On Thursday, 10th June 2021, the Bureau of Labour Statistics reported in its headline that the CPI (Consumer Price Index) rose by 5.0% from a year ago.
While this was slightly more than expected, the market read this as friendly.
From this, we can conclude that inflation is to be expected in a recovering economy, and that it also stands as a by-product of growth. More importantly, the market believes that the inflation will be transitory.
The S&P made new all-time highs, while the tech heavy Nasdaq closed near its all-time highs.
Below are the closing levels on Friday: –
Dow Jones 34,479.6 +13.36 +0.04%
S&P 500 4,247.44 +8.26 +0.19%
Nasdaq Comp 14,069.42 +49.09 +0.35%
US 10Y 1.454%
VIX 15.65 -2.8%
The number to highlight is the US 10Y. A convincing break of the 1.5% recent support, and falling to a low of around 1.43%, it was the clearest sign that the inflation fears are no more than an immediate concern.
The focus this week will be the Fed’s 2-day policy meeting on Wednesday.
Bloomberg reports that in a survey of 51 economists, most predict that the Fed won’t signal tapering until August or September.
More than half of them predict that the quarterly rate-forecast, “dot plot”, will show the median of 18 officials pencilling in at least one increase in 2023. Meanwhile, other economists do not expect any increase until 2024.
The bottom line is, the Fed and the market believe that the rise in inflation is transitory.
We should not expect too much from this meeting.
Easy monetary policy from the Fed is likely to continue in supporting the growth in the job market.
The 2 main roles of the Fed are to control prices, and increase jobs. With the inflation fears on the back burner, they can focus on job growth – and keeping a loose policy will support that objective.
So, as long as the US economy is on a recovery path, with no shocks in terms of the virus – whether inflation or geo political – it would be hard to argue against a higher S&P and Nasdaq.
In the meantime, we could also see range trading for a while until we build a base for another rally.
Source: CBOE, Reuters, Bloomberg
This commentary is written by James Gomes
James has been in the finance industry for over 30 years and most recently worked for a large US bank for more than 20 years.
Disclaimer
While every effort has been made to ensure the accuracy of the information in this document, DOO Group does not warrant or guarantee the accuracy, completeness or reliability of this information. DOO Group does not accept responsibility for any losses or damages arising directly or indirectly, from the use of this document. The material contained in this document is provided solely for general information and educational purposes and is not and should not be construed as, an offer to buy or sell, or as a solicitation of an offer to buy or sell, securities, futures, options, bonds or any other relevant financial instruments or investments. Nothing in this document should be taken as making any recommendations or providing any investment or other advice with respect to the purchase, sale or other disposition of financial instruments, any related products or any other products, securities or investments. A decision to invest in financial instruments, any investment-related products or any other products, securities or investments should not be made in reliance on any of the statements in this document. Before making any investment decision, prospective investors should seek advice from their own financial advisers, take into account their individual financial needs and circumstances and carefully consider the risks associated with such investment decision.
Without limiting any of the foregoing, in no event will DOO Group or any of its affiliates be liable for any decision made or action taken in reliance on the information in this document and, in any event DOO Group and its affiliates shall not be liable for any consequential, special, punitive, incidental, indirect or similar damages arising from, related to or connected with this document, even if notified of the possibility of such damages.
This document contains forward-looking statements. The forward-looking statements included in this document are based on current expectations that involve a number of risks and uncertainties. These forward-looking statements are based on the analysis of DOO Group of the statistics available to it. Assumptions relating to the forward-looking statement involve judgments with respect to, among other things, future economic, competitive and market conditions all of which are difficult or impossible to predict accurately. In light of the significant uncertainties inherent in the forward-looking information included herein, the inclusion of such information should not be regarded as a representation by DOO Group that the forward-looking statements will be achieved. DOO Group cautions you not to place undue reliance on its forward-looking statements and we assume no responsibility for updating any forward-looking statements. Expressions of opinion are those of the authors and are subject to change without notice.
This document is strictly confidential to the recipient. It is being supplied to you solely for your information and may not be reproduced, redistributed or passed on, directly or indirectly to other person or published, in whole or in part. For any purpose, neither this document nor any copy of it may be taken or transmitted into Singapore, Hong Kong, Malaysia, United Kingdom and the United States or distributed directly or indirectly in Singapore, Hong Kong, Malaysia, United Kingdom and the United States. The distribution of this document in other jurisdictions may be restricted by law, and persons into whose possession this document should inform themselves about, and observe any such restrictions. By accepting this report, you agree to be bound by the foregoing instructions.
