Bull market rally continues ahead of CPI and the Fed

• Tech trade remains strong, sending the S&P 500 to a 13-month high
• Ahead of the May inflation report, Fed swaps are pricing a 23.8% chance the Fed will raise rates on Wednesday
• Dollar and Treasury yields edge higher

US stocks are rallying ahead of a massive macro week that contains a key inflation reading, some major central bank rate decisions, and many important economic readings. ​ ​ The bull market rally looks like it doesn’t want to stop, which means Wall Street appears confident that the Fed will not be delivering its 11th straight rate hike this week. ​ The Fed will try to keep optionality for further tightening available later this year and that should support their ‘higher for longer’ stance. ​

A hot May inflation report could disrupt the Fed’s plan to deliver a ‘hawkish skip’. ​ Inflation should be coming down given the trend with gasoline prices, a more seasonable rise in food prices, and the negative base effects. If the US economy is dealt a hot report, the Fed may have to debate delivering one more rate hike and possibly signal they might need to stand ready to do more.

The headline inflation is expected to slow from 0.4% to 0.1% on a monthly basis. The negative base effects should help the headline year-over-year reading fall from 4.9% to 4.1%. Core inflation from a month ago could soften from 0.4% to 0.3%, while the annual reading is expected to drop from 5.5% to 5.2%.

S&P 500

US Dollar

The dollar rebounded as the pound weakened as investors may have priced in too much tightening by the BOE.  BOE’s Mann noted that inflation expectations are now on the down swing.  The Swiss franc also softened as a risk-on mood on Wall Street dented demand for safe-havens.

Content is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Business Information & Services, Inc. or any of its affiliates, subsidiaries, officers or directors. If you would like to reproduce or redistribute any of the content found on MarketPulse, an award winning forex, commodities and global indices analysis and news site service produced by OANDA Business Information & Services, Inc., please access the RSS feed or contact us at info@marketpulse.com. Visit https://www.marketpulse.com/ to find out more about the beat of the global markets. © 2023 OANDA Business Information & Services Inc.