(Bloomberg) — Treasuries climbed and stocks rebounded from session lows after a solid $39 billion US government sale, with traders getting ready for a key inflation reading and the Federal Reserve decision.
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The world’s biggest bond market cheapened a bit over the course of the day to make room for the fresh supply of 10-year notes. Demand was strong, with the bid/cover ratio of 2.67 being the highest since February 2022 — the month before the start of the tightening cycle. Equities hovered near the highs of the session as Apple Inc. jumped 6% to a record. The KBW Bank Index sank 2%, with big names like JPMorgan Chase & Co. and Citigroup Inc. getting hit.
To Peter Boockvar at the Boock Report, the bond market is “finally smiling after many, many months with at best mediocre auctions.”
“So what does this tell you? said Andrew Brenner at NatAlliance Securities. “CPI is going to be better than expected… The whisper number is better. Powell is going to be dovish in his presser, with more concern about employment. Will this money be right?”
A sense of caution still prevailed as investors braced for amplified swings at a time when volatility has been relatively subdued. With the Fed widely expected to hold borrowing costs at a two-decade high on Wednesday, there’s less certainty on officials’ quarterly rate projections, known as the “dot plot.” Hours before that, traders will get a fresh read on inflation — which is forecast to show prices are cooling, but still running ahead of the central bank’s comfort zone.
“We expect Fed Chair Powell and company to maintain a position that stresses potential rate cuts remain contingent on the committee seeing further progress made on bringing down price pressures,” said Anthony Saglimbene at Ameriprise.
Meantime, unease over political upheaval in Europe intensified. Emmanuel Macron said his position as French president won’t be affected by the result of legislative elections as a report he is considering quitting triggered a rout in France’s bonds. The yield on 10-year notes jumped, with the spread over German debt reaching the highest since 2020.
The S&P 500 fell to around 5,350. Treasury 10-year yields dropped six basis points to 4.41%. The dollar rose against most major currencies. Bitcoin sank below $67,000.
Sentiment and positioning indicators signal a possible short-term pullback in stock markets, driven by uncertainty around the outlook for interest rates, according to HSBC strategists, who recommend buying any dips.
“We’d expect any weakness in risk assets to be both short-lived and shallow, and we think this presents a pretty good tactical (re-)entry point,” the team including Duncan Toms and Max Kettner noted.
Bank of America Corp. clients were big net buyers of US equities for the first time in six weeks, led by retail investors and hedge funds, according to the firm’s strategists.
They bought $1.9 billion of US stocks, with inflows into both single shares and exchange-traded funds, BofA strategists led by Jill Carey Hall said.
“Despite mixed signals coming from technical indicators, economic data, inflation and global central banks, markets remain biased to the upside,” said Chris Senyek at Wolfe Research. “Investors’ ‘can’t lose’ attitude will persist for the foreseeable future on the belief that either the economic outlook is going to improve, and/or the Fed will cut.”
A host of Fed leaders have suggested in recent weeks they see no rush to cut rates, with inflation more persistent and the outlook for growth staying solid.
A 41% plurality of economists expect the Fed to signal two cuts in the closely watched “dot plot,” while an equal number expect the forecasts to show just one or no cuts at all, according to the median estimate in a Bloomberg survey.
“Clearly the stock market has been able to rally in the absence of cuts, but sooner or later lower rates will be necessary for the market to maintain its current multiples,” said Chris Zaccarelli at Independent Advisor Alliance. “The real economy is also going to be impacted – over time – by higher-for-longer interest rates.”
To Oscar Munoz and Gennadiy Goldberg at TD Securities, Powell will most likely appear somewhat optimistic given the recent evolution of the data, especially if the May Consumer Price Index shows further progress on inflation.
“We also look for the dot plot to show two cuts as the 2024 median,” they said. “Treasuries will react to the dot plot and possible dovish lean from Powell with a modest bull steepening. However, continued range trading is likely given ongoing ‘data dependent’ outlook.”
Corporate Highlights:
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General Motors Co. authorized a new $6 billion share buyback plan as improving profitability in its primary business and growth in electric vehicles allow the automaker to return cash to investors.
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Boeing Co. delivered 24 commercial jets in May, including 19 of its 737 family aircraft, as parts shortages and fresh scrutiny by China’s regulators complicated efforts to recover from a crisis engulfing its most popular aircraft.
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Eli Lilly & Co.’s drug for Alzheimer’s has benefits that outweigh its risks, US drug regulatory advisers said, bringing the treatment’s long path to the market closer to a successful end.
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Spotify Technology SA will introduce a new, higher-priced premium plan for its most ardent users later this year, according to a person familiar with the plan. Users will be charged at least $5 more per month for access to better audio and new tools for creating playlists and managing their song libraries, said the person.
Key events this week:
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China PPI, CPI, Wednesday
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Germany CPI, Wednesday
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US CPI, Fed rate decision, Wednesday
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G-7 leaders summit, June 13-15
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Eurozone industrial production, Thursday
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US PPI, initial jobless claims, Thursday
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Tesla annual meeting, Thursday
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New York Fed President John Williams moderates a discussion with Treasury Secretary Janet Yellen, Thursday
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Bank of Japan’s monetary policy decision, Friday
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Chicago Fed President Austan Goolsbee speaks, Friday
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US University of Michigan consumer sentiment, Friday
Some of the main moves in markets:
Stocks
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The S&P 500 was little changed as of 2:16 p.m. New York time
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The Nasdaq 100 rose 0.4%
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The Dow Jones Industrial Average fell 0.5%
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The MSCI World Index fell 0.2%
Currencies
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The Bloomberg Dollar Spot Index rose 0.2%
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The euro fell 0.2% to $1.0743
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The British pound was little changed at $1.2735
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The Japanese yen was little changed at 157.08 per dollar
Cryptocurrencies
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Bitcoin fell 3.9% to $66,863.77
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Ether fell 5.4% to $3,473.42
Bonds
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The yield on 10-year Treasuries declined six basis points to 4.41%
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Germany’s 10-year yield declined five basis points to 2.62%
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Britain’s 10-year yield declined five basis points to 4.27%
Commodities
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West Texas Intermediate crude rose 0.3% to $77.94 a barrel
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Spot gold rose 0.1% to $2,313.83 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Andre Janse van Vuuren, Carly Wanna, Sagarika Jaisinghani, Jessica Menton, Michael Mackenzie, Liz Capo McCormick and Aya Wagatsuma.
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