Sticky Inflation and Threats of War Belie Quiet Market

An Iranian drone and missile attack on Israel sent oil prices sharply higher over the weekend, adding to lingering sense of market unease. Markets were already anxious on word that the Federal Reserve intends to keep interest rates high for the near future.

Positive core consumer inflation numbers fueled a stock sell-off last Wednesday, leading to a further market slide through Friday. The Dow Jones lost 476 points on rumors that Iran was preparing to retaliate to previous Israeli actions. As often happens after such geopolitical events, on Monday, Dow futures rebounded and rose more than 200 points as oil prices dropped lower.

Given similar passing attention was data on Monday showing strong March retail sales coming in above estimates, up 0.7% compared to a monthly gain estimate of 0.4%.

In a recent article from US News & World Report, Director of Global Macro Strategy at StoneX Vincent Deluard weighed in on the highly debated Fed outlook saying, “It’s been three years since we’ve had a 2% inflation print.”

While Fed Chairman Jerome Powell pushes a 2% annual rate goal, a higher level is predicted by some. With inflation still high and interest rates unchanged, some worry recession could be on the horizon.

Deluard added that given the excess liquidity in the market, interest rate changes may be less effective. “Rate hikes are not restrictive when everyone has liquidity.”

Reports out this week on market conditions include Tuesday’s report on housing construction starts and building permits, with existing home sales out on Thursday. Also Thursday, Conference Board’s leading indicators index report for March is released. Aside from the scheduled event risk, rising oil prices, growth concerns, and further escalation of global tensions are likely to keep investors edgy.

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