Cosmetic correction on Wall Street

After a sensational, best week in 2024 for the stock market on Wall Street, yesterday we experienced a slight correction in prices. Declines of 0,3-0,4 percent. so far they are not causing panic.

The mood is still good. The market received confirmation a week ago that The Fed is likely to cut interest rates three times this year and this topic still supports the strength of the "bulls" on the stock market. US bond yields rose slightly across the yield curve, and the US dollar cosmetically depreciated EUR / USD exchange rate rose to 1,0850 this morning. The key release this week will be the PCE deflator on Friday.

Hawkish FED signal

Fed officials have continued to be supportive in their statements in recent days a cautious approach to lowering the cost of money in the US. Bostic from the Atlanta Fed gave a hawkish signal saying that he expects only one cut. He acknowledged that the Fed can afford to be patient as long as the U.S. economy is strong. He mentioned that the forecasts for the further path of interest rates almost changed to a restrictive side (read: less than 3 cuts).

In turn, Chicago Fed President Austan Goolsbee confirmed his forecast of three interest rate cuts this year. However, he did not specify when the first of these would occur, saying instead that the Federal Reserve is in a period in which it must balance its dual mandate.

Fed Governor Lisa Cook stressed that the risks to achieving the central bank's employment and inflation goals are becoming more balanced. Nevertheless, full restoration of price stability may require a cautious approach to ease monetary policy over time.

The market still values ​​slightly over 60%. chances of a downward move in rates at the meeting scheduled for June 12. By the end of the year, Fed Funds Futures show a total reduction of 80 basis points, which is close to this "dot plot."

We can expect limited variability

Yesterday we also learned the second caliber of data from the American economy. February sales of new homes fell 0,3%. m/m (Bloomberg consensus: 2,3%) to 662 thousand compared to 1,7 percent previously. The worse result can be explained by the increase in mortgage interest rates. The average sales price of real estate was also lower. Additionally, we received regional economic indicators. The Chicago Fed's February economic activity index rose to 0,05 from -0,54 previously. In turn, the March Dallas Fed manufacturing activity index was lower and amounted to -14,4 compared to -11,3 a month earlier.

The market is waiting for Friday's report on Americans' spending, and in particular the reading of the PCE deflator. A slight increase is expected. However, Friday will be a day when some markets will be closed due to Easter and, additionally, investors have, to some extent, already digested the recent increase in inflation expressed in CPI data and PPI. Volatility may therefore be limited.

Today, the focus will be on durable goods orders, home prices from S&P CaseShiller and consumer confidence from the Conference Board.

Source: Łukasz Zembik, OANDA TMS Brokers