Equities around the world were mostly unchanged in early trading this week as investors await the conclusion of the Federal Reserve’s two-day meeting on Wednesday afternoon. The Fed is not expected to take any policy action, but Wall Street wants to know how the central bank plans to deal with hotter than expected inflation data. Following the meeting, the Fed will release new economic forecasts followed by a press conference from Chairman Jerome Powell. At their last meeting, some Fed officials noted that if the economy continued to make progress, it could be appropriate to begin discussing a plan for adjusting the pace of bond purchases. While that discussion could begin this week, the real details of the tapering of its $120 billion monthly purchases are expected to come later this year. The Fed could then begin unwinding its bond buying at the end of this year or beginning of next. Timing for any interest rate increases or bond tapering will be closely watched by markets.
On the data front, retail sales declined last month, down -1.3% versus consensus forecast of -0.8%. Recently, demand for goods has been propped up by increased savings supported by fiscal stimulus, resulting in total retail sales well above pre-pandemic levels. Producer prices (PPI) were also reported on Tuesday, up 0.8% in May, slightly higher than forecasts for a 0.5% increase. Stocks could face more volatility this week heading into Friday’s “quadruple witching” event. This event occurs when single stock options, single stock futures, index options, and index futures all expire on the same day. Historically, the quad witching event has tended to cause short-term choppiness in the markets. With heightened interest from both retail and institutional investors, options activity has nearly doubled since the start of 2020 (Business Insider). Energy prices continued to march higher, with a barrel of WTI Crude trading around $72 on Wednesday morning. Interest rates remained range bound, with the yield on the 10-year Treasury note trading around 1.49% mid-week.
Source: GSAM, JPM, Business Insider, Morningstar