(Bloomberg) — Stock futures surged, while bond yields tumbled after softer-than-estimated inflation figures suggested that prices may have peaked, bolstering speculation on a smaller pace of Federal Reserve hikes.
(Bloomberg) — Stock futures surged, while bond yields tumbled after softer-than-estimated inflation figures suggested that prices may have peaked, bolstering speculation on a smaller pace of Federal Reserve hikes.
S&P 500 contracts jumped, indicating the benchmark gauge will halt a four-day losing streak.
The dollar fell against all of its Group-of-10 peers. Treasury 10-year yields plunged below 2.7%. The two-year rate briefly reached more than 58 basis points above the 10-year yield — a level last seen in the early 1980s, according to Bloomberg data — before shifting back to around 41 basis points.
Swaps showed the amount of tightening priced for the Fed’s Sept.
21 decision tumbling to around 59 basis points, suggesting a move of 50 basis points is seen as more likely than a shift of 75 basis points. The consumer price index increased 8.5% in July from a year earlier, cooling from the 9.1% June advance that was the largest in four decades.
Prices were unchanged from the prior month. A decline in gasoline offset increases in food and shelter costs.
Comments:
- “Wow, finally the anecdotal evidence that inflation was easing has finally showed up in a mainstream inflation report.
The Fed is rapidly losing its case for further tightening and this report reinforces for investors that either a new easing cycle has already begun or we are getting very close to one,” said Jim Paulsen, chief investment strategist at the Leuthold Group.
- “The weaker-than-expected CPI print suggests the Fed could adopt a more cautious pace of tightening going forward,” said Ellen Gaske, an economist at PGIM Fixed Income.
- “While this is to be celebrated, 8.5% inflation is still well above what the Fed wants to see.
50-75bps are still on the table for September, and more data will come in by that point,” said Victoria Greene, chief investment officer at G Squared.
While the stock market is rallying, some traders point to the possibility that would cause a relaxing in financial conditions that actually goes against the Fed’s goal of taming inflation.
Former Treasury Secretary Lawrence Summers said last week he was concerned that a slowing in headline inflation in upcoming data would prompt the Fed to conclude its policies are working — when much more action is in fact needed.
In corporate news, Tesla Inc.
climbed after Elon Musk offloaded $6.9 billion worth of stock in the electric-vehicle maker, saying he wanted to avoid a sudden sale in the event he’s forced to go ahead with his deal to acquire Twitter Inc.
What to watch this week:
- US PPI, initial jobless claims, Thursday
- San Francisco Fed President Mary Daly is interviewed on Bloomberg Television, Thursday
- Euro-area industrial production, Friday
- US University of Michigan consumer sentiment, Friday
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Some of the main moves in markets:
Stocks
- Futures on the S&P 500 rose 1.7% as of 8:56 a.m.
New York time
- Futures on the Nasdaq 100 rose 2.4%
- Futures on the Dow Jones Industrial Average rose 1.3%
- The Stoxx Europe 600 rose 0.8%
- The MSCI World index rose 0.3%
Currencies
- The Bloomberg Dollar Spot Index fell 1%
- The euro rose 1.2% to $1.0332
- The British pound rose 1.2% to $1.2228
- The Japanese yen rose 1.5% to 132.96 per dollar
Bonds
- The yield on 10-year Treasuries declined seven basis points to 2.71%
- Germany’s 10-year yield declined four basis points to 0.88%
- Britain’s 10-year yield declined three basis points to 1.94%
Commodities
- West Texas Intermediate crude fell 0.2% to $90.32 a barrel
- Gold futures rose 0.2% to $1,815.70 an ounce
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