US CPI data for April shows that inflation is taking baby steps on its way down. Stubborn inflation is a concern for the markets as it will keep the Federal Reserve to remain aggressive by keeping rates higher for longer. Markets will await FOMC’s next meeting on June 13-14 to take further cues from the Fed chief Powell in his press conference.
Market investors are a divided lot with some looking forward to a pause, some expecting further rate hikes while a few others expect the central bank to cut rates early on.
“Markets are going to get volatile this summer as investors ramp up speculation about the US Federal Reserve’s interest rate policy as fresh inflation data is released,” says Nigel Green, CEO, deVere Group, one of the world’s largest independent financial advisory, asset management and fintech organisations.
The US government released the consumer price index for April, showing that US CPI fell to 4.9%.
Many senior analysts will now insist that this will be enough for the Federal Reserve to pivot at their meeting in June and pause the hiking agenda. Some will go further and argue that the central banks will cut rates as early as July.
Others, however, believe that the Fed will remain cautious about inflation flaring up again and that officials will ultimately insist upon at least another interest rate hike. This could cause jitters in the markets as some investors, concerned about short-term profits, will move into a panic-selling mode,” says Green.
The United States is rapidly approaching the date when the government will no longer be able to pay its obligations, popularly known as the ‘X-date.’ Green has a cautionary note for the investors – Speculation is going to increase and this triggers market volatility. Investors should brace for a turbulent summer fuelled by uncertainty. Plus, we have the Republicans and Democrats failing to agree on how to deal with the major issue of the US debt crisis. The last time this happened we had a 20% drop in the market.
Before that, the FOMC minutes will also be closely read by global investors for market signals.
He continues: “What we do know for certain are two things.
“First, speculation is going to increase and this triggers market volatility. Investors should brace for a turbulent summer fuelled by uncertainty.
Second, the US economy is cooling quicker than had been anticipated. We put this down to the Fed being too aggressive with their rate hikes.
As I said last week, the failing Fed made another mistake with the latest interest rate hike, which could push the world’s largest economy not only into a short-term but a longer-term recession. Clearly, this would not only be a huge issue for the US, but the global economy too.”
The deVere CEO goes on to add: “The reality is investors must be vigilant and not become complacent due to the potential of no more imminent hikes and/or the possibility of rate cuts.
Plus, we have the Republicans and Democrats failing to agree on to how to deal with the major issue of the US debt crisis. Last time this happened we had a 20% drop in the market.
It’s essential for investors to take good advice and realise that in a fast-changing world the underlying importance of being in the right sectors at the right time still applies, in fact more now than ever.”
He concludes: “We expect markets to be in for a wild ride this summer. But, as ever, where there’s volatility, there is also considerable opportunity.”