Today is another big Thursday for the financial markets, on account of the many important economic events happening.
First off, arguably the most anticipated publication today is the May CPI reports from the United States. The results are in and showed that both core inflation and regular inflation overshot the forecasts again last month, coming in at 3.8% and 5%, respectively, against forecasts of 3.4% and 4.7%.
Recall that inflation exceeded investors’ expectations again in May, when the April numbers were much higher than expected. High inflation is something the markets fear a bit, despite assurances from the Federal Reserve that the spike is temporary and does not reflect the economy “overheating.”
Every time inflation overshoots the forecasts, investors start hoping for an early tightening of the Fed’s monetary policy, and both US Treasury bond yields and the US dollar go up in value. This lasts until the Fed once again reminds everyone that it is not hiking interest rates anytime soon, and then some disappointing labor market data drops as well to calm everybody down.
Speaking of labor data, today the US is also publishing its jobless claims reports. Continuing jobless claims were slightly better than expected, and the 4-week average has gone down, but initial jobless claims this past week are still higher than forecasted, though not by a lot.
Another important event today is the European Central Bank’s policy meeting, but as no surprises are expected there, the US reports will likely overshadow it. Predictably, the ECB did not alter its interest rate, or any other rate for that matter. The bank also remains tight-lipped about any possible asset purchases tapering at the moment, careful not to cause a spike in bond yields, which can hurt the European Union’s recovery from the pandemic.
US stock indices today were trading sluggishly in anticipation of the CPI reports, and have since turned downward. The day might be difficult for stock traders because the market still hasn’t fully decided how to feel about today’s reports and whether they will be enough to sway the Fed or not.
In other news, cryptocurrencies are seeing somewhat of a recovery today due to a decision by El Salvador to recognize Bitcoin as an official payment method. The cryptocurrency can now be used to make all sorts of payments and purchases in El Salvador. This is the first example of such a broad acceptance of cryptocurrencies by any country in the world.
