Stocks Edge Higher as Investors Seek Direction
It was a relatively quiet day across financial markets yesterday but finished on a positive note as US indices closed higher after the New York Federal Reserves Empire State Manufacturing Index dropped hard, printing -31.8 against an expected -3.75. This buoyed further the expectation that the FOMC will pause in June and led to a relief rally in the markets, the Dow finishing up 0.14%, the S&P up 0.3% and the Nasdaq up 0.66%. The dollar slid on the same reasoning, halting a rally that had lasted for the last few days trading, although the majors are still trading in very familiar territory and US treasuries yields ticked higher.
Fed Still focused on Inflation.
Fed Officials have confirmed that they are still focused primarily on inflation and hinted that rates could stay higher for longer or even increase, this of course is completely at odds with market pricing both in the short and longer term. Expectations have ticked up slightly for a hike in June, now a 22% chance up from 15% yesterday but the greater market is still looking for a pause from the Fed next month – US stocks moving higher and the dollar dropping off in the overnight session. Add to this the fact that the market is fully expecting rate cuts to occur well before the end of 2023, and you are starting to get the recipe for some serious and violent corrections in the market.
Data and Debt the Focus Today.
Concern on the US debt ceiling is still a major focus for the market and expect more volatility around this subject as we approach the potential June deadline, however we do have some big data releases today before we hit the US session and the latest updates from Washington. In the Asian session, the Monetary Policy Meeting minutes from the RBA are due out in Sydney and will give traders a bit more insight into the surprise rate earlier in the month and these are followed by the Chinese Industrial Production data. The European session sees the release of the UK jobs data with expectation that the unemployment rate will remain at 3.8%. The New York session has the release of the Canadian CPI numbers as well as the US Retail Sales data but once again expect investor concern to remain on the potential government default and all its implications.
