Stocks and U.S. debt rise together

A US $3.9 billion auction of US treasury bond bonds triggered an optimistic expectation of inflation data in the market, driving the stock market and the bond market to rise simultaneously. Apple's stock price hit a new high, while bank stocks such as JPMorgan Chase and Citigroup are under pressure. The demand for 10-year US treasury bond is strong, with the bid winning multiple reaching 2.67, the highest level since February 2022.

Investors bet on CPI data

As the Federal Reserve meeting approaches, investors have high hopes for the upcoming inflation data. The S&P 500 index hit a historic high, while Oracle surged in post market trading.

The yield of US 10-year treasury bond bonds fell 7 basis points to 4.40%. At the same time, the unstable political situation in Europe has increased the demand for US debt, leading to a sharp decline in French treasury bond.

Market Sentiment Turns Better

Analysts predict that the May CPI report looks optimistic, with a series of similar reports expected in the summer, which should lay the foundation for the Federal Reserve to start cutting interest rates in September. A survey shows that most investors predict that CPI data and the Federal Reserve's decisions will be "risk averse.".

Fed interest rate policy

The market generally expects the Federal Reserve to maintain borrowing costs at a 20-year high this week, but there is still uncertainty regarding the update of the interest rate forecast chart (i.e., the "dot matrix chart"). Anthony Saglimbene from Ameriprice said that the Federal Reserve may emphasize that future interest rate cuts depend on further progress in reducing price pressures.

Market Strategy

According to the advice of HSBC strategists, due to the uncertainty of interest rate prospects, there may be a short-term correction in the stock market, but this will be a good tactical entry point. Bank of America's clients have made significant purchases of US stocks for the first time in the past six weeks, mainly retail investors and hedge funds.

Future outlook

With multiple Federal Reserve officials expressing no intention of cutting interest rates in the short term, the market's expectations for future rate cuts are divided.

A survey shows that 41% of economists expect the Federal Reserve to show two interest rate cuts in the 2024 "grid", while an equal number of economists expect only one or no interest rate cut. TD Securities's Oscar Munoz and Gennady Goldberg believe that Federal Reserve Chairman Powell will be optimistic about recent data and expect the "dot matrix" to show two interest rate cuts in 2024.