The stock market is higher Wednesday as investors brace for what Jay Powell and company have to say.
Seven of 11 S&P sectors are higher, led by Consumer Discretionary. All the megacaps are higher, with Amazon at the top. Energy is the weakest sector.
Major European indexes popped after the ECB called an emergency policy meeting where the central bank instructed staff to create a new tool to address yield fragmentation.
“Not exactly a bazooka,” economics lecturer Daniel McLaughlin tweeted. “The ECB called an emergency meeting this AM, so explicitly acknowledging that fragmentation is already there in the EA, and said it would reinvest the PEPP flexibly (as it said it could last week) and has set up committees to come up with something else.”
Global yields fell and put pressure on Treasury yields. U.S. rates are now off their lows.
The 10-year Treasury yield is down 7 basis points to 3.41% and the 2-year is also down 9 basis points to 3.35%.
Weaker-than-expected May retail sales numbers may also be helping stocks, giving the Fed a little more breathing room down the road. Sales fell 0.3%, compared with forecasts for a rise of 0.1%, while April’s figure was revised down.
The retail control group, which goes into GDP calculations, was flat.
The “factors that have sustained spending thus far are getting near the end of their rope, and we are increasingly concerned that goods spending will slow sharpl and that will be particularly evident in retail sales which is mostly a measure of goods spending,” Wells Fargo said.
The FOMC announcement comes at 2 p.m. ET today, with markets pricing in a 95% of a hike of 75 basis points, and a 5% chance off 100 basis points.
But many Wall Street banks are still sticking with the Fed raising by 50 basis points, with members still reluctant to overshoot.
“A 0.75ppt move today means future Fed attempts to signal policy direction will be countered with ‘they don’t mean it, remember June 2022,’” UBS chief economist Paul Donovan said.
Fed policy is more straightforward than the ECB’s peripheral bond dilemma, SocGen’s Kit Juckes said.
“Of course, straightforward isn’t the same thing as ‘simple’ when many of the drivers of inflation are unaffected by rates (energy and food prices, for starters) and others really are temporary (spending pivoting from goods to services as soon as summer approached), but if that means they need to tighten faster, at least they just need to brief the press, apparently.”
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