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Weekly Market Preview
Friday, June 07, 2024
Last week, the Bank of Canada and the European Central Bank reduced interest rates by 25 basis points, as expected, due to a significant decline in inflation levels, approaching their target of 2%. In April, the YoY CPI headline in Canada fell to 2.7%, while the YoY European CPI headline dropped to 2.4%.
This week, investors expect the US Consumer Price Index (CPI) report for May. According to Bloomberg, the YoY CPI headline may stabilise at 3.4%, while the YoY core index (excluding energy and food items) may retreat from 3.6% in April to 3.5% in May. Given that these figures are still relatively far from the 2% inflation target, traders do not anticipate any change in interest rates at the Federal Reserve’s meeting this week. Markets have priced in already two rate cuts this year, once in September and once in November. However, any higher-than-expected inflation data for May could decrease the likelihood of a rate cut in September.
Markets will gain more clarity on the direction of US monetary policy from the Federal Reserve’s projections for growth and inflation levels, and from Fed Chairman’s press conference. Additionally, investors will check the Fed dot plot, which reflects the FOMC members’ expectations for interest rates over the current year and the next two years. Any reduction in the number of expected rate cuts in the June dot plot compared to the three reductions anticipated in the March plot could support US dollar prices while impact major stock indices and short-term bond prices negatively.
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