Volatility gripped US stocks on Tuesday as investors mulled whether latest data showing prices rose less than forecast last month would prompt the Federal Reserve to alter its aggressive approach to battling inflation.
(Bloomberg) — Volatility gripped US stocks on Tuesday as investors mulled whether latest data showing prices rose less than forecast last month would prompt the Federal Reserve to alter its aggressive approach to battling inflation.
The S&P 500 and the Nasdaq 100 are up less than 1% after surging earlier in the session. While Treasuries rallied after a key gauge of US consumer prices posted the smallest monthly advance in more than a year, they are now trading at a lower volume as traders await Fed policy clues.
The Fed is largely expected to raise rates by half a percentage point Wednesday, slowing the pace of increases, further validated by Tuesday’s data. Investors will focus on what officials are projecting for the future of the Fed funds rate and any commentary on how they view the policy path for the next meeting in February.
“I don’t think Powell wants a rally,” said Chris Murphy, co-head of derivatives strategy at Susquehanna International Group. It “remains to be seen how much damage to the economy and earnings he has already done, so it’s hard to see much extreme upside yet.”
Swap markets are now favoring a quarter-point hike as early as the Fed’s February meeting. But some investors are cautious about celebrating the latest consumer price index data.
“While the war against inflation is turning, we are a long way off declaring victory and the Fed will keep its hawkish stance for a while longer, even if it does potentially force a recession,” said Richard Carter, head of fixed interest research at Quilter Cheviot.
Following the Fed, the European Central Bank will announce its rate decision Thursday. Markets will also contend with decisions from the Bank of England and monetary authorities in Mexico, Norway, the Philippines, Switzerland and Taiwan.
Key events this week:
- FOMC rate decision and Fed Chair news conference, Wednesday
- China medium-term lending, property investment, retail sales, industrial production, surveyed jobless, Thursday
- ECB rate decision and ECB President Lagarde briefing, Thursday
- Rate decisions for UK BOE, Mexico, Norway, Philippines, Switzerland, Taiwan, Thursday
- US cross-border investment, business inventories, empire manufacturing, retail sales, initial jobless claims, industrial production, Thursday
- Eurozone S&P Global PMI, CPI, Friday
Some of the main moves in markets:
Stocks
- The S&P 500 rose 0.7% as of 1:29 p.m. New York time
- The Nasdaq 100 rose 1%
- The Dow Jones Industrial Average rose 0.3%
- The MSCI World index rose 0.5%
Currencies
- The Bloomberg Dollar Spot Index fell 1%
- The euro rose 0.8% to $1.0623
- The British pound rose 0.9% to $1.2376
- The Japanese yen rose 1.7% to 135.33 per dollar
Cryptocurrencies
- Bitcoin rose 3% to $17,698.79
- Ether rose 3.3% to $1,316.68
Bonds
- The yield on 10-year Treasuries declined 12 basis points to 3.49%
- Germany’s 10-year yield declined one basis point to 1.93%
- Britain’s 10-year yield advanced 10 basis points to 3.30%
Commodities
- West Texas Intermediate crude rose 3.6% to $75.79 a barrel
- Gold futures rose 1.7% to $1,822.80 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Natalia Kniazhevich, Michael Msika, Sagarika Jaisinghani and Lu Wang.
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