The publication of the expected Fed minutes will reveal the future of rates
The most anticipated data of the day, perhaps of the week, is more or less in line with expectations. Inflation in March is +5%, slowing down from +6% in February following the drop in energy prices, the consensus was +5.1%. This is the lowest level since May 2021.
Underlying inflation, the one purged of the more volatile elements, goes in the opposite direction and rises to 5.6%, from 5.5%, as expected by economists. The increase in March is mainly caused by the housing and rental component, a lagging indicator that should weaken in the coming months. Overall, today’s data shows that the disinflationary trend is continuing.
Stock exchanges are improving: Paris revises its historic record
The Stock Exchanges immediately took off, starting with Wall Street. In the early stages, the S&P 500 gains 0.5%, the Nasdaq 0.65%, exceeding the psychological threshold of 12,000 euros. The Dow Jones is up 0.47%. The European stock exchanges also performed well: Piazza Affari is the best with a 0.9% step forward. Then Frankfurt (+0.35%) and Paris which, with a 0.3% increase, rises to 7.413 points, improving the historical record reached yesterday.
Bond prices go up and yields go down
Government bond purchases are triggered in the perspective of a more cautious FED at this point. 10-year Treasury Notes at 3.35%. 10-year BTP at 4.06%, – 5 basis points. The Treasury placed a total of 8.5 billion euro of BOTs with falling rates.
In particular, these are 1-year bonds for 6.5 billion euro, with an average rate of 3.39% (3.61% in the previous placement in March) and other BOTs for 2 billion euros again per year but with a reopening and a residual life of 4 months. The yield of the latter is 3.127%. The spread between Btp and Bund rises. Now sail to 184 points
Goldman Sachs predictions
Per Goldman Sachs the descent of inflation has not stopped. In December it should be below 4% at the end of the year. In addition, the investment bank expects year-on-year core inflation of 3.7% in December 2023 and 2.7% in December 2024.
The Fed publishes the report of the last session
In the Italian evening, attention shifted to the publication of the minutes of last month’s Fed meeting, in which the US central bank raised rates by a quarter of a percentage point, signaling a possible pause in monetary tightening after the turmoil in the banking sector. Investors will weigh the minute’s message to better understand the effects of the banking crisis on the economy and on the path of US rates.
Yesterday Philadelphia Fed Chairman Harker he said the end of the squeeze could be near while reiterating the importance of bringing inflation back to 2%. For my colleague Kashkari, the rate hikes and the banking crisis could trigger a recession. Markets are currently pricing in a 66% chance that the Fed will hike 25 basis points in May and then pause.