U.S. Stocks Rise As Traders Debate CPI Data’s Impact: Markets Wrap
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(Bloomberg) -- Wall Street equity indexes gained as investors placed bets ahead of Tuesday’s release of US consumer price data that could confirm the inflation battle isn’t over, dashing hopes of a Federal Reserve rate pivot.
Contracts on the S&P 500 were slightly higher while he tech-heavy Nasdaq 100 advanced 0.3%, following its first weekly loss of 2023.
Meanwhile, European stocks climbed on optimism over resilient economic growth. The Stoxx 600 index was lifted by construction, industrial goods and consumer stocks while energy and real estate underperformed.
Two-year Treasury yield Treasuries rose to 4.55% following a selloff in US government debt Friday that pushed up the 10-year Treasury yield by seven basis points. A gauge of dollar strength steadied after rising earlier.
Traders are reassessing how high US interest rates will rise this year, with inflation and jobs data likely to still come in hot later this week. That has fueled bets for the Fed rate to peak at 5.2% in July, up from less than 5% a month ago.
“Investors are trying to look through a recession that hasn’t occurred yet,” wrote Ryan Grabinski, an investment strategist at Strategas. “The Fed has tightened a significant amount over the last 12 months and, historically, that acts with a lag. We think the effects from those policies are yet to be fully felt, and that’s the reason we’re maintaining a more defensive posture.”
On Friday, Philadelphia Fed President Patrick Harker was the latest central banker to unveil expectations for rates to climb above 5% after a drumbeat of commentary last week that included a prediction from Minneapolis Fed President Neel Kashkari that the level would reach 5.4%.
Meanwhile, Morgan Stanley strategists argued that US stocks are ripe for a selloff after prematurely pricing in a pause in Fed rate hikes.
“While equity and credit markets have priced a soft landing based on peaking short-term rates and inflation, we view recent action as another bear market rally, turbocharged by a surge in US dollar liquidity, weak positioning and short covering,” wrote Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management. “Furthermore, the rosy view is unconfirmed by other capital markets, with economic data reflecting complex crosscurrents from the extraordinary COVID reopening.”
Yet Alexandra Wilson-Elizondo, head of multi-asset retail investing at Goldman Sachs Asset Management, thinks the market rally could have legs over the next few months.
“We’ve strongly believed that the handoff from goods disinflation to services was going to take time and that the Fed would have to remain in restrictive territory to do that,” she said in a phone interview. “And so we’ve maintained a cautious positioning in our portfolios, but we looked to real fundamental catalysts for those relative value trades such as the China reopening.”
The yen weakened past 132 per dollar after whipsawing Friday following news reports that Kazuo Ueda would be picked to become the Bank of Japan’s next governor. Investors initially interpreted the decision as a potentially hawkish choice. Those gains were trimmed after Ueda spoke to reporters and said the BOJ’s stimulus should stay in place. Japan’s government is set to officially announce the nomination of the new BOJ governor on Tuesday.
Traders are also keeping a keen eye on geopolitical developments after the Pentagon shot down an unidentified object that it tracked over Michigan, according to US officials familiar with the matter. This was the fourth time in eight days a balloon or high-flying craft has been shot down over the US or Canada.
Elsewhere, oil dropped as traders weighed a looming reduction in Russian supply with returning supplies elsewhere in the world. Gold slipped lower.
Key events:
- India CPI, Fed Governor Michelle Bowman speaks at the American Bankers Association Monday
- US CPI, UK jobless claims, Eurozone GDP, New York Fed President John Williams gives the keynote speech at New York Bankers Association event Tuesday
- Japan’s new BOJ governor nomination Tuesday
- US retail sales, UK CPI Wednesday
- US jobless claims, Australia unemployment, Cleveland Fed President Loretta Mester speaks at Global Interdependence Center event Thursday
- France CPI, Russia GDP Friday
Some of the main moves in markets:
Stocks
- The S&P 500 rose 0.1% as of 9:33 a.m. New York time
- The Nasdaq 100 rose 0.3%, more than any closing gain since Feb. 7
- The Dow Jones Industrial Average rose 0.2%
- The Stoxx Europe 600 rose 0.6%
- The MSCI World index fell 0.3%, falling for the third straight day, the longest losing streak since Jan. 19
Currencies
- The Bloomberg Dollar Spot Index rose 0.1%, more than any closing gain since Feb. 6
- The euro rose 0.1% to $1.0691
- The British pound rose 0.2% to $1.2092
- The Japanese yen fell 1.1% to 132.77 per dollar
Cryptocurrencies
- Bitcoin fell 0.5% to $21,631.04
- Ether fell 1.8% to $1,484.82
Bonds
- The yield on 10-year Treasuries was little changed at 3.73%
- Germany’s 10-year yield was little changed at 2.37%
- Britain’s 10-year yield advanced three basis points to 3.42%
Commodities
- West Texas Intermediate crude fell 1% to $78.95 a barrel
- Gold futures fell 0.4% to $1,867.90 an ounce
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