US stocks advanced even after data highlighted resilience in the service sector, with investors betting that the Federal Reserve won’t raise interest rates beyond peak levels already priced in by markets.
(Bloomberg) — US stocks advanced even after data highlighted resilience in the service sector, with investors betting that the Federal Reserve won’t raise interest rates beyond peak levels already priced in by markets.
The S&P 500 and the Nasdaq 100 briefly came off highs after the data released, before climbing again. Treasuries continued to rally, with the 10-year yield around 4%. A dollar index fell.
Data earlier this week showed continued labor-market resilience in the world’s largest economy, supporting the case for the Fed to keep tightening policy, a theme that pushed almost every major asset into the red in February. However, stocks have managed to hold their own so far in March, despite a series of hot inflation readings and strong labor-market prints that caused investors to ramp up bets on where interest rates might peak.
Sentiment improved after Atlanta Fed’s Raphael Bostic said on Thursday that the central bank could possibly pause its rate hikes sometime this summer. Investors deciphered his comments as dovish, even though Bostic and other Fed officials said they’d continue to be data dependent. Traders are optimistic because even the most hawkish Fed officials haven’t suggested that rates could need to go beyond levels already priced in, said Priya Misra, global head of rates strategy at TD Securities. Swap markets have been pricing a peak Fed policy rate of 5.5% in September.
“I think they stay at 5.5% and we have to see how data evolves in the second quarter,” she said on Bloomberg Television.
Misra also added that strong data doesn’t mean the Fed’s persistent rate hikes aren’t working.
“It takes a long time,” she said. “Policy only turned restrictive last year.”
Risk sentiment also received a boost on Friday from forecast-beating factory data from China.
Read: Sinking Bond Markets Send a Message to Equities: Taking Stock
Still, the stock rebound so far in March looks tentative, given investors remain cautious about the onslaught of rate increases. Cash funds attracted inflows of $68 billion in the week through March 1, showing many investors continue to seek out safe assets.
Equities also must contend with Treasury yields that now offer returns of more than 4%, with the 30-year yield rising above that mark for the first time since November before hovering around 3.92%.
Oil headed for its first weekly gain in three weeks as optimism over China’s recovery offset persistent concerns on tighter US monetary policy.
Some of the main moves in markets:
Stocks
- The S&P 500 rose 0.8% as of 11:22 a.m. New York time
- The Nasdaq 100 rose 1.1%
- The Dow Jones Industrial Average rose 0.5%
- The Stoxx Europe 600 rose 0.9%
- The MSCI World index rose 0.4%
Currencies
- The Bloomberg Dollar Spot Index fell 0.2%
- The euro was little changed at $1.0599
- The British pound rose 0.2% to $1.1974
- The Japanese yen rose 0.3% to 136.30 per dollar
Cryptocurrencies
- Bitcoin fell 4.5% to $22,357.29
- Ether fell 4.4% to $1,568.07
Bonds
- The yield on 10-year Treasuries declined six basis points to 4.00%
- Germany’s 10-year yield declined three basis points to 2.72%
- Britain’s 10-year yield declined two basis points to 3.86%
Commodities
- West Texas Intermediate crude rose 0.9% to $78.90 a barrel
- Gold futures rose 0.6% to $1,850.90 an ounce
This story was produced with the assistance of Bloomberg Automation.
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