Markets rally After Weaker CPI – S&P up 0.7%
The main economic data for the week that the market had been waiting for came out last night and confirmed that the Fed will likely pause today. The US CPI data came out slightly under expectation for both the monthly and yearly comparison numbers with equity markets once again reacting strongly. The S&P and Nasdaq both rose to yearly highs, up 0.69% and 0.83% respectively with the Dow lagging again, up 0.43% on the day. The dollar eased against most of the majors although there were some anomalies, USDJPY up nearly 1% on the day and US treasury yields coming back slightly better bid towards the end of the day with the fixed income market more cautious ahead of the Fed announcement later today.
Federal Open Markets Committee set to Pause
The much-anticipated update from the Federal Reserve is at last upon us in today’s trading sessions and after slightly weaker than expected CPI data the market is strongly pricing in a pause in rate hikes. The expectation now sits at 94% that the Fed will keep rates in the 500-525 range at today’s meeting with a 35% chance of another ‘no change’ call at the next meeting on 26 July. The risk now for many traders is how much of this is now priced into markets and what are the potential reactions in the aftermath of the announcement, statement, and Press Conference. It now seems much more likely that volatility will come from the FOMC’s forward guidance and this is where we are expecting to see some sharp moves in the market, once again with the bigger moves probably sitting with a more hawkish Fed, especially after the recent moves we have seen in US stocks.
The Day Ahead of the Fed
It is not all completely about the Fed in the trading sessions ahead, but let’s be honest it mostly is! Asian markets have very little on the event calendar today and will be expected to maintain the positive sentiment from the US at the start of the day, however, do not be surprised to see some profit taking ahead of the big risk event in all sessions. Focus will once again turn to the UK on the European open, we saw some big moves after better job numbers yesterday and today we have the latest GDP data being released, the expectation is for m/m print of +0.2%. Into the US session and we do have one more piece of the puzzle to see before the FOMC announcement in the form of the latest PPI data, expectation of an increase of 0.2% for the Core PPI number and a drop of 0.1% for the PPI.
