What will Powell say tonight? That is the question

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Another month comes to a close, one with mixed fortunes. The FTSE 100, helped by mining and energy shares, along with an increase in corporate activity, hit a record high, whereas a lacklustre end to May saw the S&P 500 concede ground as bond yields rose and economic growth slowed. Yesterday’s US consumer confidence reading was the weakest in almost two years. Earnings season is more than halfway through in America and, for the most part, has lived up to or beaten expectations. The big tech names once again deliver well above-average growth. The change in sentiment for UK equities was reflected in one bank, UBS, upgrading its position on UK equities from least preferred to the most preferred in its global strategy. There have also been signs that the UK economy is improving as economic growth surprised to the upside in the first quarter.

Commodity prices remain healthy, although the price of gold traded back from its all-time highs. Oil spiked on a rise in tensions in the Middle East but has slowly drifted back as the month wore on. This was the month the stock market virtually appeared to throw the towel in on the Fed cutting interest rates this year. We shall find more later today when the Federal Reserve reports back from its monthly meeting. The Vix fear gauge rose during the month as some of the bullish investor sentiment was washed out. It was another rotten month for bond investors as the much-anticipated disinflation process stalled while the economy remained relatively resilient, as did the labour market. The expectation is now that Europe will lead the way in easing monetary policy.

 Powell must be odds on to use the well-worn phrases wait and see and data dependent. Will he refer to signs that the labour market is weakening and consumer confidence is on the wane to set a more dovish tone? Or will he focus on the underlying strength of the US economy and that the deflation process has stalled and paint a more hawkish picture? Could June or July still be on the cards? Today’s Job opening report could be a late swing factor. Will he refer to the dreaded threat of stagflation? Then there is the upcoming US election.  

It struck me the other day that stock markets reflect the characteristics of their masters. They have feelings, get hurt by the smallest things, and sometimes show uncanny resilience in adverse times. In a way, they can talk to us and give insights into what may lie ahead. They can react in a way one would not expect, and often, they do so in the wrong way initially. They have good days and bad; they feel emotion and rally just as it seems all hope is lost and from nowhere, just as life often has a habit of doing. When the garden looks its rosiest, something brings us down to earth. Just as animals do, they develop, mature, grow, and learn; different events garner different reactions from different species. I think that what makes the stock market so fascinating is never knowing how it will react from one day to the next. We shall see how markets react to Powell later today.