Market Pulse

In focus

Central banks around the world will take center stage this week. The Federal Reserve (Fed) will kick things off with their meeting ending Wednesday. The European Central Bank (ECB), Bank of England (BOE), and the Bank of Japan (BOJ) all meet within seven days of each other too. This year’s synchronized global monetary tightening has been orchestrated for one reason –inflation.

Inflation data last week surprised to the upside in the U.S., and the Fed will get one more look at consumer price measures this week with the latest Consumer Price Index (CPI) release. Prices likely cooled again, but the annual figures remain far above the Fed’s 2% target. Because of this, we are likely to see another rate increase this week, albeit at just 0.5% compared to the 0.75% increase they’ve done at the last four meetings. A potentially more important point that will come out of the meeting will be where the Fed expects to stop raising rates, with markets expecting around a 5% stopping point.

Global markets are still trying to figure out how to trade during this much more hawkish central bank regime. U.S. equities dropped last week amid fears that the Fed may have to go higher for longer, while U.S. Treasury yields climbed for the same reason. The past month has been better for international stocks, with somewhat better than expected economic data coming out, and expectations that the ECB will not get to as high of an ending policy rate.

A look back

• The S&P 500 underperformed global equities last week, declining by over 3% while the MSCI ACWI was down about 2%.
• U.S. Treasury yields rose last week by about 0.05% -0.10% across the curve, keeping the curve inversions similar to the prior week.
• The Producer Price Index (PPI) came in hotter than expected for both the month-over-month and the year-over-year figures. 

A look ahead

• The CPI report will be released this week, with expectations that monthly figures may slow but stay higher than the Fed wants.
• The Fed meets this week and will continue to raise rates at a faster than normal pace, although likely slower than 0.75%.
• Economic releases: NFIB Small Business Optimism, CPI, FOMC rate decision, Retail Sales, Industrial Production.

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