6/9/23 – Possibility for a Pause?

In a week devoid of market-moving news, the S&P 500 continued what some are calling a breakout rally.  The index is closing less than 1% below the all-time high of 4325 touched last August. The rally is surprising given that the Fed Funds futures market is anticipating at least one more rate hike by the Fed.  The Fed has been in their quiet period this week, so traders were forced to speculate on what may have changed in their thinking.  As we closed out the week last Friday, Fed speakers seemed divided on another rate hike at the June meeting.  They are going to be challenged to make a snap decision as the CPI index for May is released on the morning of their first day of deliberations.  The consensus is looking for the year-over-year rate to fall to 4.1% from the 4.9% reported in April.  That’s moving in the right direction but it’s unclear if it will be enough to necessitate a pause.  We’re sure they would like to get a peek at the May retail sales report which showed solid growth in April, but that report will not be released until Thursday, the day after the rate decision.

The Bank of Canada unexpectedly raised the overnight lending rate to 4.75% on Wednesday.  That’s unlikely to influence the FOMC, as there has been no evidence of Central Bank coordination during this hiking cycle.  Despite the surprise move, Canadian stocks and bonds were little change on the week.  The Canadian dollar rallied further on the news and is looking like it will test 1.32 and move higher versus the U.S.$.

There will be much to focus on next week, with the Producers Price Index, empire manufacturing index, and the University of Michigan surveys rounding out the week.  Given all that data we’re unlikely to see a repeat of this week’s docile trading action.

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