Douglas Rissing
Major market averages see limited movement on Wednesday as markets pause with the Fed taking center stage.
The Dow (DJI) fell 0.5%, the S&P 500 (SP500) was near even, and the Nasdaq Composite (COMP.IND) declined by 0.1%.
“Investor risk appetite has remained pretty strong over the last 24 hours, with the S&P 500 (SP500) hitting a fresh one-year high and posting a 4th consecutive advance,” Deutsche Bank’s Jim Reid said. “This optimism was evident across multiple asset classes, with oil prices rising and credit spreads tightening as well. But the flip side of all this positivity has been growing skepticism that central banks will cut rates at all this year, which led to a sovereign bond selloff as investors priced in higher rates for longer.”
The 10-year Treasury yield (US10Y) fell 6 basis points to 3.79% and the 2-year yield (US2Y) fell 4 basis points to 4.62%.
The market expects the Fed to keep rates steady but signal a hike at the July meeting.
Pantheon Macro says they “expect the Fed to leave rates on hold but to retain clear optionality to hike again, as soon as July, if the incoming data are unfavorable.”
“We expect the median dot in the projections for the end of this year to rise by 25bp to 5.375%, but we expect the Fed again to project 75bp in rate cuts next year. The spread of opinion over the outlook is so wide, though, that the real signal for 2024 and beyond is that the Fed collectively does not have a strong view one way or the other, though some individual members clearly do.”
In other economic news the May PPI came in. PPI M/M arrived at -0.3% which was lower than the expected -0.1% level. At the same time core PPI M/M was 0.2%.
“This is more relevant for corporate pricing power as companies tend to sell to other companies,” UBS’ Paul Donovan said.
