Stocks rose provisionally on Wednesday as traders cautioned ahead of US inflation reports.
Hopes that the Fed will pause policy again this month have faded in recent weeks, as the data simply don’t tell the FOMC what it needs to do to persuade it to do so at its second consecutive meeting. A second pause is seen as a sign that the tightening cycle is over, so it’s not a decision to be taken lightly.
Friday’s jobs report was far from convincing that the Fed hit its target. No doubt it was a relief that the NFP numbers did not replicate the ADP numbers, but combined with the wage component, they still point to a very tight labor market.
It will take something remarkable from today’s inflation report to convince policymakers that it’s okay to pause again. If the core number is expected to stay high at 5%, even if the headline CPI drops to 3.1%, it doesn’t fit that category. It will be necessary to give a big shock to the core side in order to activate the discussion in earnest within two weeks.
RBNZ May End Tightening Cycle
The RBNZ chose to pause its tightening cycle early today after a very aggressive tightening cycle over the past few years. After raising the cash rate to 5.5%, there are signs that the economy will slow and inflation will fall. Inflation has so far fallen to only 6.7%, but next week’s data is expected to ease further, with the central bank pushing inflation to a target range of 1-3% next year. I am sure we will return.
New Zealand faced many challenges in the aftermath of the pandemic, which contributed to a spike in inflation, but much higher immigration rates and levels appear to have eased those pressures.
Could US CPI trigger a major breakout for gold?
The price of gold continues to climb slightly higher today, but there are clearly alarming elements in the move. Perhaps traders are hoping for a favorable US CPI figure, but they are clearly not so confident as the price remains below $1,940, which has repeatedly encountered resistance.
There are still many more obstacles, including $1,960, $1,980 and $2,000, before traders are convinced that the yellow metal is back, but a breakout here today could be a bullish signal. Stronger inflation reports could push the pair back towards $1,900, which has been largely a support so far. A break out of this could be a very bearish development.
