US stocks climbed and Treasuries were mixed as investors debated whether inflation had eased enough to encourage the Federal Reserve to slow monetary tightening.
(Bloomberg) — US stocks climbed and Treasuries were mixed as investors debated whether inflation had eased enough to encourage the Federal Reserve to slow monetary tightening.
The S&P 500 and the tech-heavy Nasdaq 100 rose tentatively. Shorter-term Treasuries gained and the dollar slipped for a second day.
A softer-than-expected figure for the US consumer price index stoked a rally across stocks and bonds on Tuesday, but the gains were tempered by caution that the Fed may still remain resolute on continuing rate hikes. While a 50 basis-point increase in Fed’s policy rate later Wednesday is firmly priced in, traders remain on the edge over what signals policymakers may offer on when the hikes will stop and whether a rate cut is possible next year.
“The whole concept that the Fed is going to pivot to us is way overdone,” said David Spika, president and chief investment officer of GuideStone Capital Management. “The bottom line is that inflation is still running over 7%, the Fed is going to have to continue to raise interest rates — Jerome Powell is going to make that very clear today.”
If Powell highlights how perplexed he is that markets have eased since the last meeting, that would be interpreted as a hawkish signal, said George Goncalves, head of US macro strategy at MUFG Securities Americas Inc., in a note.
“Markets are priced to a dovish outcome,” he said. “Anything short of it could still end up viewed as disappointing.”
Treasuries with shorter-term maturities gained Wednesday, with the two-year yield shedding three basis points. The 10-year rate was little changed. Traders are betting that the Fed, after today’s move, will opt for 50 basis points more of hikes, and then an equivalent-sized cut by the end of next year.
In the UK, two-year gilts advanced. Inflation in the country fell from a 41-year high in November, raising the possibility that the worst of the cost-of-living squeeze is over.
Europe’s equity benchmark fell after posting the biggest single-day advance since Nov. 10 as caution prevailed over Fed’s messaging later in the day as well as expectations for rate hikes by the European Central Bank and Bank of England on Thursday.
West Texas Intermediate contracts rose for a third day and traded around $76 a barrel. Traders also weighed the demand outlook amid a rapid relaxation of Covid restrictions in China against the effect of new cases on economic activity in the country.
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 0.3% as of 9:37 a.m. New York time
- The Nasdaq 100 rose 0.3%
- The Dow Jones Industrial Average rose 0.2%
- The Stoxx Europe 600 fell 0.3%
- The MSCI World index rose 1.1%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro was little changed at $1.0639
- The British pound was little changed at $1.2373
- The Japanese yen rose 0.4% to 135.06 per dollar
Cryptocurrencies
- Bitcoin rose 1.2% to $17,982.17
- Ether rose 1.2% to $1,335.07
Bonds
- The yield on 10-year Treasuries was little changed at 3.51%
- Germany’s 10-year yield advanced two basis points to 1.95%
- Britain’s 10-year yield advanced two basis points to 3.32%
Commodities
- West Texas Intermediate crude rose 1.7% to $76.70 a barrel
- Gold futures fell 0.2% to $1,821 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Emily Graffeo and Isabelle Lee.
More stories like this are available on bloomberg.com
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