U.S. Stocks See Best Two-Day Rally Since Pandemic Onset: Markets Wrap

(Bloomberg) -- Stocks continued to recover from oversold levels, with traders weighing renewed speculation that global central banks could moderate their hawkish stance to prevent a hard landing.

The S&P 500 is having its best two-day surge since April 2020. On top of the obvious short squeeze, another poor economic reading gave bulls a reason for hope when it comes to Federal Reserve policy. US job openings sank to a 14-month low -- which may fit well with a central bank that’s extremely concerned about a hot jobs market. Bond yields fell with the dollar.

The debate over peak hawkishness has intensified after a dovish surprise from Australia’s central bank and bond buying by the Bank of England. The idea of a Fed pivot, however, has been met with a lot of skepticism. For one, there’s the perception that not much has fundamentally changed to sway officials from their primary goal to knock down inflation. 

Then, there’s the fact that stock pessimism reached such extreme levels that a bounce would be just a matter of when. For markets that had been “nearly one-sided,” the liquidation of those positions is a big reason to squeeze in the other direction so vigorously, said Fawad Razaqzada at City Index and Forex.com.

“While it ‘feels’ like the markets may have bottomed out -- which is certainly a possibility, a small possibility, but a possibility nonetheless -- it is important to not get caught in another bull trap,” Razaqzada said. “We are still in a bear market and this could just turn out to be another relief rally.”

It’s not like market observers are minimizing the potential impact of the recent economic reports on Fed thinking. In fact, Tuesday’s jobs data could reinforce the case for officials to get off the “hamster wheel” of 75 basis points sooner rather than later, according to Peter Williams at Evercore.

That doesn’t mean any move would be imminent. Markets are still mostly betting on a hike of that magnitude next month.

“In short, we’re starting to see some things the doves can hang their hat on, but I don’t think it will be enough to stop another 75bp move in November,” wrote Neil Dutta, head of economics at Renaissance Macro Research. “All eyes on Friday payrolls.”

Elsewhere, oil surged for a second day as OPEC+ said it was considering an output cut of as much as 2 million barrels a day, a million barrels higher than previously anticipated.

Key events this week:

• Eurozone services PMIs, Wednesday
• OPEC+ meeting begins, Wednesday
• Fed’s Raphael Bostic speaks, Wednesday
• The Reserve Bank of New Zealand meets, Wednesday
• Eurozone retail sales, Thursday
• US initial jobless claims, Thursday
• Fed’s Charles Evans, Lisa Cook, Loretta Mester speak at events, Thursday
• US unemployment, wholesale inventories, nonfarm payrolls, Friday
• BOE Deputy Governor Dave Ramsden speaks at event, Friday
• Fed’s John Williams speaks at event, Friday

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Some of the main moves in markets:

Stocks

• The S&P 500 rose 2.9% as of 12:17 p.m. New York time
• The Nasdaq 100 rose 3.1%
• The Dow Jones Industrial Average rose 2.6%
• The MSCI World index rose 3.2%

Currencies

• The Bloomberg Dollar Spot Index fell 1%
• The euro rose 1.6% to $0.9984
• The British pound rose 1.3% to $1.1475
• The Japanese yen rose 0.2% to 144.21 per dollar

Cryptocurrencies

• Bitcoin rose 2.2% to $20,019.24
• Ether rose 1.9% to $1,348.58

Bonds

• The yield on 10-year Treasuries declined four basis points to 3.60%
• Germany’s 10-year yield declined five basis points to 1.87%
• Britain’s 10-year yield declined nine basis points to 3.87%

Commodities

• West Texas Intermediate crude rose 3.6% to $86.65 a barrel
• Gold futures rose 2% to $1,735.90 an ounce

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