The stock market continued its ascent as traders bet on a milder US inflation print and economic stimulus from China.
(Bloomberg) — The stock market continued its ascent as traders bet on a milder US inflation print and economic stimulus from China.
The risk-on tone drove demand for technology and basic resources stocks in Europe, with Glencore Plc and Rio Tinto Plc leading gains among miners. US benchmark futures climbed after the Nasdaq 100 and the S&P 500 closed at the highest levels since April 2022. Investors chasing the stock rally dumped bonds, with the yields on both two-year Treasuries and UK gilts trading near financial-crisis highs. The dollar weakened.
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.
“It’s a pretty clear melt-up in risk, pricing in a Fed pause, and potentially softer CPI later on today,” said John Velis, a strategist at BNY Mellon. “We think that the Fed is done all together this cycle, as pausing in June will make it difficult to resume hiking in July.”
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.
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.
Meanwhile, a gauge of Asian 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.
Elsewhere, the pound strengthened and UK gilts fell after figures showed that Britain’s labor market tightened unexpectedly in April, pushing the two-year yield to the highest since 2008.
In commodities, oil rebounded after a heavy drop Monday, while iron ore rallied on the prospects of China stimulus measures.
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
- The Stoxx Europe 600 rose 0.2% as of 10:40 a.m. London time
- S&P 500 futures rose 0.2%
- Nasdaq 100 futures rose 0.4%
- Futures on the Dow Jones Industrial Average were little changed
- The MSCI Asia Pacific Index rose 1.1%
- The MSCI Emerging Markets Index rose 1%
Currencies
- The Bloomberg Dollar Spot Index fell 0.3%
- The euro rose 0.4% to $1.0805
- The Japanese yen was little changed at 139.55 per dollar
- The offshore yuan was little changed at 7.1631 per dollar
- The British pound rose 0.5% to $1.2569
Cryptocurrencies
- Bitcoin rose 0.8% to $26,114.23
- Ether rose 0.5% to $1,746.96
Bonds
- The yield on 10-year Treasuries was little changed at 3.73%
- Germany’s 10-year yield declined two basis points to 2.37%
- Britain’s 10-year yield advanced three basis points to 4.37%
Commodities
- Brent crude rose 1.4% to $72.87 a barrel
- Spot gold rose 0.3% to $1,963.20 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Tassia Sipahutar, Eva Szalay and Allegra Catelli.
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