The S&P 500 jumped to its highest level in 13 months on Monday as traders hoped the Federal Reserve will skip hiking rates when the central bank decides on policy Wednesday. The S&P 500 added 0.93% to close at 4,338.93, with gains steadily increasing throughout the trading day. The benchmark surpassed its high from last August and …
The S&P 500 jumped to its highest level in 13 months on Monday as traders hoped the Federal Reserve will skip hiking rates when the central bank decides on policy Wednesday.
The S&P 500 added 0.93% to close at 4,338.93, with gains steadily increasing throughout the trading day. The benchmark surpassed its high from last August and reached the best intraday and closing levels since late-April 2022. The Nasdaq Composite popped 1.53% to finish the day at 13,461.92, also reaching its highest levels since April 2022. The Dow Jones Industrial Average climbed 189.55 points, or 0.56%, to close at 34,066.33.
Markets have come to expect that the Fed will skip a rate increase at this week’s meeting, with traders pricing in a roughly 72% chance that there will be no hike, according to the CME Group’s FedWatch tool. The Fed has hiked 10 consecutive times since starting this latest policy-tightening cycle in March 2022.
Tuesday’s inflation data could help reinforce the case that inflation is subsiding, as economists expect the consumer price index to show inflation dropping to a 4% annual rate in May. That’s down from 4.9% in the prior month.
The central bank will ultimately decide to skip a rate hike for June, according to Certuity co-chief investment officer Dylan Kremer, but the Fed likely isn’t done raising rates overall.
However, market expectations are that Fed officials will emphasize a commitment to keep inflation at bay and come back with a final rate increase at July’s meeting before going on hold for the rest of the year.
Nikkei leads on Fed bets
It was a mixed Tuesday morning session for the Asian markets. The Nikkei and the Hang Seng enjoyed a bullish morning while the ASX 200 struggled for direction. There were no US economic indicators from Monday to influence, while a bullish US session supported the broader Asian equity markets.
Investor bets on softer US inflation and a Fed pause this Wednesday drove demand for riskier assets. Economists forecast the US annual inflation rate to soften from 4.9% to 4.1%, supporting a Fed pause.
The probability of a June rate hike fell from 29.9% to 18.5% this morning, according to the CME FedWatch Tool. However, the chance of a 25-basis point July Fed rate hike increased from 52.8% to 59.1%. Significantly, bets on a 50-basis point July interest rate hike fell from 17.1% to 11.9%.
This morning, economic indicators from Australia sent mixed signals, while manufacturing numbers from Japan were bullish. The ASX 200 struggled in response to disappointing business confidence numbers.
However, PBoC action provided support, with China’s central bank cutting the seven-day reverse repo rate from 2.00% to 1.90%.
ASX200After a day of up and down trading, US stocks concluded with minor losses as US bond yields reached nine-month highs and the currency fell following a credit rating in the United States.
Investors on Wall Street weighed another jump in Treasury yields against the latest batch of economic data and earnings. The Dow Jones Industrial Average (.DJI) declined 0.19% to 35,215 points, the S&P 500 (.SPX) down 0.25% to 4,501 points, and the Nasdaq Composite (.IXIC) dipped 0.1% to 13,959.
Long-term Treasury rates in the United States touched nine-month highs on Thursday after employment and other economic data pointed to receding inflation, and they remained there in the afternoon.
The 10-year Treasury note yield increased 10.7 basis points to 4.185%, while the 30-year rate increased 13.8 basis points to 4.302%.
The yield swings, according to Gennadiy Goldberg, head of U.S. rates strategy at TD Securities, were driven by big investor positioning despite very tight market liquidity, not fundamentals.
“The market has largely accepted that the Fed is either done or almost done with hikes,” Goldberg said on Thursday at the Reuters Global Markets Forum. “So it’s now all about how long interest rates stay high and when the Fed cuts.”
The dollar was little changed against key rivals, trading at a one-month high of $102.530. The strong private payrolls statistics contributed to evidence of labor market resiliency in the United States, with the nonfarm payrolls report due on Friday.
On Thursday, investors absorbed new Labor Department data showing that the number of Americans filing new claims for unemployment benefits increased marginally last week, but layoffs fell to an 11-month low in July. The government also stated that worker productivity in the United States increased substantially in the second quarter, adding to the improving inflation forecast.
EURO SHARES ARE DOWN
European equities (.STOXX) fell 0.6% for the third day in a row, weighed down by poor profit reports and rising US bond yields.
However, UK equities (.FTSE) initially rose after the Bank of England hiked its key interest rate by a quarter percentage point to a 15-year high of 5.25%. The index finished 0.4% lower.
Sterling was flat after plunging as much as 0.7% in response to the BoE decision.
The decision by the Bank of England was closely followed for signs on how central banks across the world will manage lowering inflation while supporting prosperity. The monetary policy committee (MPC) of the Bank of England was divided on the extent of the rate hike.
“This split does leave a sense that the MPC itself is uncertain over what to do,” said Stuart Cole, chief macro strategist at Equiti Capital, “and indeed of how much of a danger the UK economy is at risk of being tipped into recession as monetary policy is tightened ever further.”
In Asia, MSCI’s broadest index of Asia-Pacific equities outside Japan (.MIAPJ0000PUS) lost 0.2%, extending a 2.3% slide the previous day.
Nonetheless, Chinese blue chips (.CSI300) climbed 0.9% after a private poll revealed that China’s services activity expanded quicker in July.
Morgan Stanley analysts downgraded China shares to equal weight, citing further negative earnings revisions and low return on equity and profit margins.
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