US equities rose and Treasuries retreated after a batch of data showed signs of a slowdown in the American economy but an unexpected rise in a key inflation measure.
(Bloomberg) — US equities rose and Treasuries retreated after a batch of data showed signs of a slowdown in the American economy but an unexpected rise in a key inflation measure.
The S&P 500 rose 1.3% amid strong corporate earnings and data showing economic growth slowed more than forecast last quarter, indicating the end of the Federal Reserve’s interest rate hikes may be near. However, countering that claim was a reading on inflation that came in higher than expected along with a slowdown in initial jobless claims.
Treasuries fell, with the policy-sensitive two-year yield trading at 4.06%, as the combination of data could prompt the Fed to keep interest rates higher for longer.
“This morning’s data was the worst of both worlds, with growth down and inflation up,” said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance. “Given that Core PCE is nowhere near the Fed’s 2% target (e.g. rising to 4.9% from 4.4%). The Fed clearly needs to keep raising rates (because of inflation) and they are going to be raising rates right into a slowdown. We are beginning to worry that stagflation is a real possibility.”
The mixed data follows a strong start to the first-quarter earnings season that had boosted confidence corporate America is coping relatively well with price pressures and policy tightening. The tech-heavy Nasdaq 100 rose 2.2% as earnings from Meta Platforms Inc. beat analyst estimates, pushing the company’s shares 10% higher.
“We are seeing heavier reactions in tech as firms are beginning to bear the fruit of earlier cost efficiencies,” Lewis Grant, senior portfolio manager for global equities at Federated Hermes, wrote in a note to clients. “Investor sentiment remains every bit as fragile as the global economy and earnings season provides much needed visibility on the general health of firms.”
Amazon.com Inc., Caterpillar Inc., Merck & Co. and Intel Corp. are among the next to report.
Dana Peterson, chief economist at The Conference Board, said latest batch of data showed the kind of cognitive dissonance investors have been grappling with as “typically when you have recessions, the labor market collapses with GDP, and we’re not seeing that.”
“We’re probably going to dip into a recession, maybe starting right now in the second quarter, but we really need to see data,” she said. “Our leading indicators index suggests that it’s starting to happen now, and consumers and CEOs have been anticipating recession for some time.”
In Europe, the Stoxx 600 Index was little changed after earlier fluctuations. Sanofi’s profit topped estimates while Deutsche Bank AG dropped after trading revenue disappointed.
Elsewhere, oil fluctuated after a Wednesday fall. The dollar was little changed. Gold reversed a gain, and Bitcoin resumed an advance.
Stocks
- The S&P 500 rose 1.3% as of 12:36 p.m. New York time
- The Nasdaq 100 rose 2.2%
- The Dow Jones Industrial Average rose 0.9%
- The MSCI World index fell 0.3%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro fell 0.3% to $1.1012
- The British pound was little changed at $1.2473
- The Japanese yen fell 0.3% to 134.06 per dollar
Cryptocurrencies
- Bitcoin rose 2.4% to $29,097.9
- Ether rose 1.6% to $1,897.15
Bonds
- The yield on 10-year Treasuries advanced six basis points to 3.51%
- Germany’s 10-year yield advanced six basis points to 2.46%
- Britain’s 10-year yield advanced six basis points to 3.79%
Commodities
- West Texas Intermediate crude rose 0.7% to $74.81 a barrel
- Gold futures fell 0.2% to $1,992.80 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Emily Graffeo, Cecile Gutscher, Richard Henderson, Anchalee Worrachate and Edward Bolingbroke.
(A previous verison corrected the yield on the two-year Treasury)
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