Stocks came well off session highs on speculation their recent rebound might be getting overdone as economic risks abound.
(Bloomberg) — Stocks came well off session highs on speculation their recent rebound might be getting overdone as economic risks abound.
Four major events between now and the Fed’s March 22 decision will be the key catalysts in determining whether this year’s revival in equities gets derailed or starts rolling again after a February slump. So basically the fact that the stock market has recently found some degree of stabilization can be seen as the “calm before the storm,” according to Mark Hackett, chief of investment research at Nationwide.
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.
“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,” said Chris Larkin, managing director at E*Trade from Morgan Stanley.
‘Max Hawkish’
Before the pivotal jobs report Friday, a double-day dose of Federal Reserve Chair Powell before Congress will set expectations for the next policy meeting later this month.
To Krishna Guha at Evercore, Powell will possibly emphasize the notable resilience of the economy and indications that the process of returning inflation to its target will be lengthy and bumpy. However, he will not turn “max hawkish” or fuel speculation of a 50 basis-point hike, Guha noted.
“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 gain on Monday. The Nasdaq 100 outperformed, 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 trimmed gains, but showed resilience above its key 200-day moving average.
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 0.2% as of 1:39 p.m. New York time
- The Nasdaq 100 rose 0.5%
- The Dow Jones Industrial Average rose 0.1%
- The MSCI World index rose 0.4%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro rose 0.4% to $1.0681
- The British pound was little changed at $1.2029
- The Japanese yen was little changed at 135.96 per dollar
Cryptocurrencies
- Bitcoin was little changed at $22,503.91
- Ether was little changed at $1,573.6
Bonds
- The yield on 10-year Treasuries advanced two basis points to 3.97%
- Germany’s 10-year yield advanced three basis points to 2.75%
- Britain’s 10-year yield advanced two basis points to 3.87%
Commodities
- West Texas Intermediate crude rose 0.6% to $80.19 a barrel
- Gold futures were little changed
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Vildana Hajric, Isabelle Lee, Angel Adegbesan and Peyton Forte.
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