Stocks On Shaky Ground Before CPI As Bonds Rally: Markets Wrap

(Bloomberg) -- Stocks had a hard time finding direction before key inflation data, with the Treasury curve inversion deepening to levels last seen in 2007 amid fears that Federal Reserve rate hikes will sink the economy into a recession.

The S&P 500 swung between gains and losses, while the Dow Jones Industrial Average outperformed as Boeing Co. announced a jump in deliveries. The yield on the 10-year US note dropped as much as 12 basis points below the two-year rate. So-called inversions of the curve are regarded as a potential harbinger of an economic contraction. Oil tumbled below $100 a barrel.

Economists say inflation continued to heat up in June, hitting a pandemic peak that will keep the Fed geared for another big hike later this month. The consumer price index due Wednesday probably rose 8.8% from a year earlier, marking the largest jump since 1981, according to the median forecast in a Bloomberg survey.

“The market is showing nervousness as to what this is going to look like,” said Patrick Kaser, portfolio manager at Brandywine Global. “There’s been talk about commodity prices coming down, but we’re not really seeing that flow through yet. We’re still expecting this number to come in pretty high.”

Traders also kept a close eye on the dollar, which fluctuated after hitting the highest since the Covid-19 panic of March 2020. For now, a wall of derivatives bets is keeping the euro from reaching parity with the greenback for the first time in two decades.

For Peter Boockvar at Bleakley Financial Group, investors will be very much focused on the currency moves and their impact on corporate profits. PepsiCo Inc., one of the first major industry players to report second-quarter earnings, said demand remained robust despite inflation -- though it expected headwinds from a stronger dollar.

“In the current environment, dollar strength is a sign of investors’ worries about a global recession since it signals a flight to the relative safety of the world’s reserve currency,” wrote Nicholas Colas, co-founder of DataTrek Research. “Until the dollar starts to weaken, it is difficult to believe the lows are in for US equities in 2022.”

In other corporate news, American Airlines Group Inc. surged as the carrier stuck with its expectation for a jump in second-quarter sales, highlighting the strength of travel demand. Bargain hunters are expected to find Amazon.com Inc.’s two-day Prime Day sale underwhelming this year, with many sellers minimizing profit-eating discounts in an era of soaring costs.

Sam Zell, the billionaire made famous by his real-estate deals, said that central bank actions to flood the market with money in recent years are coming back to bite the economy. He urged Fed Chair Jerome Powell to raise rates by as much as 75 basis points and “break the inflation mentality.”

Elsewhere, Bitcoin fell back below $20,000, following last week’s rally.

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What to watch this week:

• Earnings due from JPMorgan, Morgan Stanley, Citigroup, Wells Fargo
• New Zealand rate decision, Wednesday
• US CPI data, Wednesday
• Federal Reserve Beige Book, Wednesday
• US PPI, jobless claims, Thursday
• China GDP, Friday
• US business inventories, industrial production, University of Michigan consumer sentiment, Empire manufacturing, retail sales, Friday
• G-20 finance ministers, central bankers meet in Bali, from Friday
• Atlanta Fed President Raphael Bostic speaks, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 was little changed as of 1:28 p.m. New York time
• The Nasdaq 100 fell 0.1%
• The Dow Jones Industrial Average rose 0.3%
• The MSCI World index fell 0.2%

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro rose 0.1% to $1.0054
• The British pound was little changed at $1.1899
• The Japanese yen rose 0.5% to 136.74 per dollar

Bonds

• The yield on 10-year Treasuries declined four basis points to 2.95%
• Germany’s 10-year yield declined 11 basis points to 1.13%
• Britain’s 10-year yield declined 10 basis points to 2.07%

Commodities

• West Texas Intermediate crude fell 7.7% to $96.08 a barrel
• Gold futures fell 0.4% to $1,725.20 an ounce

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