US stocks wavered and bonds slipped as a fresh batch of strong inflation data from Europe bolstered the case for further rate increases that will slow one of the world’s largest economies.
(Bloomberg) — US stocks wavered and bonds slipped as a fresh batch of strong inflation data from Europe bolstered the case for further rate increases that will slow one of the world’s largest economies.
The S&P 500 fluctuated between modest declines and staying flat, with the underlying gauge on track for a drop of more than 2% in February. Among individual movers, Target Corp. rose even after its strong fourth quarter was offset by a cautious forecast. Norwegian Cruise Line Holdings Ltd. tumbled after its annual forecast disappointed.
Treasury yields advanced, with the 10-year benchmark advancing toward 4%, a level closely watched by traders. European bonds fell after France and Spain reported inflation that topped estimates, pushing key yields in Germany to a 15-year high. A dollar index dropped.
Risk assets have been pressured by central-bank warnings that interest rates need to rise further and remain elevated until inflation reverts toward long-term targets. Bond traders no longer think the Fed will cut rates this year, a shift from what they were expecting just a month ago.
Traders are now pricing US rates to peak at 5.4% this year, compared with about 5% just a month ago. Market expectations also see the European Central Bank raising rates through February 2024 with a 4% ECB terminal rate fully priced.
“This whipsaw between narratives this year – Fed pause hopes being constructive for high beta assets, recession realities being the opposite – will continue,” Lauren Goodwin, economist and portfolio strategist at New York Life Investments, wrote in a note. “For this reason, and because the hurdle rate for keeping up with inflation is so high, we believe it’s important for investors to stay invested, leveraging resilient themes.”
Traders are also, once again, sifting through a bevy of economic data on Tuesday. US consumer confidence declined in February because of concerns about the outlook for jobs, incomes and business conditions. US home prices, meanwhile, fell for a sixth consecutive month.
Key events this week:
- China manufacturing PMI, non-manufacturing PMI, Caixin manufacturing PMI, Wednesday
- Eurozone S&P Global Eurozone Manufacturing PMI, Wednesday
- US construction spending, ISM Manufacturing, light vehicle sales, Wednesday
- Eurozone CPI, unemployment, Thursday
- US initial jobless claims, Thursday
- Eurozone S&P Global Eurozone Services PMI, PPI, Friday
Some of the main moves in markets:
Stocks
- The S&P 500 fell 0.1% as of 10:34 a.m. New York time
- The Nasdaq 100 was little changed
- The Dow Jones Industrial Average fell 0.5%
- The Stoxx Europe 600 fell 0.4%
- The MSCI World index rose 0.4%
Currencies
- The Bloomberg Dollar Spot Index fell 0.2%
- The euro rose 0.2% to $1.0635
- The British pound rose 0.6% to $1.2137
- The Japanese yen fell 0.1% to 136.34 per dollar
Cryptocurrencies
- Bitcoin rose 0.5% to $23,510.26
- Ether rose 0.9% to $1,641.38
Bonds
- The yield on 10-year Treasuries advanced four basis points to 3.96%
- Germany’s 10-year yield advanced 10 basis points to 2.68%
- Britain’s 10-year yield advanced five basis points to 3.86%
Commodities
- West Texas Intermediate crude rose 2.4% to $77.48 a barrel
- Gold futures rose 0.4% to $1,832.40 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Peyton Forte, Angel Adegbesan, Cecile Gutscher and Alice Atkins.
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