Stocks gave up some of their advance as traders awaited a crucial US inflation print and assessed the impact of economic stimulus from China.
(Bloomberg) — Stocks gave up some of their advance as traders awaited a crucial US inflation print and assessed the impact of economic stimulus from China.
US equity benchmarks were set for modest gains after the Nasdaq 100 and the S&P 500 closed at the highest levels since April 2022 on Monday. Agribusiness Bunge Ltd. dropped in premarket trading after reporting that it will buy Glencore Plc-backed Viterra in a stock-and-cash deal. Miners and tech stocks outperformed in Europe as the Stoxx 600 pared its rise.
Confidence is mounting that the latest reading of the US consumer price index due Tuesday will show pressures have cooled enough to allow Federal Reserve policymakers to put their tightening campaign on pause Wednesday. It would mark the first time they forgo a rate hike after 10 consecutive moves in the key rate since March 2022.
“The market’s dovish expectations for the Fed’s decision later this week are closely tied to declining inflation, and any CPI figures that deviate from expectations could lead to significant repricing and impact sentiment towards riskier assets,” said Pierre Veyret, technical analyst at ActivTrades.
Falling energy prices in May should offset increases in other categories to leave the headline index roughly unchanged, according to Anna Wong, Bloomberg’s chief US economist. Excluding food and energy, prices probably rose 0.3% — a deceleration from April’s 0.4% increase, she said.
Fed Rate Pause Set to Get Support From Moderating CPI Inflation
The market is still allowing for a possible Fed rate increase next month, with swaps showing an almost quarter-point of additional tightening priced in by the July meeting.
Investors chasing the recent rally in stocks sold bonds, with the yields on both two-year Treasuries and UK gilts trading near financial-crisis highs. The dollar weakened.
Interest rates in the UK, meanwhile, may still need to move higher. Figures showed that Britain’s labor market tightened unexpectedly in April, the latest evidence that the resilient economy continues to defy efforts to cool demand and inflationary pressures. The data spurred traders to ramp up bets that the Bank of England will keep raising rates. The pound strengthened.
‘Most-Crowded’
In Asian trading, a gauge of the region’s equities rose by more than 1% as China was said to consider broad stimulus measures, partially reported by Bloomberg News earlier this month.
Investor speculation about looming cuts to China’s longer-term policy rates also intensified on Tuesday after the central bank unexpectedly lowered its seven-day reverse repurchase rate.
“The message is mixed: on the one hand, they surprised the market by announcing a cut in the short-term rate, but on the other, it also shows that the Chinese recovery is really weak,” said Charles-Henry Monchau, chief investment officer at Banque Syz.
US-listed China stocks gained in premarket trading, with Alibaba Group Holding Ltd. rising 2% and Baidu Inc. up 4.7%.
In other share moves, Apple Inc. slipped after a downgrade from UBS Group AG. Oracle Corp. rallied after the software company reported fourth-quarter results that beat expectations and gave a forecast for first-quarter revenue growth that’s ahead of analyst estimates.
Bank of America Corp.’s latest global survey of fund managers showed investors are “exclusively long” tech stocks amid the buzz around artificial intelligence. Long Big Tech was the most crowded trade, according to 55% of the participants, the strongest conviction since 2020.
In commodities, oil rebounded from its lowest level in almost three months on hopes for China stimulus, developments that also boosted iron ore.
Key events this week:
- US CPI, Tuesday
- Eurozone industrial production, Wednesday
- US PPI, Wednesday
- Federal Reserve rate decision, updated economic forecasts, Jerome Powell’s press conference, Wednesday
- IEA oil market report, Wednesday
- China property prices, retail sales, industrial production, Thursday
- China central bank meeting to decide on one-year policy loan rate, Thursday
- European Central Bank President Christine Lagarde holds press conference following the rate decision, Thursday
- US initial jobless claims, retail sales, empire manufacturing, business inventories, industrial production, Thursday
- Bank of Japan rate decision, Friday
- US University of Michigan consumer sentiment, Friday
Some of the main moves in markets:
Stocks
- S&P 500 futures rose 0.1% as of 6:37 a.m. New York time
- Nasdaq 100 futures rose 0.3%
- Futures on the Dow Jones Industrial Average were little changed
- The Stoxx Europe 600 was little changed
- The MSCI World index rose 0.3%
Currencies
- The Bloomberg Dollar Spot Index fell 0.2%
- The euro rose 0.4% to $1.0800
- The British pound rose 0.5% to $1.2569
- The Japanese yen was little changed at 139.53 per dollar
Cryptocurrencies
- Bitcoin rose 1% to $26,148.2
- Ether rose 0.5% to $1,748.26
Bonds
- The yield on 10-year Treasuries was little changed at 3.74%
- Germany’s 10-year yield was little changed at 2.38%
- Britain’s 10-year yield advanced six basis points to 4.40%
Commodities
- West Texas Intermediate crude rose 1.9% to $68.42 a barrel
- Gold futures rose 0.4% to $1,977 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Tassia Sipahutar and Allegra Catelli.
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