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An inflation reading on Friday could determine how May ends for the stock and bond markets



Traders works on the floor of the New York Stock Exchange (NYSE) on August 24, 2015 in New York City. As the world economy continues to respond from events in China, markets fell sharply around the world on Monday.

Spencer Platt | Getty Images News | Getty Images

Inflation data is a wild card for the markets Friday as traders look to see if the economy is caught in a period of weak price increases.

The data to be reported Friday at. 8.30 ET is April's personal consumption and expenses, which include the PCE deflator, an inflation reading tracked by the Federal Reserve. The first quarter inflation was revised down to a surprisingly low 1

% on the headline, from 1.2% in Thursday's revised Q1 GDP report. Quarterly PCE inflation data has only been so low two other times in the last six years.

Core PCE inflation for April is expected to increase by 0.2% or 1.6% year-on-year, compared to last month's reset, according to Dow Jones.

"The cat is out of the bag a little. We had the GDP data come out with the quarterly deflator that was revised and it has the market here today," said Tom Simons, Jeffery's Chief Money Market Economist.

Treasury dividends were lower Thursday, with the 10s at 2.21%, well away from 2.55% when it started in May. When the dividend fell, the shares also hit hard in May, and S & P 500 is 5.3% in May, as it goes to the last day of the month Friday.

Since 1928, there have been 16 cases of S & P 500 losing 4% or more in May, before this year. In June of these years, S & P ended 63% of the time with a 1.7% gain. It also ended the June-October period higher with the same frequency, for an average gain of 6.5%.

"The idea is that the Fed should lower rates," says Art Hogan, Marketing Director at National Securities. "If [PCE] comes in weak, perhaps" & # 39; Fed up to cut this year's investors' cohort in a better mood, and perhaps bid on this market. "

But instead of getting the normal boost on the idea of ​​a Fed interest rate cut, fewer lower bond yields have been spooking stock investors and stocks are weakening with falling yields.

Hogan said he didn't think the Fed needed To lower interest rates yet, but birth funds futures market bets at around 40 basis points of a rate cut in December.

"It brings PCE more into focus than usual," he said. "It's a relatively robust data calendar, and of course, PCE comes in focus, because we connect so much to the Fed. "

Economists expect consumer spending to increase by 0.2% and revenue by 0.3% Other data reported Friday includes Chicago PMI at 9:45 am and the consumer's mood at 10:00 am

"The PCE deflator probably doesn't go to a "Don't change the story of inflation because the market has a selective hearing right now," Simons said. "It likes to hear things about low inflation that add credibility to the speed-saving argument, and it doesn't like hearing anything the opposite."

The Fed has said it expects to meet its 2% inflation target and that it can overshadow it in both directions. Fed chairman Jerome Powell shot markets early in the month after he said the Fed sees low inflation as temporary, and it should rise over the next few months, signaling to the Fed should not lower interest rates. Powell said the Fed would also be happy to hold on until it had a clear signal in either direction.

Since then, investors have responded to weak economic reports by sending bond yields lower and betting on low interest rates in feed futures market.


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