Last week the Federal Reserve (Fed) and the Bank of Japan (BOJ) confirmed the current course of monetary policy. The Fed remains data-dependent in the U.S., and the BOJ continues to signal that it has the capacity to further stimulate with monetary policy.
First quarter U.S. gross domestic product (GDP) was a sluggish 0.5%, confirming that the Fed has room to remain accommodative as long as inflation remains in check. I do believe we will see a temporary uptick in inflation this year, but so far it has not materialized. Last week the Employment Cost Index was an expected 0.6% and Personal Consumption Expenditures (PCE) were 1.6% for the last year.
This week, we will get a look at the April employment number. After a string of expected or better–than-expected employment readings, the market may be set up for a disappointment if the headlong number is not greater than 200k.
Keep an eye on the Japanese yen, which is at its high over the last 18 months, and the Euro which is at a six-month high. This comes as gold prices continue to rise.
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