The stock market saw a small advance before a report that’s expected to show a slowdown in inflation, which will help shape the outlook for the Federal Reserve’s next steps.
(Bloomberg) — The stock market saw a small advance before a report that’s expected to show a slowdown in inflation, which will help shape the outlook for the Federal Reserve’s next steps.
In the run-up to the consumer price index, the S&P 500 traded above its 4,400 mark. Energy producers led gains as West Texas Intermediate oil topped its key 100-day moving average. Activision Blizzard Inc. surged over 10% as Microsoft Corp. won a US court’s OK to proceed with its $69 billion takeover in the largest gaming deal ever. Boeing Co. climbed on better-than-estimated deliveries.
A survey conducted by 22V Research shows that 65% of respondents believe the core CPI — which excludes volatile food and energy prices — will be lower than consensus. In addition, 54% of the investors polled expect the report to be “risk-on.”
Forecasters surveyed by Bloomberg expect the year-over-year rate of increase in core inflation moderating to 5%, according to the median estimate. But the slowdown will possibly not be enough to prevent additional policy tightening, with Fed officials widely expected to resume interest-rate increases later this month.
“A quarter-point hike on July 26 is a forgone conclusion at this point, and Wednesday’s CPI release will be more relevant to the September/November debate,” said Ian Lyngen at BMO Capital Markets.
Inflation Peaks
After surging by a four-decade high in June 2022, CPI has pulled back steadily in the face of the Fed’s monetary policy onslaught. That slowdown has given support to the stock-market’s surge this year, and bulls have strong precedent for their enthusiasm.
Since the 1950s, inflation peaks have almost always been followed by double-digit equity gains, according to data compiled by the Leuthold Group. The S&P 500 has gained more than 20% since it bottomed out in October, placing it up about 15% since the peak CPI data was released last year.
Following the inflation data, traders will shift gears to the second-quarter earnings season, with JPMorgan Chase & Co., Citigroup Inc. and Wells Fargo & Co. reporting their numbers Friday.
In 2023, gains in the S&P 500 have been more concentrated among its largest stocks than in any six-month period since the turn of the millennium, resulting in expensive valuations for the index’s biggest names. That means the earnings season, along with policy cues are poised to “make or break the case” for those premiums to hold, said Gina Martin Adams, chief equity strategist at Bloomberg Intelligence.
Elsewhere, oil rose amid indications that Russian crude production is dropping, signaling the market’s supply glut may be coming to an end. Adding to bullish sentiment is news that China will take more steps to revive its economy with additional stimulus.
Key events this week:
- Canada rate decision, Wednesday
- Bank of England Governor Andrew Bailey speaks, Wednesday
- US CPI, Wednesday
- Federal Reserve issues Beige Book, Wednesday
- Fed speakers include Neel Kashkari, Loretta Mester, Raphael Bostic, Wednesday
- China trade, Thursday
- Eurozone industrial production, Thursday
- US initial jobless claims, PPI, Thursday
- US University of Michigan consumer sentiment, Friday
- US banks kick off earnings, Friday
Some of the main moves in markets:
Stocks
- The S&P 500 rose 0.3% as of 2 p.m. New York time
- The Nasdaq 100 rose 0.1%
- The Dow Jones Industrial Average rose 0.7%
- The MSCI World index rose 0.6%
Currencies
- The Bloomberg Dollar Spot Index fell 0.3%
- The euro was little changed at $1.1006
- The British pound rose 0.5% to $1.2921
- The Japanese yen rose 0.7% to 140.34 per dollar
Cryptocurrencies
- Bitcoin fell 0.7% to $30,580.83
- Ether fell 1% to $1,873.2
Bonds
- The yield on 10-year Treasuries declined two basis points to 3.97%
- Germany’s 10-year yield advanced one basis point to 2.65%
- Britain’s 10-year yield advanced two basis points to 4.66%
Commodities
- West Texas Intermediate crude rose 2.4% to $74.72 a barrel
- Gold futures rose 0.3% to $1,937 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Jason Scott, Tassia Sipahutar, Robert Brand, Vildana Hajric, Carly Wanna and Isabelle Lee.
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