European stocks and US futures extended a rally and the dollar retreated as traders bet inflation is near peaking even as policy makers ramp up hawkish rhetoric.
The Stoxx Europe 600 index climbed for a third day, with retailers and miners leading the advance and all major regional benchmarks in the green. Futures on the S&P 500 and Nasdaq 100 rose, suggesting US stocks may add to last week’s gains. Treasury yields ticked lower. Crude oil turned higher along with industrial metals.
A gauge of the dollar fell for a second day, on track for its biggest two-day drop in almost three months, as all G-10 peers surged expect the yen. The euro jumped the most in six months after Bundesbank President Joachim Nagel signaled support for further interest-rate hikes in Europe, while news of Ukrainian gains in the war against Russia also boosted sentiment. Sweden’s krona soared 1.7% as a coalition of right-wing parties looks set to secure a narrow victory in a general election.
Investor focus is on August US inflation data due Tuesday, with headline CPI expected to cool to an 8% a year pace while the core measure that excludes food and energy is seen accelerating. Traders almost fully expect another jumbo-sized Fed hike next week, following two 75-basis-point increases, and forward guidance by Fed officials has supported that view.
“A downside surprise in US CPI is likely more of a concern and that could see the dollar weakening further,” Charu Chanana, a strategist at Saxo Capital Markets, said on Bloomberg Television. “That could potentially be a risk to watch.”
Hawkish remarks from Fed officials and recession worries have driven equities close to oversold levels before last week’s rebound. The Levkovich Index, a sentiment gauge, fell to -16, a hair away from the -17 level that defines panic. Bank of America Corp.’s bull-and-bear indicator slid to the “maximum bearish” level — often seen as a contrarian buy signal.
Fed Governor Christopher Waller said he favors “another significant” increase in interest rates when the central bank meets later this month, signaling his backing for a 75 basis-point move. Fed Bank of St. Louis President James Bullard said he was leaning “more strongly” toward a third straight boost of that magnitude, while his Kansas City counterpart Esther George noted officials have a “clear-cut” case for continuing to remove monetary support.
“Should tomorrow’s CPI data show a notable moderation in price pressures, the market’s defiance of the Fed’s forward guidance may gain some support, to the benefit of relatively higher-risk assets,” Rand Merchant Bank economists said in a note Monday. “Having said that, the risk remains that the Fed sticks to its hawkish guns as inflation may remain well above levels that it is comfortable with for a prolonged period of time, meaning it may still be premature to bet against further US dollar strength at this time.”
Markets also have to digest the implications of Ukraine’s counter-offensive, after its forces continued their rapid advance in the Kharkiv region, exploiting a retreat of Russian defenses.
- US CPI, Tuesday
- UK CPI, Wednesday
- US PPI, Wednesday
- US business inventories, empire manufacturing, retail sales, initial jobless claims, industrial production, Thursday
- China home sales, retail sales, industrial production, fixed assets, surveyed jobless rate, Friday
- Euro area CPI, Friday
- US University of Michigan consumer sentiment, Friday
Some of the main moves in markets:
- The Stoxx Europe 600 rose 0.9% as of 10:15 a.m. London time
- Futures on the S&P 500 rose 0.6%
- Futures on the Nasdaq 100 rose 0.7%
- Futures on the Dow Jones Industrial Average rose 0.5%
- The MSCI Asia Pacific Index rose 0.7%
- The MSCI Emerging Markets Index rose 0.7%
- The Bloomberg Dollar Spot Index fell 0.6%
- The euro rose 1.4% to $1.0181
- The Japanese yen fell 0.2% to 142.73 per dollar
- The offshore yuan rose 0.4% to 6.9127 per dollar
- The British pound rose 0.8% to $1.1684
- The yield on 10-year Treasuries declined two basis points to 3.29%
- Germany’s 10-year yield was little changed at 1.69%
- Britain’s 10-year yield was little changed at 3.09%
- Brent crude rose 1% to $93.73 a barrel
- Spot gold rose 0.6% to $1,726.40 an ounce
Source By: Bloomberg