The stock market continued to rebound as Treasury yields stabilized after a recent surge that sent shockwaves through trading desks around the globe in a brutal recalibration of bets on Federal Reserve hikes.
(Bloomberg) — The stock market continued to rebound as Treasury yields stabilized after a recent surge that sent shockwaves through trading desks around the globe in a brutal recalibration of bets on Federal Reserve hikes.
Underpinning that near-term strength is the growing perception that the Fed peak rate arguably won’t be much higher than what’s already been priced in by markets. Before the highly anticipated jobs report Friday, a double-day dose of Fed Chair Powell before Congress will set expectations for the next policy meeting later this month.
To Krishna Guha at Evercore, Powell will emphasize the notable resilience of the real economy and indications that the process of returning inflation to target is less advanced than appeared to be the case a month or two ago — and will be lengthy and bumpy. However, he will not turn “max hawkish” or fuel speculation of a 50 basis-point move.
“This would not present any need to shift market rate pricing higher,” he added.
With pressure coming off the entire US bond curve, beaten-down segments such as the rate-sensitive tech space found a reason to rally on Monday. The Nasdaq 100’s advance topped 1%, with Apple Inc. jumping after Goldman Sachs Group Inc. recommended buying the shares for the first time in nearly six years. The S&P 500 showed resilience above its key 200-day moving average.
A drop in bond yields and technical factors could give support to equities in the near term, according to Morgan Stanley’s Michael Wilson, one of the most-vocal bearish voices on US stocks. The caveat is that he doesn’t expect the “bear-market rally” to last long as fundamentals continue to deteriorate, especially on the earnings front.
“As stocks attempt to build on last week’s late rebound, investors will be focused on Powell’s congressional testimony and Friday’s jobs report,” said Chris Larkin, managing director at E*Trade from Morgan Stanley. “Traders are still anticipating a 25-basis point hike in a few weeks, and investors should prepare for volatility if the jobs read surprises in either direction especially as some Fed officials have indicated a 50-basis point hike remains on the table.”
Read: Powell Set to Lay Groundwork for Higher Rates on Capitol Hill
Elsewhere, the three-month London interbank offered rate for dollars — a major global lending benchmark — surpassed 5% for the first time in more than 15 years on Monday. Much of the recent surge in Libor, which is set to be phased out on June 30, has been driven by expectations for Fed policy tightening.
Key events this week:
- US wholesale inventories, consumer credit, Tuesday
- Fed Powell’s semiannual Monetary Policy Report to the Senate Banking Committee, Tuesday
- Australia rate decision, 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 S&P 500 rose 0.6% as of 11:03 a.m. New York time
- The Nasdaq 100 rose 1.2%
- The Dow Jones Industrial Average rose 0.3%
- The Stoxx Europe 600 was little changed
- The MSCI World index rose 0.7%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro rose 0.4% to $1.0679
- The British pound was little changed at $1.2030
- The Japanese yen was little changed at 135.92 per dollar
Cryptocurrencies
- Bitcoin rose 0.4% to $22,576.17
- Ether rose 0.5% to $1,579.51
Bonds
- The yield on 10-year Treasuries was little changed at 3.95%
- Germany’s 10-year yield was little changed at 2.72%
- Britain’s 10-year yield was little changed at 3.84%
Commodities
- West Texas Intermediate crude fell 0.5% to $79.30 a barrel
- Gold futures were little changed
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Vildana Hajric, Isabelle Lee and Angel Adegbesan.
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