(Bloomberg) – Wall Street stock indexes rose as investors weighed various signals, Tuesday’s release of US consumer price data could show.
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The S&P 500 gained 1.1%, while the tech-heavy Nasdaq 100 gained 1.6% after its first weekly loss of 2023.
A New York Federal Reserve consumer survey showed that one-year inflation expectations changed little in January, giving Vital Knowledge’s Adam Crisafulli “slightly reassuring”.
“Household income was positive (for stocks) as it points to wage disinflation expectations,” he wrote, noting that this was the biggest one-month drop in the series’ nearly 10-year history.
Still, two-year Treasury yields climbed to a new yearly high after climbing 23 basis points last week after January jobs data came in much stronger than expected.
Traders are reassessing how high US interest rates will go this year, with inflation and jobs data likely to be hot later this week. This has fueled bets that the Fed rate will peak at 5.2% in July, down from less than 5% a month ago.
On Friday, Philadelphia Fed President Patrick Harker became the latest central banker to unveil expectations that rates would rise above 5% after a drumroll of comments last week echoing a prediction by Minneapolis Fed President Neel Kashkari , contained that the level would reach 5.4%.
Read more: Wall Street trading desks draft game plans for CPI scenarios
Morgan Stanley strategists argued that US stocks are ripe for a sell-off after prematurely pricing in a pause in Fed rate hikes.
“While equity and credit markets have priced in a soft landing on the basis of near-term interest rate spikes and inflation, we view the recent action as yet another bear market rally, buoyed by a surge in US dollar liquidity, weak positioning and short coverage will,” wrote Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management. “Furthermore, the rosy outlook is not being confirmed by other capital markets as economic data reflects complex cross-currents from the extraordinary COVID reopening.”
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However, Alexandra Wilson-Elizondo, head of multi-asset retail investing at Goldman Sachs Asset Management, believes the market rally could gain momentum in the coming months.
“We strongly believed that the handover from commodity disinflation to services would take time and that the Fed would need to remain in hawkish territory for that to happen,” she said in a phone interview. “As such, we have maintained cautious positioning in our portfolios, but we have been looking for real fundamental catalysts for these relative value trades like China’s reopening.”
In Europe, optimism about robust economic growth drove European equities higher. The Stoxx 600 index was boosted by construction, industrials and consumer stocks, while energy and real estate underperformed.
India’s inflation rate of 6.5% broke the upper end of the central bank’s target for the first time in three months. The yen weakened above 132 per dollar after lashing Friday after news reports that Kazuo Ueda would be selected as the next Bank of Japan governor. The Japanese government will officially announce the appointment of the new BOJ governor on Tuesday.
Traders are also watching geopolitical developments after the Pentagon shot down an unidentified object it was tracking over Michigan, according to US officials familiar with the matter. This was the fourth time in eight days that a balloon or high-flyer was shot down over the United States or Canada.
Key Events:
US CPI, UK Jobless Claims, Eurozone GDP, New York Fed President John Williams delivers the keynote address at the New York Bankers Association event on Tuesday
Nomination of Japan’s new BOJ governor on Tuesday
US Retail Sales, UK CPI Wednesday
US jobless claims, Australian unemployment, Cleveland Fed Chairwoman Loretta Mester speaks at the Global Interdependence Center event on Thursday
France CPI, Russia GDP Friday
Some of the key movements in the markets:
Shares
The S&P 500 is up 1.1%, more than any closing gain since February 7 at 12:50 p.m. New York time
The Nasdaq 100 is up 1.6%, more than any closing gain since Feb. 7
The Dow Jones Industrial Average is up 1%, more than any closing gain since Jan. 31
The MSCI World Index fell 0.3% for the third straight day, its longest losing streak since Jan. 19
currencies
The Bloomberg Dollar Spot Index fell 0.1% to its lowest level since Feb. 3
The euro is up 0.4%, more than any closing gain since February 1st
The British pound is up 0.6%, more than any closing gain since Jan. 17
The Japanese yen fell 0.9% to 132.50 per dollar
cryptocurrencies
Bitcoin fell 1.1% to $21,504.50
Ether fell 2.4% to $1,474.31
Bind
The 10-year government bond yield fell two basis points to 3.72%
Germany’s 10-year yield was little changed at 2.37%
The 10-year UK government bond yield was little changed at 3.40%.
raw materials
West Texas Intermediate crude was up 1% to $80.51 a barrel
Gold futures fell 0.7% to $1,861.80 an ounce
This story was created with the support of Bloomberg Automation.
–Assisted by Peyton Forte.
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