The aftershocks from that key data release is still reverberating across markets at the onset of this new trading week, especially in the leadup to this week’s pivotal Fed policy meeting, nestled among these other scheduled economic data releases and scheduled events:
Monday, June 13
Tuesday, June 14
Wednesday, June 15
Thursday, June 16
Friday, June 17
As a reminder, last Friday’s US consumer price index showed an 8.6% year-on-year advance in May – above all economists’ estimates and also a fresh 40-year high.
In turn, market bets of how far the US Federal Reserve will lift interest rates to curb the inflation beast are setting new cycle highs.
Markets quickly scrambled to recalibrate how they think the Fed will react to this latest crucial evidence that US inflation is proving harder to subdue than previously envisioned.
The US Treasury 2-year yield, which closely maps Fed Funds futures, has surpassed the 3% level, its highest since 2007. Fed Funds futures now show a 23% chance of a 75bp hike at this week’s meeting, above the already priced in half point rate rise.
The priority for the US central bank is clearly to continue front-loading rate hikes and to quash inflation, despite concerns about eroding economic growth.
This also means investors are increasingly fixated about recession risk, as evidenced by the risk-off tone to start off this trading week.
This environment of the Fed driving real interest rates higher is set to be bad for risk assets and stocks, and good for the greenback.
US dollar bulls could well eye the 105 handle once more for the benchmark dollar index, DXY, especially if the Fed concedes this week that it will have to turn even more aggressive in its quest to vanquish the inflation beast.
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