Stock futures climbed and Treasury yields slumped, with traders awaiting economic data for clues on whether the Federal Reserve will decelerate its pace of monetary tightening to prevent a hard landing.
(Bloomberg) — Stock futures climbed and Treasury yields slumped, with traders awaiting economic data for clues on whether the Federal Reserve will decelerate its pace of monetary tightening to prevent a hard landing.
A rally in equities would put the S&P 500 closer to 4,000, a key technical and psychological level. Fed Chair Jerome Powell’s favored portion of the yield curve — the difference between where three-month rates are now versus where they are expected to be in 18 months’ time — is on the cusp of inverting. That would be a warning sign for many investors that a recession is coming.
Traders will be closely watching figures on manufacturing, construction spending and job openings on the eve of the Fed decision. At a time when bad economic news is considered good news when it comes to policy wagers, data showing a slowdown in activity helped spur a rally in stocks in October, with the Dow Jones Industrial Average wrapping its best month since 1976.
“There is a growing consensus that global central bankers are becoming more sensitive to the risk of overtightening,” said Katie Nixon, chief investment officer for Northern Trust Wealth Management. “The Fed has a conundrum, of course, in maintaining its steely inflation-fighting resolve — and credibility — while balancing the ever-growing fears of a policy mistake.”
Nixon is betting that after another 75-basis-point rate increase in November, the Fed will slow down the pace to 50 basis points in December and make an additional quarter-point hike in early 2023.
Also helping bolster sentiment Tuesday was speculation that China is preparing to gradually exit the stringent Covid Zero stance that’s been the biggest bugbear for investors. A gauge of the nation’s stocks listed in Hong Kong surged almost 7% intraday, rebounding from its lowest close since late 2005. Shares pared gains after Chinese Foreign Ministry spokesman Zhao Lijian said he’s “not aware” of a committee on ending the policy.
Key events this week:
- EIA crude oil inventory report, Wednesday
- Federal Reserve rate decision, Wednesday
- US MBA mortgage applications, ADP employment, Wednesday
- Bank of England rate decision, Thursday
- US factory orders, durable goods, trade, initial jobless claims, ISM services index, Thursday
- ECB President Christine Lagarde speaks, Thursday
- US nonfarm payrolls, unemployment, Friday
Some of the main moves in markets:
Stocks
- Futures on the S&P 500 rose 1.1% as of 8:56 a.m. New York time
- Futures on the Nasdaq 100 rose 1.4%
- Futures on the Dow Jones Industrial Average rose 0.7%
- The Stoxx Europe 600 rose 1.3%
- The MSCI World index rose 0.7%
Currencies
- The Bloomberg Dollar Spot Index fell 0.7%
- The euro rose 0.5% to $0.9936
- The British pound rose 0.7% to $1.1546
- The Japanese yen rose 1.1% to 147.05 per dollar
Cryptocurrencies
- Bitcoin rose 0.7% to $20,538.32
- Ether rose 1.9% to $1,595.19
Bonds
- The yield on 10-year Treasuries declined 12 basis points to 3.93%
- Germany’s 10-year yield declined nine basis points to 2.05%
- Britain’s 10-year yield declined five basis points to 3.47%
Commodities
- West Texas Intermediate crude rose 2.5% to $88.69 a barrel
- Gold futures rose 1% to $1,656.40 an ounce
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