Tuesday, June 13th, 2017
Investors in today's pre-market are looking for clues that the correction in technology stocks will taper after selling off two straight trading days. Nasdaq futures are up roughly 20 points at this hour, but there is nothing in the headlines that might point one way or another to the near-term fortunes of the tech sector.
Instead, what we see today is the latest convening of the Federal Open Market Committee (FOMC), which decides on interest rate policy. By tomorrow afternoon, we'll know for certain whether rates have gone up another 25 basis points to a 1-1.25% range. This is still historically low, and this bump up has already been digested by the marketplace.
Thus, the only potential monkey wrench in the interest rate scenario currently is if the FOMC decides not to raise rates. This was well-described in Zacks' Exec VP Steve Reitmeister's Profit from the Pros article from yesterday: The Importance of June 14th . Basically, a decision to not raise would indicate the committee sees some trouble ahead for the U.S. economy, although with low unemployment, wage growth and productivity continuing (albeit at a glacial pace) and a stabilizing Eurozone, it's hard to see where those difficulties might be.
The Producer Price Index (PPI) for May was released ahead of today's opening bell, and the results were unchanged from April, just as expected. Stripping out food and energy pricing, we see a +0.3% read, though this ex-food & energy number month over month was -0.1%. Final demand PPI year over year reached +2.4%, +2.1% ex-food & energy. This is to say inflation looks to be increasing incrementally, and just about exactly as we were expecting - maybe a tad hotter minus the volatile food and energy costs.
So the Fed is looking for full employment and 2% inflation. It would appear from this view that the committee has got everything it wants to ratchet up interest rates. This June hike, by the way, has been expected in projections going back to last year, so it's been part of the consensus analysis ever since then.