"Pause" or "Skip" - Take Your Pick
The broad-based rally continued last week as technology took a back seat.
Equities moved higher last week as the Fed Futures remain strongly slanted toward no rate hike this week. Both CPI and PPI will be released this week just before the Fed’s June rate decision. Economists expect the May inflation numbers to come in lower, which would mark a considerable decline in inflation since the peak in June of last year. A “pause” or “skip” in rate hikes would help the U.S. consumer, who appear to be holding their own. Consumer Credit in April was higher than expected and the highest in 5 months. Retail Sales for May will be released this week which may confirm that the U.S. consumer is alive and well.
Meanwhile, markets seem to also be signaling the “pause” or “skip.”
The U.S. dollar declined last week. The dollar tends to move higher with rising rates and lower with declining rates - although, not necessarily in a one-to-one correlation. The Technology sector, which has been on a hot streak of late, is also signaling the possible end to rate hikes. Technology stocks tend to be slightly more interest-rate sensitive and the appreciation of the sector may also indicate lower rates moving forward. The market will parse the Fed’s announcement for any kind of forecast on interest rates beyond the this week.
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