US stocks struggled for direction after a fresh batch of strong inflation data from Europe bolstered the case for further rate increases that will slow one of the world’s largest economies. Bonds pared earlier declines.
(Bloomberg) — US stocks struggled for direction after a fresh batch of strong inflation data from Europe bolstered the case for further rate increases that will slow one of the world’s largest economies. Bonds pared earlier declines.
The S&P 500 fluctuated between modest gains and losses, with the underlying gauge on still track for a drop of more than 2% in February. Among individual movers, Target Corp. rose even after its strong fourth quarter was offset by a cautious forecast. Norwegian Cruise Line Holdings Ltd. tumbled after its annual forecast disappointed.
Treasury yields pared an earlier advance that saw the 10-year benchmark pushing closer to 4%, a level closely watched by traders. European bonds also trimmed the drop they suffered after France and Spain reported inflation that topped estimates. A dollar index fell.
“Right now, this is exactly the type of trade that I’m generally expecting to be what we have to deal with, at least here in the near term,” said Shawn Cruz, head trading strategist at TD Ameritrade. “And that is really just choppiness as we get closer to what a lot of people see as the inflection point of will we get some form of a recession, and where is the Fed going to peak out at?”
Risk assets have been pressured by central-bank warnings that interest rates need to rise further and remain elevated until inflation reverts toward long-term targets. Bond traders no longer view the odds of a Fed rate cut this year as better-than-even, a shift from what they were expecting just a month ago.
Traders are now pricing US rates to peak at 5.4% this year, compared with about 5% just a month ago. Market expectations also see the European Central Bank raising rates through February 2024 with a 4% ECB terminal rate fully priced.
“This whipsaw between narratives this year – Fed pause hopes being constructive for high beta assets, recession realities being the opposite – will continue,” Lauren Goodwin, economist and portfolio strategist at New York Life Investments, wrote in a note. “For this reason, and because the hurdle rate for keeping up with inflation is so high, we believe it’s important for investors to stay invested, leveraging resilient themes.”
Traders are also, once again, sifting through a bevy of economic data on Tuesday. US consumer confidence declined in February because of concerns about the outlook for jobs, incomes and business conditions. US home prices, meanwhile, fell for a sixth consecutive month.
Key events this week:
- China manufacturing PMI, non-manufacturing PMI, Caixin manufacturing PMI, Wednesday
- Eurozone S&P Global Eurozone Manufacturing PMI, Wednesday
- US construction spending, ISM Manufacturing, light vehicle sales, Wednesday
- Eurozone CPI, unemployment, Thursday
- US initial jobless claims, Thursday
- Eurozone S&P Global Eurozone Services PMI, PPI, Friday
Some of the main moves in markets:
Stocks
- The S&P 500 rose 0.1% as of 11:21 a.m. New York time
- The Nasdaq 100 rose 0.2%
- The Dow Jones Industrial Average fell 0.3%
- The Stoxx Europe 600 fell 0.1%
- The MSCI World index rose 0.4%
Currencies
- The Bloomberg Dollar Spot Index fell 0.1%
- The euro was little changed at $1.0611
- The British pound rose 0.4% to $1.2115
- The Japanese yen was little changed at 136.12 per dollar
Cryptocurrencies
- Bitcoin rose 0.5% to $23,502.77
- Ether rose 0.9% to $1,642.52
Bonds
- The yield on 10-year Treasuries advanced two basis points to 3.93%
- Germany’s 10-year yield advanced five basis points to 2.63%
- Britain’s 10-year yield was little changed at 3.81%
Commodities
- West Texas Intermediate crude rose 2.3% to $77.40 a barrel
- Gold futures rose 0.5% to $1,834.30 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Peyton Forte, Angel Adegbesan, Cecile Gutscher and Alice Atkins.
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