With a rate hike in June considered a done deal, investors may be more concerned with the economic projections and press conference with Fed Chair, Jerome Powell. Markets are poised to closely scrutinize the Fed’s monetary policy statement for clues on how fast the Fed may raise interest rates during the second half of this year.
The mood in financial markets is relatively upbeat at the start of a very busy week, as investors shrug off the G7 meeting that didn’t exactly go to plan as President Donald Trump rejected the prepared communique and left early.
Tuesday’s Core CPI read may not be the event you pay admission for in a week highlighted by a trio of central bank policy meetings and a historic Summit between President Donald Trump and North Korean dictator Kim Jung Un, but it begs to set the tone. In fact, Wednesday’s FOMC Meeting encourages a stronger emphasis on this inflation indicator.
A funny thing happened on the road to Singapore. The Group of 7 joint communique was agreed to by all nations until the Prime Minister of Canada Justin Trudeau made a statement after President Trump was on the plane going to try to rid the world of the North Korean regime’s nuclear weapons and said that “U.S. tariffs were kind of insulting” and he “will not be pushed around’ set off President Trump and his advisors.
With U.S. President Donald Trump already sparking uncertainty by lashing out at Canada and France ahead of the meeting, optimism has diminished over any agreement being reached on trade during the two-day summit. Risk sentiment could take a hit if the talks between G7 leaders descend into disagreements and arguments. With escalating trade tensions seen as a major threat to global stability, the outcome of the summit could leave a mark on global sentiment.
Major U.S. benchmarks grinded forward in the second half yesterday and added gains overnight. Buzz that China offered to add $25 billion in purchases of U.S. goods this year turned a potentially dulling tape back north before the close. The offer comes days after Commerce Secretary Wilbur Ross left Beijing but also surfaces question marks to the $70 billion in purchases spoken of weeks ago.
Major U.S. benchmarks are holding Monday’s gains and then some this morning after the Nasdaq Composite closed at a record high to start the week. Europe is leading this morning, the DAX is + 0.8% while Asia is muted. Traders want to keep an eye on Europe as Italy’s new PM Conte faces a bit of a confidence vote, though the coalition that appointed him has a majority.
The sentiment was already positive before the release of the US jobs report as Italian bond yields were lower for the third day due to diminished political concerns following the formation of a coalition government there. When the U.S. jobs report was published, this triggered a fresh rally in risk-sensitive assets as investors were relieved to learn the jobs market remained healthy after two months of poor showing.
Most policymakers were optimistic over the economic outlook, and felt it would “soon be appropriate” to raise interest rates if the U.S. outlook remains intact. However, the lack of clarity offered on rate hike timings beyond June simply left most investors empty-handed.
As any Economics 101 student learns, the Federal Reserve is responsible for U.S. monetary policy, including setting the level of interest rates, and more recently, managing the central bank’s vast assets acquired through repeated iterations of Quantitative Easing.