US Stocks Raise as Traders Bet on CPI Ahead of Its Release: Markets Wrap

The S&P 500 contracts increased by 0.5%, while the tech-heavy Nasdaq 100 contracts increased by 0.7% after posting their first weekly loss of 2023.

Optimism on robust economic growth in Europe drove up European stocks. Construction, industrial products, and consumer sectors helped to boost the Stoxx 600 index while energy and real estate lagged.

Following a selloff in US government paper on Friday that increased the 10-year Treasury yield by seven basis points, the two-year Treasury yields increased to a new high for the year. After initially gaining, a measure of dollar strength has been stable.

In light of the fact that this week’s inflation and jobs reports are still expected to be hot commodities, traders are reevaluating how high US interest rates will rise this year. The Fed rate is now expected to peak at 5.2% in July, up from less than 5% a month ago, as a result of this.

Read more about how Wall Street trading desks have prepared for potential CPI scenarios.

Investors are attempting to see through a recession that hasn’t happened yet, according to Ryan Grabinski of Strategas. “Over the past 12 months, the Fed tightened significantly, and traditionally, this has a lag in its effects. We retain a more defensive stance because we believe that those policies’ impacts have not yet been fully felt.

Following a barrage of rhetoric last week that included a forecast from Minneapolis Fed President Neel Kashkari that the level will hit 5.4%, Philadelphia Fed President Patrick Harker was the most recent central banker to announce predictions for rates to soar above 5%.

Morgan Stanley strategists countered that US markets are due for a selloff since they had already priced in an interruption in Fed rate hikes.

According to Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management, “while equity and credit markets have priced in a soft landing based on peaking short-term rates and inflation, we view recent action as another bear market rally, turbocharged by a surge in US dollar liquidity, weak positioning, and short covering.” Additionally, other capital markets do not support the optimistic outlook, with economic statistics reflecting complicated crosscurrents resulting from the unusual COVID reopening.

The market rise, however, may continue over the coming few months, according to Alexandra Wilson-Elizondo, head of multi-asset retail investment at Goldman Sachs Asset Management.

In a phone interview, she stated, “We have strongly thought that it would take time for the handoff from goods disinflation to services and that the Fed would have to remain in restricted area to do so. Therefore, we have kept a conservative stance in our portfolios, but for those relative value trades, we looked to real fundamental catalysts like the China reopening.

For the first time in three months, India’s inflation rate of 6.5% exceeded the upper bound of the target set by the central bank. After spiking Friday on rumors that Kazuo Ueda will be chosen to be the next governor of the Bank of Japan, the yen declined past 132 per dollar. On Tuesday, the Japanese government is expected to formally announce the selection of the new BOJ governor.

According to US officials familiar with the situation, traders are also closely monitoring geopolitical developments in the wake of the Pentagon shooting down an unidentified object that it had been tracking over Michigan. A balloon or other high-flying craft was shot down over the US or Canada for the fourth time in eight days.

Oil prices fell elsewhere as traders compared the impending decline in Russian production with the resumption of supplies from other parts of the world. Gold lost ground.

Key events

Tuesday’s keynote address by New York Fed President John Williams is based on data from the US Consumer Price Index, the UK Employment Claims, and the Eurozone GDP.

Tuesday’s BOJ governor nomination in Japan

US retail sales and Wednesday’s UK CPI

Australian unemployment, US unemployment claims Thursday’s presentation at the Global Interdependence Center features Cleveland Fed President Loretta Mester.

French CPI and Russian GDP on Friday

Several significant market changes include:

Stocks

As of 10:16 a.m. New York Times, the S&P 500 increased 0.5%, marking the largest closing rise since February 7.

The Nasdaq 100 gained 0.7%, the most since February 7 at the close.

The Dow Jones Industrial Average increased by 0.6%, the most since February 7’s closing increase.

The Stoxx Europe 600 increased by 0.7%, the most since February 2

The MSCI World index dropped 0.3%, marking its third consecutive day of declines and its worst losing streak since January 19.

Currencies

Little changed in the Bloomberg Dollar Spot Index.

EUR/USD increased by 0.2% to $1.0704

The British pound increased by 0.5%, the most since January 25 for a closing gain.

Japanese yen dropped 1% to 132.72 yen to the dollar.

Cryptocurrencies

To $21,632.03, bitcoin decreased by 0.5%.

To $1,485.00, ether dropped 1.7%.

Bonds

Ten-year Treasury rate dropped one basis point to 3.72%.

The 10-year yield in Germany barely changed and was at 2.37%.

The 10-year yield in Britain increased by three basis points to 3.42%.

Commodities

To reach $79.04 a barrel, West Texas Intermediate crude declined by 0.9%.

To $1,866.90 per ounce, gold futures decreased by 0.4%.

Bloomberg Automation provided assistance in the creation of this article.

—With help from John Viljoen, Tassia Sipahutar, and Allegra Catelli.