However, as Joe Capurso at the Commonwealth Bank of Australia notes, Cleveland Fed’s ‘nowcast‘ forecasts core CPI going up and if that happens, it could challenge the market’s assumption that U.S. interest rate hikes are finished.
Indeed, CME’s FedWatch tool shows futures imply better-than-even odds that the Fed cuts rates in September.
Beyond the inflation data, U.S. default risks and banking wobbles loom as the next likely focus. Investors are so far avoiding T-Bills that mature around the “X-date” when the U.S. government runs out of cash, expected to be early in June.
Most analysts and investors think that as in the past, an eleventh-hour resolution will be found. But nerves are starting to fray, especially since the assumption that the U.S. government pays its debt on time is the bedrock of much global market activity.
“While this time might not be different, people are thinking that the politics and individuals are certainly much more ideologically driven and dogmatic … party rifts are deeper,” said ING economist Rob Carnell.
“It’s not inconceivable that this goes horribly wrong, whereas in previous occasions it sort of was inconceivable.”
/cloudfront-us-east-2.images.arcpublishing.com/reuters/ZUVAAOVRKRLLJJ3ROFKKV4XRFY.jpg "Markets on hold for US CPI 40")
