Wall Street got some encouragement to keep pushing stocks higher after a slowdown in inflation bolstered speculation the Federal Reserve will pause its tightening campaign this week.
(Bloomberg) — Wall Street got some encouragement to keep pushing stocks higher after a slowdown in inflation bolstered speculation the Federal Reserve will pause its tightening campaign this week.
That’s not to say investors are betting the Fed is done with its interest-rate hikes just yet. While swap traders are putting the odds of a June increase at only 10%, they still see the potential for a July move. For markets bracing for Wednesday’s Fed decision, that would mean a “hawkish pause”, according to Alexandra Wilson-Elizondo at Goldman Sachs Asset Management.
While the latest inflation figures brought relief to traders, the rate of disinflation remains incompatible with the Fed’s 2% target, she noted. The consumer price index and the core CPI — which excludes food and energy — decelerated on an annual basis. But a key gauge of prices closely watched by the Fed continued to rise at a concerning pace.
“Inflation is still much too high, but the trend is in the right direction, and the Fed is ready to take a break from raising interest rates,” said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance. “They want to wait and see if their actions are sufficient to keep inflation moving in the right direction.”
The S&P 500 rose for a fourth consecutive day and was on pace for its longest winning run since early April. Oracle Corp. jumped toward a record after saying the company’s cloud-computing business will continue its rapid growth. Treasuries fell, while the dollar halted a two-day advance.
Comments on CPI:
- Seema Shah, chief global strategist at Principal Asset Management:
“It would likely have taken a meaningful upside inflation surprise to convince the Fed to hike in June. With inflation coming broadly in line with expectations, the pressure is off.”
- Jim Smigiel, chief investment officer at SEI:
“There’s something for both the hawks and the doves with this CPI release, but not enough either way to move the Fed off of the expected ‘pause’ tomorrow. However, with core still running with a 5-handle, the next move from the Fed is another hike in July and perhaps one more after that (which is not priced in at this point).”
- James Athey, investment director at Abrdn:
“On balance, I don’t see today’s data as changing anything. The Fed is comfortable pausing the hiking cycle in June, provided there is a strong statement of their intention to raise rates again should it be required.”
- Joachim Klement, head of strategy, accounting and sustainability at Liberum Capital:
“This is good news, although spoiled by the stubbornly high core inflation number. Overall, this is a CPI print that allows the Fed to remain on hold tomorrow evening and should not be a problem for the US economy.”
- Richard Flynn, managing director of Charles Schwab UK:
“Today’s fall in the rate of inflation is likely to be welcomed by investors, but it remains stubbornly above the Fed’s 2% target. The good news is that the ‘stickiness’ in inflation is now confined to a smaller number of categories compared to earlier in the year.”
- Jeffrey Roach, chief economist at LPL Financial:
“The encouraging trend in consumer prices will provide the Fed some leeway to keep rates unchanged this month and if the trend continues, the Fed will not likely hike for the rest of the year.”
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.
Still, fund managers remain broadly underweight on stocks as sentiment — measured by cash levels, economic growth expectations and asset allocation — remains “stubbornly low,” BofA strategist Michael Hartnett wrote in a note. Investors cut equity allocation to a five-month low.
Key events this week:
- 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
- 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 S&P 500 rose 0.6% as of 12:27 p.m. New York time
- The Nasdaq 100 rose 0.5%
- The Dow Jones Industrial Average rose 0.5%
- The MSCI World index rose 0.8%
Currencies
- The Bloomberg Dollar Spot Index fell 0.3%
- The euro rose 0.4% to $1.0796
- The British pound rose 0.9% to $1.2616
- The Japanese yen fell 0.3% to 139.98 per dollar
Cryptocurrencies
- Bitcoin fell 0.4% to $25,802.12
- Ether fell 0.4% to $1,732.74
Bonds
- The yield on 10-year Treasuries advanced five basis points to 3.79%
- Germany’s 10-year yield advanced three basis points to 2.42%
- Britain’s 10-year yield advanced 10 basis points to 4.43%
Commodities
- West Texas Intermediate crude rose 3.2% to $69.29 a barrel
- Gold futures fell 0.5% to $1,959.50 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from John Viljoen, Isabelle Lee, Cecile Gutscher, Sagarika Jaisinghani, Julien Ponthus, Peyton Forte, Allegra Catelli, Blaise Robinson, Emily Graffeo, Brett Miller, Tassia Sipahutar and John McCorry.
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