U.S. Stocks Rally For Fourth Day On Eve Of Key CPI Data: Markets Wrap
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(Bloomberg) -- US stocks rose, extending last week’s rally, and the dollar retreated with risk sentiment buoyed by speculation that inflation is near peaking.
The S&P 500 advanced with energy and tech sectors leading all 11 major industry groups higher. A gauge of the dollar fell for a second day, as all G-10 peers climbed against the greenback. The Treasury curve steepened, with 10-year yields rising after the auction of similar-maturity notes.
US inflation data due Tuesday is expected to show headline CPI cooled in August to an 8% a year pace while the core measure that excludes food and energy is seen accelerating. Meanwhile, traders almost fully expect another jumbo-sized Federal Reserve hike next week, following two 75-basis-point increases, taking their cue from central bank officials supporting that view.
US bond-market indicators suggest that investors are gaining confidence that this year’s spike in inflationary pressures will be brought under control. The cost of hedging high inflation has fallen, while so-called breakeven rates on Treasury Inflation Protected Securities -- a proxy for where markets expect inflation to be -- have also dropped.
“I cannot see any scenario where the market doesn’t decide that CPI is heading in the right direction and that October will be lower than September and so on,” Peter Tchir, head of macro strategy at Academy Securities, wrote in a note. “That combination should allow markets to continue to enjoy the strength that they saw towards the end of last week.”
Stocks are building a bullish technical trend after the S&P 500 rallied above 3,900 week with an increasing number of stocks passing key thresholds, according to Bank of America Corp.’s technical strategist Stephen Suttmeier.
Swap markets are pricing in more than 70 basis points of hikes at the central bank’s September meeting. Fed Governor Christopher Waller said last week he favors “another significant” increase in interest rates, and St. Louis Fed President James Bullard said he was leaning “more strongly” toward a third straight jumbo hike.
“The bad news is that US CPI inflation above 8% keeps the Fed hawkish and interest-rate volatility high,” Yuri Seliger, credit strategist at Bank of America, wrote. “The good news is that US inflation is peaking now according to our economists, and the trend should flip to a clear downward trajectory in 4Q and into 2023.”
Read more: If You Want to Know Where US Inflation Is Heading, Look at Rents
Read more: Markets Look for Soft CPI But Devil Will Be in the Details
The euro jumped the most in six months after Bundesbank President Joachim Nagel signaled support for further interest-rate hikes in Europe. The Stoxx Europe 600 index climbed for a third day, with retailers leading the advance amid optimism over plans to curb energy bills.
The European Union will propose a mandatory target to cut power use and a levy to channel energy companies’ profits to struggling consumers as it deploys unprecedented tools to tackle the crisis, according to a draft regulation seen by Bloomberg.
Crude oil and industrial metals advanced as the dollar’s descent countered demand concerns. Bitcoin extended a rally amid a brighter mood in global markets, climbing to a three-week high above $22,000.
Here are some key events to watch this week:
- US CPI, Tuesday
- UK CPI, Wednesday
- US PPI, Wednesday
- US business inventories, empire manufacturing, retail sales, initial jobless claims, industrial production, Thursday
- China home sales, retail sales, industrial production, fixed assets, surveyed jobless rate, Friday
- Euro area CPI, Friday
- US University of Michigan consumer sentiment, Friday
Some of the main moves in markets:
- The S&P 500 rose 0.9% as of 2:55 p.m. New York time
- The Nasdaq 100 rose 1%
- The Dow Jones Industrial Average rose 0.6%
- The MSCI World index rose 1.2%
- The Bloomberg Dollar Spot Index fell 0.4%
- The euro rose 0.7% to $1.0114
- The British pound rose 0.8% to $1.1678
- The Japanese yen fell 0.2% to 142.76 per dollar
- The yield on 10-year Treasuries advanced five basis points to 3.36%
- Germany’s 10-year yield declined four basis points to 1.65%
- Britain’s 10-year yield declined one basis point to 3.08%
- West Texas Intermediate crude rose 1.1% to $87.74 a barrel
- Gold futures rose 0.5% to $1,736.60 an ounce
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