U.S. consumer prices rebounded in February as gasoline prices rose for the first time since June, and there were also signs of an uptick in underlying inflation pressures, which could keep a June interest rate increase on the table.
Following the Federal Open Market Committee meeting last week, Federal Reserve Chair Janet Yellen made it clear (again) that interest rates would not be raised until inflation gains more steam. It’s a prime example of gold’s Fear Trade, which occurs when investors buy gold out of fear of war or concern over changes in government policy.
North American equity markets are feeling pretty healthy this morning as they are edging higher on the day so far, but the U.S. dollar isn’t feeling the same sort of love. If the market continues to believe that the Fed will not do anything to rock the boat over the next few months, there could be a lot more room to run for equities.
The forward guidance issued by the Federal Reserve should gradually evolve back to its "normal" role of communicating the thinking behind policy moves, Cleveland Fed President Loretta Mester told a bankers' conference in Paris on Monday.
If the S&P 500 actually did put in an elusive top in the next few days it would happen on a technical calculation more heavily weighted to time as opposed to price. That would hypothetically create an intermediate level correction at best but not likely anywhere near the kind of bear market that materialized from 1938-42.
The dollar may have made a comeback a mere 24 hours after the FOMC meeting: It fell to a low of just over 1.09 versus the euro last Wednesday before clawing back some losses to close at 1.0660 on Thursday. However, we think that the dollar could become increasingly at risk from sell-offs in the coming weeks, and bulls need to get used to the dollar no longer moving higher in a more-or-less straight-line fashion.
The second half of the North American trading day wasn’t too compelling if you were watching charts as a healthy portion of traders were likely taking extended lunches to enjoy the start of the NCAA Tournament.