Global stocks edged higher Tuesday, as Treasury bond yields held below the key 4% mark and investors waited to see what policy message Federal Reserve Chair Jerome Powell would deliver at his Congressional testimony later in the day.
(Bloomberg) — Global stocks edged higher Tuesday, as Treasury bond yields held below the key 4% mark and investors waited to see what policy message Federal Reserve Chair Jerome Powell would deliver at his Congressional testimony later in the day.
Contracts on the S&P 500 pointed to a bounce after the underlying gauge closed flat Monday, having erased a gain of as much as 0.8%. Europe’s Stoxx 600 equities gauge also posted slight gains, after a surprise increase in German factory reinforced the picture of a resilient euro zone economy.
Many investors remain sidelined after being burnt repeatedly betting on an inflation peak, cooling US economy and Fed policy pivot. While the S&P 500 index is up 2% this month, recouping some of February’s losses, traders appear reluctant to push the gauge much higher, until they get more clarity on how high interest rates might go and whether the world’s largest economy will dodge recession.
“There have been some positive developments — growth has been better than expected and interest rates have adjusted higher without too much volatility on equities,” said Francois Savary, chief investment officer at Swiss wealth manager Prime Partners. “We are at a point where the market is more or less correctly valued, so there is no need to be too negative on equities.”
He expects the S&P 500 to trade in a range, however, for the time being, adding that aside from the inflation question, “there are more challenges down the road on growth and it will be up to companies to show they can maintain earnings.”
The testimony of the Fed Chair will set the tone for markets this week. He’ll have the chance of telegraphing how much more policy tightening he thinks is needed, ahead of the next US rates decision on March 22. Powell will face Congress twice this week, beginning later Tuesday. While a 25 basis-point rate hike is priced for the upcoming meeting, there is an outside chance of a half-point increase.
The next key event is Friday’s monthly jobs report which could show if the labor market is starting to cool. An outsize reading for January saw investors ramp up bets on further Fed policy tightening, with markets now factoring peak US rates around 5.4%.
Ten-year US Treasury yields remained around 3.92% however, unable to sustain last week’s run above 4%, with investors noting the attraction of that yield level for buyers. Retail investors are also piling into Treasuries, snapping up the most six-month T-bills in nearly 30 years at an auction.
In Europe too, bonds rallied, shrugging off the strong German factory reading, as a European Central Bank survey showed inflation expectations declining to 2.5% for three years ahead.
The aggressive repricing of peak rates is the reason why Christopher Harvey, head of equity strategy at Wells Fargo, sees a case for equity resilience, at least in the short term.
“We wanted to take the other side of lower stock prices and more hawkish Fed Fund expectations because only a small change in perceptions would likely pop equities,” said Harvey. “We believe there’s more near-term upside.”
In premarket US trading, Meta Platforms Inc. rallied, with the Facebook-owner seen cutting thousands more employees as soon as this week.
With investors reluctant to place large bets, the activity of trend-following quants is moving stocks,. Commodity Trading Advisors bought $12 billion of equities on Thursday and Friday, per Nomura Holdings Inc., helping Wall Street chalk up its best week in a month.
Read more: Fast-Money Quants Are Buying Stocks as Human Traders Stay Put
On currency markets, the dollar traded modestly firmer against a basket of peers, seekig to extend four days of gains. The Australian dollar lost the most ground after the nation’s central bank said inflation may have peaked and further tightening will depend on incoming data.
The Aussie and other commodity currencies also face pressure from China’s decision to set a lower-than-expected economic growth target, and its latest data showing a continued decline in exports and imports. A Bloomberg commodity index slipped for the second straight day.
Key events this week:
- US wholesale inventories, consumer credit, Tuesday
- Fed Powell’s semiannual Monetary Policy Report to the Senate Banking Committee, Tuesday
- Euro area GDP, Wednesday
- US MBA mortgage applications, ADP employment change, trade balance, JOLTS job openings, Wednesday
- Fed Chair Powell’s semiannual Monetary Policy Report to the House Financial Services Committee, Wednesday
- Canada rate decision, Wednesday
- EIA crude oil inventories, Wednesday
- China CPI, PPI, Thursday
- US Challenger job cuts, initial jobless claims, household change in net worth, Thursday
- Bank of Japan policy rate decision, Friday
- US nonfarm payrolls, unemployment rate, monthly budget statement, Friday
Some of the main moves in markets :
Stocks
- The Stoxx Europe 600 rose 0.1% as of 10:12 a.m. London time
- S&P 500 futures rose 0.2%
- Nasdaq 100 futures rose 0.3%
- Futures on the Dow Jones Industrial Average were little changed
- The MSCI Asia Pacific Index was little changed
- The MSCI Emerging Markets Index fell 0.2%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro fell 0.2% to $1.0661
- The Japanese yen was little changed at 135.86 per dollar
- The offshore yuan rose 0.1% to 6.9406 per dollar
- The British pound fell 0.1% to $1.2009
Cryptocurrencies
- Bitcoin was little changed at $22,399.78
- Ether was little changed at $1,567.45
Bonds
- The yield on 10-year Treasuries declined three basis points to 3.93%
- Germany’s 10-year yield declined eight basis points to 2.67%
- Britain’s 10-year yield declined six basis points to 3.80%
Commodities
- Brent crude was little changed
- Spot gold fell 0.2% to $1,843.90 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Denitsa Tsekova, Brett Miller and Cecile Gutscher.
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