Stocks joined gains in global risk assets on speculation the Federal Reserve will be able to slow its pace of rate hikes as inflation shows signs of cooling.
(Bloomberg) — Stocks joined gains in global risk assets on speculation the Federal Reserve will be able to slow its pace of rate hikes as inflation shows signs of cooling.
After averting its fifth straight weekly decline, the S&P 500 pushed above the 3,900 mark, a key level that could pave the way for more equity buyers — especially if Thursday’s consumer price index data indicates further moderation. The dollar retreated and swap contracts showed investors now expect the Fed funds effective rate to peak below 5%, down from 5.06% after data on Friday showed US wage growth cooled last month.
Another driver of sentiment this week will be the earnings season. Investors are bracing for a miserable stretch of reports that will likely extend the dominance of value shares as the US grapples with high inflation and rising borrowing costs, the latest MLIV Pulse survey shows.
The broad view on stocks remains deeply pessimistic as earnings heat up this week, with most of the 424 respondents expecting the S&P 500’s slide to deepen. Over half of survey takers said they’re inclined to invest more in cheaper, so-called value stocks, compared with only 39% three months ago.
Morgan Stanley’s Michael Wilson said that while investors are generally pessimistic about the outlook for economic growth, corporate profit estimates are still too high. That suggests the S&P 500 could fall much lower than the 3,500 to 3,600 points the market is currently estimating in the event of a mild recession, he said.
Elsewhere, oil rallied on hopes of renewed Chinese crude buying and as the dollar extended its decline.
Key events this week:
- US wholesale inventories, Tuesday
- Fed Chair Jerome Powell among speakers at Riksbank symposium in Stockholm, Tuesday
- World Bank expected to release global economic prospects report, Tuesday
- ECB Governing Council members speak at Euromoney conference in Vienna, Wednesday
- US CPI, initial jobless claims, Thursday
- St Louis Fed President James Bullard at Wisconsin Bankers Association virtual event, Thursday
- Richmond Fed President Thomas Barkin speaks at VBA/VA Chamber, Thursday
- China trade, Friday
- US University of Michigan consumer sentiment, Friday
- Citigroup, JPMorgan Chase, Wells Fargo report earnings, Friday
Some of the main moves in markets:
Stocks
- The S&P 500 rose 0.5% as of 9:30 a.m. New York time
- The Nasdaq 100 rose 0.8%
- The Dow Jones Industrial Average rose 0.2%
- The Stoxx Europe 600 rose 0.7%
- The MSCI World index rose 1%
Currencies
- The Bloomberg Dollar Spot Index fell 0.5%
- The euro rose 0.7% to $1.0714
- The British pound rose 0.6% to $1.2162
- The Japanese yen was little changed at 132.05 per dollar
Cryptocurrencies
- Bitcoin rose 1.7% to $17,239.2
- Ether rose 4.2% to $1,322.51
Bonds
- The yield on 10-year Treasuries advanced two basis points to 3.58%
- Germany’s 10-year yield advanced six basis points to 2.27%
- Britain’s 10-year yield advanced seven basis points to 3.54%
Commodities
- West Texas Intermediate crude rose 2.5% to $75.62 a barrel
- Gold futures rose 0.5% to $1,879.50 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Vildana Hajric and Isabelle Lee.
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