(Bloomberg) The world’s biggest bond market kicked off the week on the back foot as geopolitical pressures abated and traders positioned for this week’s key inflation data.
Treasuries fell across the curve, with 10-year yields hitting the highest levels since November and coming within a striking distance of the 4.5% level that some investors are watching as a threshold that could determine whether rates will revisit last year’s highs. Traders’ conviction on three quarter-point rate cuts from the Federal Reserve this year is quickly dissipating, with markets now favoring just two reductions.
Economists forecast the consumer price index Wednesday will show some easing of inflation pressures, but the core gauge would still be up around 3.7% from a year earlier — which is above the Fed’s 2% target.
“This week’s CPI update will offer investors a key piece to the policy puzzle though we’re doubtful the information will be sufficient to convincingly resolve the ongoing debate around the timing of rate cuts in 2024,” said Ian Lyngen and Vail Hartman at BMO Capital Markets.
Treasury 10-year yields rose one basis point to 4.42% — after topping 4.46% earlier Monday. The S&P 500 fluctuated near 5,200. Oil dipped from a five-month high after Israel said it would remove some troops from Gaza, helping to cool some of the previous week’s geopolitics-led gains.
Economists at JPMorgan Chase & Co. pushed back their forecast for the first Fed rate cut of the cycle after a strong March jobs report. They now expect the US central bank to start easing its monetary policy in July instead of June.
“The easing in wage inflation alongside solid job growth is a testament to the to the supply-side improvement in the labor market,” JPMorgan’s chief US economist Michael Feroli wrote in a Friday note.
Interest-rate swaps imply around 60 basis points of US monetary easing this year, which means two cuts is the most likely outcome with the first expected by September, according to Bloomberg pricing. On Friday, the chance of a third cut was still above 50%.
A rise in bond yields might be driven by “the wrong reasons” and will put stocks under pressure, according to JPMorgan Chase & Co. strategists led by Mislav Matejka.
The team expects US 10-year yields to drop amid elevated geopolitical risks, while noting the risk of inflation staying too hot. Given the potential for inflation overshoot, stocks with high financing costs could stay under pressure, the strategists wrote.
The rally in stock markets is likely to pause going into the earnings season as buybacks taper out through blackout periods and equity inflows turn flat due to seasonality, according to Deutsche Bank AG strategists led by Parag Thatte and Binky Chadha.
Wall Street is expecting a subdued earnings season from Corporate America despite the first-quarter’s stock market fireworks.
Strategists predict that S&P 500 companies will post their smallest year-over-year profit growth since 2019, just 3.9%, in the first quarter, according to data compiled by Bloomberg Intelligence. But in this case the market may be onto something, because those forecasts could very well turn out to be overly gloomy — like they were in the fourth quarter, when expectations were for around 1% growth and the actual results turned out to be over 8%.
Corporate Highlights:
- Shares in cryptocurrency-linked companies rose as Bitcoin topped the $71,000 mark, with the largest cryptocurrency extending gains for a third consecutive session.
- The US plans to award Taiwan Semiconductor Manufacturing Co. $6.6 billion in grants and as much as $5 billion in loans to help the world’s top chipmaker build factories in Arizona, expanding President Joe Biden’s effort to boost domestic production of critical technology.
- Tesla Inc. plans to unveil its long-promised robotaxi later this year as the carmaker struggles with weak sales and competition from cheap Chinese electric vehicles.
- Spirit Airlines Inc. announced an extensive cost-cutting program, less than three months after its proposed combination with JetBlue Airways Corp. fell through because of antitrust concerns.
- Alibaba Group Holding Ltd. is cutting prices for cloud customers from the US to Singapore by as much as 59%, mirroring deep discounts at home as the once high-flying division struggles to fend off rivals and revive growth.
Key events this week:
- China aggregate financing, money supply, new yuan loans, Tuesday
- Japan PPI, Wednesday
- Canada rate decision, Wednesday
- US FOMC minutes, wholesale inventories, CPI, Wednesday
- Chicago Fed President Austan Goolsbee speaks, Wednesday
- China PPI, CPI, Thursday
- Eurozone ECB rate decision, Thursday
- US initial jobless claims, PPI, Thursday
- New York Fed President John Williams speaks, Thursday
- Boston Fed President Susan Collins speaks, Thursday
- China trade, Friday
- US University of Michigan consumer sentiment, Friday
- Citigroup, JPMorgan and Wells Fargo due to report results, Friday.
- San Francisco Fed President Mary Daly speaks, Friday
Some of the main moves in markets:
Stocks
- The S&P 500 was little changed as of 9:53 a.m. New York time
- The Nasdaq 100 was little changed
- The Dow Jones Industrial Average rose 0.1%
- The Stoxx Europe 600 rose 0.6%
- The MSCI World index rose 0.2%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro rose 0.1% to $1.0849
- The British pound was little changed at $1.2648
- The Japanese yen was little changed at 151.77 per dollar
Cryptocurrencies
- Bitcoin rose 3.8% to $71,939.43
- Ether rose 6.6% to $3,625.03
Bonds
- The yield on 10-year Treasuries advanced one basis point to 4.42%
- Germany’s 10-year yield advanced three basis points to 2.43%
- Britain’s 10-year yield advanced three basis points to 4.09%
Commodities
- West Texas Intermediate crude fell 0.7% to $86.26 a barrel
- Spot gold was little changed
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Sagarika Jaisinghani, Jessica Menton and Carter Johnson.
https://finance.yahoo.com/news/asian-stocks-set-gains-eyes-232022391.html
