No fear of the Fed
Hope you enjoyed your weekend. Friday’s reports revealed another round of surprisingly strong CPI gains in May, again led by used car prices and airline tickets, leaving a sharp rise in y / y measures going well beyond the initially expected increase in “base effects”. We also saw a modest drop from -9,000 initial claims alongside a welcome sharp drop in continuing claims of -258,000 which broke the pattern of disappointment for the continuing claims numbers.
One of our most popular reports from last week was the CPI Data Report, click here to read it.
Below is a small excerpt from ABS Advisers Market Insight Report. It is published every Monday morning to help financial advisors and investors save time and outperform. We hope you will like it and do not hesitate to pass it on to your friends.
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Key market trends
Tip: Use this as a quick guide to the short-term direction of key markets. I once had a client who called me almost every day to ask me the direction of the markets. This is a quick cheat sheet to know the trend and help understand what is going on with the short term markets.
|S&P 500||4247.45||0.19%||8.26||4248.38||4232.25||Strong bull|
|Bitcoin / USD||39225.61||0.54%||211.85||3939.92||38758.4||Neutral|
|US dollar index||90,469||−0.04%||-0.040||90,601||90,433||Neutral|
Coming week: Taper on the agenda?
TIP – This is a quick one-minute summary. It’s a tool that gives investors and financiers a quick and easy list of what to watch out for and talking points for the week.
- Bonds rallied as Fed cut fears eased, ECB maintained status quo
- The FOMC should maintain an accommodating stance while starting the speech on the tap
- BoJ Should Suspend Policy and May Extend Covid Aid Program
- Taiwan and Indonesia see their rates unchanged at 1.125% and 3.50%
- Australia: RBA minutes, speech by Governor Lowe, employment data; New Zealand GDP
- US data includes retail sales, production, PMIs and housing starts
- CPI Highlights List of Canada, as well as Housing Starts and Existing Home Sales
- Eurozone CPI, production, current account; German HICP, IPP due
- UK CPI, retail sales, BoE lending data and money supply expected
- SNB expected to keep policy stable as inflation remains below target
The dollar stood firm versus most other currencies, trading in a generally narrow range early in the week to less than a month high as measured by the Narrow Trade Weighted DXY Index. This happened alongside the 10-year US Treasury yield trading a few basis points above last week’s three-month lows below 1.430%.
However, there has been a steady decline in the USD as stocks hit new highs. The 1 day chart above shows the USD against the S&P 500. We believe the trend will continue and only consolidate for now.
The benchmark yield, as a reminder, fell nearly 15bp last week, despite the May CPI in the US being warmer than expected at a 13-year high of 5.0% year-on-year. Price action essentially marked a capitulation of lagging bond bears to the dominant trend, the Fed touted the prevailing view that inflation will be transient, due to statistical base effects y / y and the reopening of bottlenecks, where a resurgence in demand has exposed supply bottlenecks.
This backdrop is intensifying markets attention on this week’s FOMC announcement on Wednesday. This backdrop intensifies market attention on this week’s FOMC announcement on Wednesday. We expect the Fed and President Powell to point out that there will be no imminent policy change. On the contrary, a wait-and-see stance should prevail for some time, as the criteria for “substantial progress” on goals were not met and the data was too loud for officials to have a clear vision.
BEAR Alert: We believe there could be a risk of another shutdown due to Covid Variant Delta. This variant poses major problems in India and is now spreading rapidly. This weekend, we found out that China was closing areas again to try and contain it. The good news is that the Pfizer vaccine protects against this.
Many “red” areas like Florida and Texas are unlikely to close again, but we believe Democrat-controlled areas like California and New York may close. I live in Florida and we have been “back to business” for several months. Everyone I spoke to here was against a stop. The media will probably exaggerate the fear and we will see some kind of market downturn. It is still too early to know if the variant will pose a serious threat.
A loaded data list is also interesting in the United States, but the FOMC takes center stage. The BoJ is also on the brink where markets will pay attention to an expansion of the Covid aid program.
SNB, Bank Indonesia, Bank of Taiwan are also expected. The loaded Chinese slate should show some slowdown in the robust recovery. In Europe, the ECB is on the sidelines of its firm stance and continued commitment to ‘significantly higher’ PEPP purchases, while the data is largely retrospective and will not impact the outlook policies.
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