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Inflation Runs Hot Ahead of FOMC Rate Decision


Today's financial recap and tomorrow's financial outlook.

The Consumer Price Index rose 0.4% month-over-month, above the 0.2% consensus estimate. The increase was fueled by rising medical and food costs.

Excluding volatile food and energy prices, prices rose 0.3%, higher than the 0.2% expected.

The hot inflation reading drove a sell-off in US Treasuries, with the 10-year yield rising to 2.655%.

May Housing Starts were 1,001K, slightly missing the 1,030K forecast. Building Permits also disappointed with a 1,059K reading that failed to hit the 1,080K Wall Street estimated.

Nonetheless, housing stocks had a solid day, with the iShares Dow Jones US Home Construction ETF (NYSEARCA:ITB) rising 0.3%, outperforming the S&P 500 (INDEXSP:.INX), which was up 0.2%.

However, the real equity market action was in small caps. The Russell 2000 (INDEXRUSSELL:RUT) was up an impressive 0.8%, possibly as part of a larger investor move out of bonds, courtesy of the rise in inflation.

The rumor mill was very active today.

Shares of Micros Systems (NASDAQ:MCRS) rose 14.9% to $66.33 on news reports that it would the target of a $5 billion acquisition by Oracle (NASDAQ:ORCL). The stock was briefly halted during the day, but no official news was announced.

Internet real estate play Move Inc. (NASDAQ:MOVE) was up 7.9% on speculation that it could be acquired by Trulia (NASDAQ:TRLA).

Keurig Green Mountain (NASDAQ:GMCR) also had a big spike in the absence of official news, finishing up 4.6%. There was similar action on June 6, when the stock went up sharply on no news. Four days later, the company announced a partnership with Subway.

SolarCity (NASDAQ:SCTY) staged a 17.6% rally to finish at $64.53, but it announced actual deal news -- its acquisition of California-based solar company Silevo. The deal is expected to help SolarCity produce more efficient solar panels. (NASDAQ:AMZN) fell 0.6% in front of its product launch event on Wednesday. The company is widely expected to introduce a smartphone with a 3D display.

On the geopolitical front, the situation in Iraq remained fragile, as ISIS militants made more progress towards reaching Baghdad, according to CNN.

In response, the US military is sending troops to Baghdad to increase security around the US Embassy there and moving warships into the region. The ships will remain on standby pending possible orders of military action.

Tomorrow's Financial Outlook

The earnings calendar is light, but shipping giant FedEx (NYSE:FDX) will report in the morning before the open. The company missed analysts' earnings and revenue estimates in each of the last two quarters, so it appears that expectations are low. Electronic manufacturing contractor Jabil Circuit (NYSE:JBL) will follow after the close, and should be watched by tech investors.

We'll also have some big economic news tomorrow, namely the FOMC Rate decision, which will be released at 2:00 p.m. ET.

Investors will be paying close attention to any updates in the Fed's economic and rate forecasts. The Fed is expected to revise its 2014 GDP forecasts lower due to poor activity in the first quarter. Additionally, the addition of four new members to the committee could result in a drop in the median Fed Funds rate forecast.

Fed Chair Janet Yellen will hold a press conference, at which she is expected to remain cautiously optimistic towards the economy.

Twitter: @Minyanville

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