Yesterday’s historic meeting between the United States President and the Leader of North Korea was one that few would have imagined possible. When you consider that just a few short months ago, President Trump and Kim Jung Un were exchanging threats of nuclear war and rhetoric of destroying life as we know it, this is clearly a major victory in favor of peace between the two nations. Although far from over, there appears to be a positive relationship developing between the two leaders that could bring mutual benefits to each of our countries. As far as how this relates to our financial markets, stocks will certainly like this news, and the headwind against the bond market could continue to strengthen.
We received news that consumer inflation is indeed gaining steam, with the Headline Consumer Price Index (CPI) annualized rate now pacing at 2.8%. This is up from the 2.5% reading in April. When stripping out food and energy prices, the Core rate is currently pacing at a 2.2% rate, which is up from the 2.1% reported in April.
With the Fed meeting underway today, the Fed will announce their interest rate decision tomorrow at noon Mountain time. Given today’s report showing that consumer inflation is pacing at a 6 year high, we are almost certain to see another ¼% rate hike announced.
We can anticipate an increased level of volatility. With little potential benefit of meaningful improvements to interest rates in the near term, we will maintain our locking bias.