US Open: Stocks edge higher, Focus on a less dovish Fed, Consumer inflation expectations decline

US stocks are edging higher as investors anticipate a slightly less dovish Fed at next week’s FOMC policy decision.  This week was all about the inflation report and given the reaction everyone saw in the bond market; the transitory thesis is winning.  The 10-year Treasury yield is recovering some of this week’s loss and stabilizing around 1.45%, while the 10-year real yield improves to -0.9262%.

Inflation is being pushed higher on supply chain issues and pent-up consumer spending, all of which should start to ease around the end of summer.  The next few trading sessions will likely see modest positioning ahead of the FOMC, with investors fixating over how discussions over tapering have begun.  Fed’s Harker, Kaplan, Quarles, and Mester have all signaled now is the time to start thinking about tapering. 

If next week’s FOMC decision yields a slightly less dovish Fed, a rebound in Treasury yield and the dollar could be in the cards. 

Michigan

The University of Michigan consumer sentiment unexpectedly rose in June on a stronger outlook.  Inflation expectations declined for the year ahead and for the 5-10 year outlook.  The reason for the decline in inflation expectations is because inflation is already here and impacting the consumer.

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Ed Moya

Ed Moya

Senior Market Analyst, The Americas at OANDA
With more than 20 years’ trading experience, Ed Moya is a senior market analyst with OANDA, producing up-to-the-minute intermarket analysis, coverage of geopolitical events, central bank policies and market reaction to corporate news. His particular expertise lies across a wide range of asset classes including FX, commodities, fixed income, stocks and cryptocurrencies. Over the course of his career, Ed has worked with some of the leading forex brokerages, research teams and news departments on Wall Street including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including CNBC, Bloomberg TV, Yahoo! Finance Live, Fox Business and Sky TV. His views are trusted by the world’s most renowned global newswires including Reuters, Bloomberg and the Associated Press, and he is regularly quoted in leading publications such as MSN, MarketWatch, Forbes, Breitbart, The New York Times and The Wall Street Journal. Ed holds a BA in Economics from Rutgers University.
Ed Moya