-week win streak, while the S&P is up for four consecutive weeks. AI continues to support the semiconductor and software sectors, boosting major indices.
Apple's shares reached a record-high close of $183.79 on Monday, following the unveiling of its new Vision Pro mixed reality headset at its annual developers conference. However, UBS analysts downgraded their rating of the stock due to an anticipated slowdown in iPhone unit growth.
U.S. antitrust regulators have requested a California federal court to temporarily halt Microsoft's $69 billion acquisition of Activision Blizzard, potentially creating a new legal obstacle for the largest-ever gaming industry deal. The FTC argues the merger could lessen competition, while Microsoft's president and vice-chair, Brad Smith, said he "welcomes" the chance to defend the merger in court. Bring it on and get it over with. The UK regulators have so far blocked the deal while EU regulators have approved the deal.
In China, the People's Bank of China (PBoC) cut its key seven-day reverse repo rate by 10 basis points on Tuesday to support a flagging post-pandemic recovery. The rate cut suggests that China's central bank is increasingly concerned about growth outlook. Reports also suggest that Beijing is considering new stimulus measures to boost the slumping property sector. The USDCNH reached another new high for the year and since November 2022 to 7.1775.
US yields are lower in premarket trading. Crude oil is higher after settling yesterday at the lowest level since November 2022. OPEC maintained their demand targets but warns of economic risks. The demand for oil globally is anticipated to rise by 2.35 million barrels per day (bpd) in 2023, maintaining the forecast from previous predictions. Additionally, there's an expected increase in China's oil demand, predicted to climb to 840,000 bpd from the earlier estimate of 800,000 bpd. The world economy is projected to grow by 2.6% this year, but this projection is threatened by the rise in inflation and interest rates, which are contributing to a growing climate of uncertainty. Adding to this uncertainty is the unclear resolution of geopolitical tensions in Eastern Europe. The price bounced off its 200-week moving average currently near $67.31, a key technical support level since March.
A snapshot of the markets currently shows:
- Crude oil is trading at $1.07 or 1.59% at $68.19
- Spot gold is trading up $6.41 or 0.33% at $1963.73
- Silver is up $0.11 or 0.46% $24.15
- Bitcoin is trading back above $26,000 at $26,202. The price traded as low as $25,420 over the weekend and as low as $25,823 today
In the premarket for US stocks, the major indices are trading mixed/little changed. Nasdaq shares are leading the way to the upside once again. In premarket trading, Tesla shares are up for the 13th consecutive day.. Shares are trading at $251.46 after closing yesterday at $249.83
- Dow Industrial Average is trading down -1.33 points after rising 189.55 points yesterday
- S&P index is trading up up 2.75 points after rising 40.05 points yesterday (0.93%)
- NASDAQ index is trading up 37 points after searching by 202.78 points or 1.53% yesterday
In the European equity markets, the major indices are trading mixed.
- German DAX up 0.14%
- France's CAC up 0.02%
- UK's FTSE 100 -0.08%
- Spain's Ibex -0.81%
- Italy's FTSE MIB -0.10% (delayed)
In the Asian Pacific market today stock indices were mostly higher/mixed:
- Japan's Nikkei rose 1.80%
- Hang Seng index rose 0.60%
- Shanghai composite index rose 0.15%
- Australia's S&P/ASX 200 index rose 0.23%
In the US debt market yields are lower. Yesterday the U.S. Treasury auctioned off 3 and 10 year notes with decent domestic demand but modest international demand. The treasury will auction off 30 year bonds at 1 PM ET
- 2-year yield 4.579% -1.2 basis points
- 5-year yield 3.884% -3.1 basis points
- 10-year yield 3.76% -3.9 basis points
- 30-year yield 3.864% -4.2 basis points
In the European debt market, benchmark 10 year yields are mostly lower (the exception is UK 10 year yield):
