(Bloomberg) – Stocks gave up some of their gains as traders waited for crucial US inflationary pressures and gauged the impact of economic stimulus from China.
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US equity benchmarks were set for modest gains after the Nasdaq 100 and S&P 500 closed at their highest levels since April 2022 on Monday. Agribusiness Bunge Ltd. was down in premarket trading after announcing it will buy Glencore Plc-backed Viterra in a stock-and-cash deal. Mining and technology stocks outperformed in Europe as the Stoxx 600 moderated its rise.
Confidence is growing that the latest reading in the US CPI, which is expected on Tuesday, will show that pressures have cooled enough for Federal Reserve policymakers to pause their tightening campaign on Wednesday. It would be the first time since March 2022 that they have refrained from raising interest rates after ten consecutive interest rate hikes.
“Market’s dovish expectations for the Fed’s decision later this week are closely linked to falling inflation and any CPI numbers that differ from expectations could lead to significant repricing and affect sentiment towards riskier assets,” he said Pierre Veyret, Technical Analyst at ActivTrades.
According to Anna Wong, Bloomberg’s chief US economist, falling energy prices should offset gains in other categories in May, leaving the composite index roughly flat. Excluding food and energy, prices were likely to rise 0.3% — a slowdown from April’s 0.4% rise, she said.
The Fed’s rate pause is expected to be supported by dovish CPI inflation
The market is still eyeing a possible Fed rate hike next month, with swaps showing another tightening of almost a quarter point, which was priced in at the July meeting.
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Investors chasing the recent rally in equities sold bonds, with both two-year and UK government bond yields hovering near financial crisis highs. The dollar weakened.
Meanwhile, interest rates in the UK may still need to be raised. Figures showed that the UK job market unexpectedly tightened in April. This is the latest evidence that the resilient economy continues to defy efforts to cool demand and inflationary pressures. The data prompted traders to increase their bets that the Bank of England will hike rates further. The pound got stronger.
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In Asian trading, a gauge of the region’s stocks rose more than 1% as China is expected to consider sweeping stimulus measures, which Bloomberg News partially reported earlier in the month.
Investor speculation about looming cuts in China’s longer-term interest rates also intensified on Tuesday after the central bank unexpectedly cut its seven-day reverse repo rate.
“The message is mixed: on the one hand they surprised the market by announcing a cut in the short-term interest rate, but on the other hand it also shows that the recovery in China is really weak,” said Charles-Henry Monchau, chief investment officer at Banque Syz.
Chinese stocks listed in the US rose in premarket trading, with Alibaba Group Holding Ltd. up 2% and Baidu Inc. up 4.7%.
In other stock movements, Apple Inc. fell after a downgrade from UBS Group AG. Oracle Corp. rebounded after the software company reported fourth-quarter results that beat expectations and provided a forecast for first-quarter revenue growth that beat analysts’ estimates.
The latest global survey by Bank of America Corp. among fund managers revealed that investors are “exclusively long” in tech stocks amid enthusiasm for artificial intelligence. Long Big Tech was the busiest trade according to 55% of participants, the strongest conviction since 2020.
In commodities, oil rebounded from its lowest level in almost three months on hopes of economic stimulus from China, developments that also boosted iron ore.
Important events this week:
US CPI, Tuesday
Eurozone industrial production, Wednesday
US PPI, Wednesday
Federal Reserve interest rate decision, economic forecast update, Jerome Powell press conference, Wednesday
IEA Oil Market Report, Wednesday
China House Prices, Retail Sales, Industrial Production, Thursday
China central bank meeting to decide on interest rate on one-year government bonds, Thursday
European Central Bank President Christine Lagarde holds a press conference on Thursday following the interest rate decision
US Initial Jobless Claims, Retail Sales, Empire Manufacturing, Corporate Inventories, Industrial Production, Thursday
Bank of Japan interest rate decision, Friday
University of Michigan consumer sentiment, Friday
Some of the key movements in the markets:
Shares
S&P 500 futures were up 0.1% as of 6:37 a.m. New York time
Nasdaq 100 futures up 0.3%
Futures on the Dow Jones Industrial Average hardly changed
The Stoxx Europe 600 has hardly changed
MSCI World Index up 0.3%
currencies
The Bloomberg Dollar Spot Index fell 0.2%
The euro rose 0.4% to $1.0800
The British pound rose 0.5% to $1.2569
The Japanese yen was little changed at 139.53 per dollar
cryptocurrencies
Bitcoin surged 1% to $26,148.2
Ether was up 0.5% to $1,748.26
Bind
The 10-year government bond yield was little changed at 3.74%
The yield on 10-year German government bonds remained little changed at 2.38%.
The 10-year UK government bond yield rose 6 basis points to 4.40%
raw materials
West Texas Intermediate crude rose 1.9% to $68.42 a barrel
Gold futures were up 0.4% to $1,977 an ounce
This story was created with the support of Bloomberg Automation.
– With the support of Tassia Sipahutar and Allegra Catelli.
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