5 Things You Need to Know to Start Your Day: Americas

Good morning. Stocks take a pause as CPI looms into view and currency funds go all in on central bank bets. Here’s what traders are talking [View in browser]( [Bloomberg]( Good morning. Stocks take a pause as CPI looms into view and currency funds go all in on central bank bets. Here’s what traders are talking about.— [David Goodman]( Want to receive this newsletter in Spanish? [Sign up to get the Five Things: Spanish Edition newsletter](. Holding gains Stocks are [holding their ground]( Monday after a good run, as the rally in equities awaits bigger tests later this week. The Stoxx Europe 600 index was little changed after posting its best weekly return since January, while futures on the S&P 500 and Nasdaq 100 edged higher. Treasury yields and the dollar were steady. All eyes on CPI With no clear theme to global markets this morning,  everyone is waiting for the US CPI number on Wednesday. As [Liz Capo McCormick and Ye Xie write](, “nothing has been setting the US bond market’s direction this year more than the monthly inflation figures” and this week’s iteration could “fuel -- or doom -- the bond market’s rally.” The report is forecast to show underlying [US inflation probably moderated in April]( for the first time in six months, offering a ray of hope that price pressures will start to ease again but probably not giving enough to open the door for imminent rate cuts from the Fed. FX funds go all in The world’s central banks are diverging as they assess how to begin loosening policy. That’s great news for currency traders, [giving them an opportunity to make — or lose — a lot of money fast](. Indeed, as TD Securities tell Bloomberg’s Alice Atkins, “G-10 FX is getting a lot more interesting.” That’s seeing some big bets emerge in the market — fund managers Allspring Global Investments and GAM Investments say they’re pivoting back toward major currencies, while Ninety One’s Iain Cunningham has accumulated a 45% net-long in the US dollar, up from just 5% at the start of the year. Meme-stock memories There are [echoes of the meme stock frenzy]( that took hold of the market back in 2021 this morning as perhaps the most prominent name of that short era flies higher again. Shares in GameStop, the video game retailer, have already jumped by 57% in May and soared by as much as 28% in premarket trading today without a clear catalyst. This kind of monthly move hasn’t been seen since 2021, when US retail investors — often driven by social media --started snapping up shares in downtrodden stocks like GameStop and cinema operator AMC. China debt sale China will start [selling the first batch of its 1 trillion yuan]( of ultra-long special sovereign bonds on Friday, as officials ramp up efforts to support the world’s No. 2 economy. The central government will begin by issuing 30-year bonds, ending months of speculation over when the bonds — only the fourth of their kind in 26 years — would be rolled out. Investors responded positively to the bond sales news, which analysts say will help with the government’s plans to boost growth. What we’ve been reading This is what’s caught our eye over the past 24 hours. - [Biden to hike tariffs]( on China EVs, offer solar exclusions. - Putin [names economist as Defense Minister]( in surprise reshuffle. - Europe’s gas supply once again[hinges on one company](. - [BOJ cuts bond buying](in regular operation as yen stays weak. - Euro-zone economy seen picking up pace[as Germany heals](. And finally, here's what Joe’s interested in this morning When the financial crisis hit in 2008, and rates were cut to zero, the Fed had a problem. It wanted to ease policy further, but rates were already as low as they could go. So Bernanke and Co. had to innovate, by introducing a number of new policies and communication tools designed not just to reduce the overnight rate, but rates further out on the yield curve. QE was one of these tools. Also, the central bank changed how it communicated. For the first time in history, the Fed chair started doing semi-regular press conferences. It also introduced the the Summary of Economic Projections -- AKA The Dot Plot -- so that members could indicate where they saw policy rates going over time. One way to think of all of these novelties is that the Fed wanted to say: "Rates are low, they're going to stay low and we MEAN it." In retrospect it's kind of hard to believe, but back in early 2009, there was a widespread view that ZIRP would be a very brief phenomenon, and that rate hikes would soon be coming, as the Fed shifted toward fighting inflation. So the Fed had to communicate how serious it was that it would keep rates low, and not get overly jittery about inflation. Obviously, we're in a very different environment today. Inflation over the last few years has been high, and it's also been highly uncertain. Very few people, if any, have had a great feel for its trajectory. The Immaculate Disinflation (a drop in inflation without a rise in the unemployment rate) in the second half of 2023 was a surprise (a welcome one, but a surprise nonetheless). The firm inflation data we've seen in 2024 also caught many people by surprise. The upshot is that it's not obvious what these GFC-era tools are contributing right now. [On the new episode of Odd Lots](, we bring back Macquarie Strategist Viktor Shvets who says the Dot Plot in particular is unhelpful right now. Dots (wherein each FOMC member forecasts their own estimate for the appropriate rate of policy going forward) make sense when there's some idea of the long-term inflationary trend, and the Fed wants to give a signal of the rate path. But when the long-term outlook is ambiguous, and there's so much uncertainty over the short-term path, the Dots make things less clear. During the 2010s, Fed communication strategies basically gave a signal to traders to not get hung up on month-to-month noise in the inflation data or the jobs numbers. There was a long-term objective, and the Fed would stick to it. These days, each CPI print or Non-Farm Payrolls report seemingly gives traders an opportunity to reprice their rate-cut timing. For a while the view was March. Then the view was this summer for the first cut. Then it got pushed out further. Then it got pulled back, and so forth. Of course, there was a time back in the day when the Fed didn't even put put a policy statement. It just used its own market operations to determine a new rate, and traders would infer the decision. Then later, they added an actual statement. It's hard to see imminent change to how the Fed operates, but it's a good reminder that there's nothing fixed or set in stone that says the current mode of communication is actually the best. Check out the full episode with Viktor on [Apple](, [Spotify](, or elsewhere. Joe Weisenthal is the co-host of Bloomberg’s Odd Lots podcast. Follow him on X [@TheStalwart]( Like Bloomberg's Five Things? [Subscribe for unlimited access]( to trusted, data-based journalism in 120 countries around the world and gain expert analysis from exclusive daily newsletters, The Bloomberg Open and The Bloomberg Close. [Bloomberg Markets Wrap: The latest on what's moving global markets. 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