Stocks struggled for direction as a hot inflation reading in the UK proved a cautionary tale for global central banks fighting inflation and markets wagering they’re close to the end of their tightening cycles.
(Bloomberg) — Stocks struggled for direction as a hot inflation reading in the UK proved a cautionary tale for global central banks fighting inflation and markets wagering they’re close to the end of their tightening cycles.
Futures contracts on the S&P 500 fluctuated in a narrow range after the gauge notched its first back-to-back losses in nearly four weeks. Economic bellwether FedEx Corp. tumbled 3% in premarket trading after its outlook fell short of analyst consensus estimates on weakened demand.
A UK inflation setback comes as Federal Reserve Chair Jerome Powell prepares to give his semi-annual report to Congress on Wednesday, where he’s expected to reiterate warnings that higher rates may be needed to combat inflation. While Fed policymakers kept interest rates unchanged at their meeting last week, their forecasts imply around two additional quarter-point rate hikes or one half-point increase.
Rampant price pressures in the UK may sway global central banks against a downshift to easier policy, according to Pooja Kumra, senior European rates strategist at Toronto Dominion Bank.
“A key risk for markets is whether Powell provides any conditions for the FOMC getting back to their hiking cycle after a pause in June,” Kumra said.
The second-quarter stock rally has hit a wall as investors lose their enthusiasm amid crowded bullish positioning, narrow breadth, high valuations, and hawkish Fed signals. Goldman Sachs Group Inc. strategists including Cormac Conners and David J Kostin recommend hedging S&P 500 exposure. Goldman’s base case is for the S&P 500 to climb to 4,700 in 12 months but the investment bank also sees a drop to 3,400 as possible if a recession becomes more likely.
The dollar advanced before Powell’s testimony, while the pound fell after erasing early gains on the back of another shock inflation reading. UK benchmark gilt yields climbed six basis points as traders ramped up bets for further Bank of England interest-rate hikes to a level not seen since the turn of the century a day before a policy meeting.
Key events this week:
- Federal Reserve Chair Jerome Powell delivers semi-annual congressional testimony before the House Financial Services Committee, Wednesday
- Chicago Fed President Austan Goolsbee speaks, Wednesday
- Eurozone consumer confidence, Thursday
- Rate decisions in UK, Switzerland, Indonesia, Norway, Mexico, Philippines, Turkey, Thursday
- US Conference Board leading index, initial jobless claims, current account, existing home sales, Thursday
- Fed’s Powell delivers testimony before the Senate Banking Committee, Thursday
- Cleveland Fed’s Loretta Mester speaks Thursday
- Eurozone S&P Global Eurozone Manufacturing PMI, S&P Global Eurozone Services PMI, Friday
- Japan CPI, Friday
- US S&P Global Manufacturing PMI, Friday
- St. Louis Fed President James Bullard speaks, Friday
Some of the main moves in markets:
Stocks
- The Stoxx Europe 600 was little changed as of 11:02 a.m. London time
- S&P 500 futures were unchanged
- Nasdaq 100 futures were little changed
- Futures on the Dow Jones Industrial Average were little changed
- The MSCI Asia Pacific Index fell 0.7%
- The MSCI Emerging Markets Index fell 0.9%
Currencies
- The Bloomberg Dollar Spot Index rose 0.1%
- The euro was little changed at $1.0917
- The Japanese yen fell 0.3% to 141.93 per dollar
- The offshore yuan fell 0.1% to 7.1926 per dollar
- The British pound fell 0.5% to $1.2703
Cryptocurrencies
- Bitcoin rose 2.7% to $28,942.03
- Ether rose 1.6% to $1,813.38
Bonds
- The yield on 10-year Treasuries advanced one basis point to 3.73%
- Germany’s 10-year yield was little changed at 2.41%
- Britain’s 10-year yield advanced six basis points to 4.40%
Commodities
- Brent crude was little changed
- Spot gold fell 0.2% to $1,933.16 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Abhishek Vishnoi, Farah Elbahrawy and Brett Miller.
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