People shop at Lincoln Market near Prospect Lefferts Gardens in the Brooklyn borough of New York City on June 12, 2023.
Michael M. Santiago | Getty Images News | Getty Images
The report comes from today’s CNBC Daily Open, our new international markets newsletter. The CNBC Daily Open gives investors a quick overview of everything they need to know, no matter where they are. Do you like what you see?you can subscribe here.
what you need to know today
- U.S. stocks rose on Tuesday on optimism that the Federal Reserve could hold off on raising interest rates at its meeting later in the day, although the major indexes rose less than 1%. The pan-European Stoxx 600 rose 0.55%, driven by a 1.5% rise in technology stocks.
- Britain’s borrowing costs, as measured by the yield on two-year government bonds, hit 4.8%, higher than during Liz Truss’ disastrous “mini-budget”. Yields were pushed up by news that UK wages are growing at the fastest pace on record in the country.
the bottom line
The U.S. consumer price index for May was mostly good news for traders, who took it as a sign that the Federal Reserve will keep interest rates on hold at the conclusion of its meeting on Wednesday.
While 4% annual inflation is still double the Fed’s target, it is the slowest increase since March 2021. While there were signs that core inflation remained sticky, traders seemed less concerned as it was largely pushed up by an 8 percent rise in housing prices. The category tends not to reflect the current rental market, as the CPI looks at the rent prices people are currently paying, rather than what landlords are asking for.while RealPage data shows Rents rose only 2.3% YoY in May, which may signal a further cooling in CPI in the coming months.
That leaves room for the Fed to pause rate hikes. Traders see only 8% chance of Fed rate hike CME Group’s FedWatch tool. But just as you can resume a paused show, the Fed can resume its regular program of rate hikes. Indeed, Stephen Stanley, chief U.S. economist at Banco Santander, believes the Fed will pause rate hikes in June before resuming them in July; Gargi Chaudhuri, head of investment strategy at BlackRock iShares, believes the Fed will skip , while “suggesting further rate hikes through at least the end of 2023.”
Of course, whether the Fed will ultimately continue to raise rates depends on further inflation data. The producer price index is due later today. While this may be too late to factor into the Fed’s June decision, it will give traders a better idea of whether we are considering a “pause and play” situation.