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People shop at Lincoln Market on June 12, 2023 in the Prospect Lefferts Gardens neighborhood in the Brooklyn borough of New York City.
Michael M. Santiago | Getty Images News | Getty Images
This report is from today’s CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.
What you need to know today
- U.S. stocks rose Tuesday on optimism that the Federal Reserve can skip a rate hike at its meeting later today, though major indexes added less than 1%. The pan-European Stoxx 600 index climbed 0.55% on the back of a 1.5% increase in technology stocks.
- The cost of borrowing money in the U.K., as measured by the yield on two-year government bonds, hit 4.8%, higher than it was during Liz Truss’ disastrous “mini-budget.” The yield was pushed up by news that annual wage growth in the U.K. grew at the fastest rate the country had ever seen.
The bottom line
The U.S. consumer price index for May was mostly great news for traders, who saw it as a sign that the Fed will leave interest rates unchanged at the conclusion of its meeting Wednesday.
Though the annual rate of inflation at 4% is still two times the Fed’s target, it’s the slowest increase since March 2021. And while there are signs core inflation remains sticky, traders don’t seem as worried since it’s largely pushed up by an 8% rise in shelter prices. That category tends to not reflect the current rental market because the CPI looks at the rental prices people are currently paying, not the rental prices landlords are asking for now. And RealPage data shows rents are up only 2.3% year over year in May, which might signal further cooling in the upcoming months’ CPI.
That leaves room for the Fed to pause its rate hikes. Traders think there’s only a 8% chance the Fed will raise rates, according to the CME Group’s FedWatch tool. But just as you can resume a show you’ve paused, so can the Fed return to its regular programming of rate increases. Indeed, Santander’s chief U.S. economist Stephen Stanley argues the Fed will pause in June, only to resume hiking in July; BlackRock’s head of iShares investment strategy Gargi Chaudhuri thinks the Fed will skip while “signaling at least one further hike by the end of 2023.”
Whether the Fed eventually continues its increases depends, of course, on further inflation data. The producer price index comes out later today. While that might be too late to factor into the Fed’s June decision, it’ll give traders a better idea of whether we’re looking at a “pause and play” situation.
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