Bull market rally continues ahead of CPI and the Fed – MarketPulse

• 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.

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Ed Moya

Senior Market Analyst, The Americas at OANDA

With more than 20 years’ trading experience, Ed Moya is a senior market analyst with OANDA, producing up-to-the-minute intermarket analysis, coverage of geopolitical events, central bank policies and market reaction to corporate news. His particular expertise lies across a wide range of asset classes including FX, commodities, fixed income, stocks and cryptocurrencies. Over the course of his career, Ed has worked with some of the leading forex brokerages, research teams and news departments on Wall Street including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including CNBC, Bloomberg TV, Yahoo! Finance Live, Fox Business and Sky TV. His views are trusted by the world’s most renowned global newswires including Reuters, Bloomberg and the Associated Press, and he is regularly quoted in leading publications such as MSN, MarketWatch, Forbes, Breitbart, The New York Times and The Wall Street Journal. Ed holds a BA in Economics from Rutgers University.

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• Source: https://www.marketpulse.com/newsfeed/bull-market-rally-continues-ahead-of-cpi-and-the-fed/emoya