Tuesday commences a two-day FOMC meeting. Consensus is expecting the Central Bank to increase the overnight rate by another 25 bps. It is the post meeting statement that is perhaps most significant. Will the Committee infer that it will now pause to see the impact of the most aggressive Federal Reserve in at least 40 years?
As widely noted, the market is suggesting the Federal Reserve will pause and begin to reduce the overnight by June/July, a view adamantly dismissed by the Central Bank.
Two key inflation gauges released Friday indicated persistent inflation pressures as the current rate is over 2x higher than the accepted speed limit.
Changing topics, this week is the greatest number of earnings reports. Generally speaking, results posted to date have exceeded dumbed down expectations. Will the trend continue?
The economic calendar is heavy and is comprised of many top tier economic reports including the ISM Manufacturing and Services Indices, various employment statistics including the JOLTS Job Opening Openings and the BLS Labor report, and several manufacturing data points.
It could be perhaps accurately concluded that if the data, the Fed or earnings contain any surprises volatility may rise.
And then there is the debt ceiling debate. Goldman Sachs noted that with tax receipts down 29% year over year, the U.S. Treasury is expected to see its resources overwhelmed by the second week of June but can still make scheduled payments until the end of July without a debt ceiling increase. Congress will be informed early this week on the debt limit deadline.
Animosity and vitriol are expected to rise in the proceeding weeks and perhaps the only behavior worse than continuation of prolifigate spending is threatening to default on the debt.
All are complacent a default will not occur, but the mere threatening of such action is extremely reckless. Almost everything in the world is priced off the dollar and Treasury thus suggesting a default may end the financial ecosystem known today.
Last night the foreign markets were up. London was up 0.50%, Paris up 0.10% and Frankfurt up 0.77%. China was up 1.14%, Japan up 0.92% and Hang Seng up 0.27%.
Futures are nominally lower ahead of a big earnings and data week and Fed meeting. The 10-year is off 8/32 to yield 3.45%.
Kent Engelke
Chief Economic Strategist/Managing Director
Capitol Securities Management, Inc.
