A cautiously positive tone prevailed across financial markets as stocks finished the week on the upside, with the S&P 500 adding 1.5% and the Nasdaq 100 rising 1.9%. Bond yields rebounded, with ten- and two-year rates increasing 2.5% and 3.5%, respectively.
The economic calendar will test this optimism next week, particularly with US consumer price index (CPI) data set to show headline inflation accelerated to 2.5% year-on-year in May, up from 2.3%. The core measure excluding volatile food and energy prices is seen rising to 2.9%, the highest in three months.
Market expectations suggest that such a result will cement near-term inaction at the US central bank, with benchmark Fed Funds interest rate futures showing markets have dismissed the possibility of a rate hike in June or July. A rate hike is priced in by October, and the probability of another one before the end of the year stands at 60%.
A preliminary look at this month’s consumer confidence survey from the University of Michigan is also penciled in for a slight improvement after sentiment dropped to a three-year low in April and held there in May. However, consumption remains a concern, with weak data from the first quarter hinting at ongoing weakness.
The implications are significant, as an economy that appears to be inching toward recession could have negative consequences for stocks and the US dollar. Conversely, if traders are prepared to act on this data, it remains unclear how markets will respond.
Source: https://www.tastylive.com/news-insights/stock-markets-care-fed-dithers-consumers-retreat