Today is Hump Day and there is a lot for the market to get past before the day is done. The early dealings feature sliding oil prices ($46.12, -$0.34, -0.7%), key economic data, and news reports that House Majority Whip Steve Scalise and his aides were shot this morning at a baseball practice.
The dealings later today, meanwhile, are likely to revolve almost exclusively around the FOMC decision and Fed Chair Yellen's press conference to discuss the decision, the Fed's updated economic projections, and presumably the Fed's balance sheet.
The S&P futures are currently up three points and are trading 0.1% above fair value.
That indication suggests market participants are taking the various news items in stride. That is nothing unusual for this market, which closed yesterday at a new record high.
The economic data this morning was not the best, as the CPI and Retail Sales reports for May both seemed to corroborate the Treasury market's more cautious stance on the economic outlook than they supported the stock market's idealistic view of matters.
To begin, the Consumer Price Index declined 0.1% in May (Briefing.com consensus 0.0%), driven lower by a 2.7% decline in the energy index that was led by a 6.4% decline in the gasoline index. The core Consumer Price Index, which excludes food and energy, was up 0.1% (Briefing.com consensus 0.2%). That gain was paced by a 0.2% jump in the shelter index, but notably, declines were registered for many other indexes, including apparel (-0.8%) and medical care services (-0.1%).
For the 12 months ending May, total CPI on an unadjusted basis was up 1.9%, versus 2.2% for the 12 months ending April, while core CPI was up 1.7%, versus 1.9% for the 12 months ending April.
The key takeaway from this report is that it shows a softening trend in consumer inflation, which should presumably be some cause for concern among Fed members.
In the same vein, the Retail Sales report for May offered another reminder that consumer spending on goods remains soft despite the tightness in the labor market. Total retail sales decreased 0.3% in May (Briefing.com consensus 0.0%) while retail sales, excluding autos, also decreased 0.3% (Briefing.com consensus +0.2%).
A drop in electronics and appliance store (-2.8%), gasoline station (-2.4%), and motor vehicle (-0.2%) sales were key drags on overall sales, yet there wasn't much strength seen in general. Nonstore retailers (+0.8%) were the notable exception.
The key takeaway from this report is that consumers clearly remain guarded with their discretionary spending activity, which is likely the result of seeing little, if any, wage growth.
The Treasury market has taken a strong liking to this morning's data. The yield on the 10-yr note has dropped seven basis points to 2.15% while the yield on the 2-yr note has fallen six basis points to 1.31%. The inference to be drawn from those moves is that market participants think this round of data will preempt a third rate hike this year.
That mentality also helps explain why the stock market hasn't come unglued following this morning's data, which effectively reflects the low growth, low inflation environment that has served the stock market so well through the years since it has curtailed the Fed's propensity to tighten policy.
With the latter in mind, today's late dealings could get dicey if Fed Chair Yellen makes it sound as if the Fed is still inclined to raise rates a third time this year and start the process of normalizing its balance sheet.