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Stocks slide this morning as investors react to Fed comments

Stocks slide this morning as investors react to Fed comments 981 980 Realm

Stocks are sharply lower this morning as markets digest the latest economic forecast from the Fed. The U.S. central bank said it expects the U.S. economy to contract by 6.5% this year and indicated that rates are likely to remain close to zero through to 2022.

 

Global Macro

  • US core consumer prices, which exclude volatile items such as food and energy, decreased 0.1%from a month earlier in May 2020, the third decline in a row and compared to market expectations of a flat reading. This was the first time the core index has ever declined in three consecutive months. Along with motor vehicle insurance and apparel, the indexes for airline fares and used cars and trucks declined, while those for shelter, recreation, medical care, household furnishings and operations, and new vehicles all increased.
  • The yield on the US 10-year Treasury fell to 0.8% on Wednesday as investors await Fed’s monetary policy decision later in the day. The central bank is not expected to change the fed funds rate but some investors think the Fed will soon announce a yield-curve control as yields have risen recently amid prospects of a fast recovery in the US and better than expected unemployment figures.
  • China’s annual inflation rate fell to 2.4% in May 2020 from 3.3% in the previous month, below market consensus of 2.7%. This was the lowest figure since March 2019, amid government control measures to contain the COVID-19 outbreak. Food inflation eased to a 9-month low of 10.6% from 14.8% in April, with pork prices rising for 15th month and at a softer rate (81.7% vs 96.9%). Meantime, non-food inflation was unchanged at 0.4% as cost of other goods and services rose by 5.3%, the same as in April, while there were rises in cost of clothing (2.3% vs -0.3%), household goods (0.1% vs 0.3%), education, culture (2.2 % vs 2.5%), and healthcare (2.1% vs 2.2 %). Meantime, cost fell for both rent, fuel and utilities (-0.5% vs -0.1%) and transport (-5.1% vs -3.8%). On a monthly basis, consumer prices dropped by 0.8 percent, after a 0.9%decline in April and compared with forecasts of a 0.5% fall.
  • Food prices in China increased by 10.6%from a year earlier in May 2020, easing from a 14.8%advance in April. This was the lowest food inflation since August last year, with pork prices rising for the 15th month in a row and at a softer rate (81.7%vs 96.9%in April). Pork prices have been rising during the last year amid a prolonged African swine fever epidemic. Also, cost fell faster for fresh vegetables (-8.5% vs -3.7%), fresh fruit (-19.3% vs -10.5%), and eggs (-12.3% vs 2.7%). Meanwhile, cost rose further for both cooking (5.3% vs 5.6%) and milk (1% vs 0.9%).
  • On Wednesday: European stocks fell slightly after the Organization for Economic Cooperation and Development forecast the global economy would contract 6.0% this year before bouncing back with 5.2% growth in 2021. US stocks saw considerable volatility following the Federal Reserve’s monetary policy announcement before eventually ending the session mixed.
  • Wednesday’s data below:

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