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Traders cheered clearly but will the Fed bust any moves?



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Main U.S. indexes green; Nasdaq out front, rallies >1.5%

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Euro STOXX 600 index rises >1%

Dollar slides; gold, crude gain; bitcoin up >3%

U.S. 10-Year Treasury yield tumbles to ~4.26%

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TRADERS CHEERED CLEARLY BUT WILL THE FED BUST ANY MOVES?

While the market's reaction to May's faster than expected inflation easing was clear and decisively cheerful, expectations are a bit more blurry regarding how the Federal Reserve reacts when the Federal Open Market Committee meeting ends with a policy statement at 2:00 p.m ET (1800 GMT).

There is still an almost unanimous expectation rates will stay unchanged today, according to CME Group's FedWatch Tool.

But hopes for later meetings were tweaked with a slightly increased probability for a July rate cut to 16.5% today from 12.2% on Tuesday. For September, traders now see only a 28% probability rates will stay unchanged and a 60% chance of one rate cut with a slim 10.9% chance for a two notch cut.

Research reactions to the data showed varying degrees of optimism.

While wary of reacting too strongly to one month's data, Preston Caldwell, Chief U.S. Economist at Morningstar said "this does push market expectations closer to our view of steeper rate cuts over the next two years and corrects for the overreaction to the inflation uptick seen in Q1 2024."

He said "today’s news would seem to open the door to a July rate cut, although we still think that’s very unlikely given hawkish rhetoric from the Fed recently. But rate cuts starting by September should now be cemented as overwhelmingly likely."

But Seema Shah, chief global strategist at Principal Asset Management says "it's important not to get too excited."

"While today’s inflation print keeps a September Fed cut firmly in the picture, it does not reopen the door to a July cut," wrote Shah. "The Fed will need today’s evidence of softer price pressures to be also corroborated in the next few months’ inflation prints before it can be sufficiently confident to ease."

"Powell may have a spring in his step at today’s FOMC press conference, but the strength of last week’s jobs report means that his tone should be one of caution and balance," Shah said.

Coincidentally, JPMorgan's chief U.S. economist Michael Feroli also cited Powell's gait in his report headline: "May CPI to put a spring in Powell’s step."

While FOMC meetings are highly regimented Feroli said "the magnitude of this morning’s surprise, coming between the two days of meetings, could influence the messaging coming out of that meeting."

While before today, Feroli thought it unclear if the dot plot would indicate one or two cuts this year, he said May's data "should increase the odds of a two-cut median dot."

As a result Feroli thinks the easiest thing for the FOMC to do would be to scratch this sentence from its statement “In recent months, there has been a lack of further progress toward the Committee's 2 percent inflation objective.” and leave the prior sentence intact. That plainly states that: “Inflation has eased over the past year but remains elevated.”


(Sinéad Carew)

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FOR WEDNESDAY'S EARLIER LIVE MARKETS POSTS:


GET COOL, BOY: CPI COMES IN SWEET AND LOW - CLICK HERE


LOWER AUTO INSURANCE PREMIUMS AT LEAST SEVERAL QUARTERS AWAY, WILLIAM BLAIR SAYS - CLICK HERE


WALL STREET RALLIES AFTER PRICE DATA, BEFORE THE FED - CLICK HERE


U.S. STOCK FUTURES POP, YIELDS PLUNGE, AS CPI PLEASES - CLICK HERE


TRADE WAR UNLIKELY AFTER EU TARIFFS ON CHINA EVS - COMMERZBANK - CLICK HERE


NO NEED TO RUSH TO BUY FRENCH DIP YET, BARCLAYS SAYS - CLICK HERE


AND THE MOST LIKELY ITALIAN BANKING MERGER IS... - CLICK HERE


BANKS TICK HIGHER BUT AUTOS WEIGH ON STOXX - CLICK HERE


EUROPEAN FUTURES BRUSH OFF DATA AS FED LOOMS - CLICK HERE


US DOUBLE BILL - CLICK HERE



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