Stocks trim early gains as traders analyze CPI data: Markets wrap

(Bloomberg) — US stocks advanced and Treasury yields fell across the curve after data showed prices rose less-than-expected last month, boosting optimism that the Federal Reserve will slow the pace of interest rate increases.

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The S&P 500 jumped 2.8% and the high-tech Nasdaq 100 rose 3.9% before paring gains. The policy-sensitive two-year Treasury yield fell more than 15 basis points after a key measure of US consumer prices hit an advanced monthly low in more than a year. The dollar halted its rise for two days.

Tuesday’s data, taken with a slower-than-expected CPI reading in the previous month, validates the Fed’s expected half-point move on Wednesday and sets the tone for future interest rate decisions. Swaps markets have also reduced their bets on a rate hike, with the odds now favoring a quarter-point increase as early as the Fed’s February meeting.

Read more: US core CPI posted its smallest monthly increase in over a year

For the second month in a row, inflation came in below expectations. “This is good news for markets and the Fed,” said Philip Newhart, director of market research and economics at First Citizens Bank Wealth Management. “If this downward trend continues, it allows the Fed to slow the pace of rate hikes and eventually stop them in the first half of next year.”

Still, some investors are treating the CPI cautiously.

said Richard Carter, head of fixed interest research at Cheviot Quilts.

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The CPI-fueled stock rally failed to recognize that corporate earnings are just beginning to see the impact of tightening monetary policy, according to James Athey, chief investment officer at Abrdn.

“Given the full ramifications of the Fed’s aggressive actions this year in the coming year, it seems inevitable that we will see a significant repricing in EPS expectations and, by extension, in the broad market,” Athi said.

After the Fed, the European Central Bank will announce its interest rate decision on Thursday. The markets will also face decisions from the Bank of England and monetary authorities in Mexico, Norway, the Philippines, Switzerland and Taiwan.

Main events this week:

• FOMC Interest Rate Decision and Fed Chair’s Press Conference, Wednesday

• Chinese medium-term lending, real estate investment, retail sales, industrial production, unemployment surveyed, Thursday

• ECB interest rate decision and ECB President Lagarde’s briefing, Thursday

• Rate decisions for the Bank of England, Mexico, Norway, the Philippines, Switzerland and Taiwan on Thursday

• Investing Across US Borders, Business Inventory, Manufacturing Empire, Retail Sales, Initial Jobless Claims, Industrial Production, Thursday

• Eurozone S&P PMI, CPI, Friday

Some of the major movements in the markets:

Stores

• The S&P 500 is up 1.6% as of 10:27 a.m. New York time.

• The Nasdaq 100 rose 2.5%.

• The Dow Jones Industrial Average rose 0.8%.

• Stoxx Europe 600 rose 2.1%

• MSCI World Index rose 0.5%

currencies

• The Bloomberg Spot Dollar Index fell 1%.

• The euro rose 0.9 percent to $1.0631

• The British pound rose 1% to $1.2392

• The Japanese yen rose 1.8% to 135.22 per dollar

Digital currencies

• Bitcoin rose 3.5% to $17,780

• Ether rose 4.2 percent to $1,328.93

bonds

• The yield on the 10-year Treasury fell 16 basis points to 3.45%.

• Germany’s 10-year yield fell four basis points to 1.90%.

• The UK 10-year yield advanced five basis points to 3.25%.

goods

• West Texas Intermediate crude rose 2.2 percent to $74.79 a barrel

• Gold futures rose 2.1% to $1,830.80 an ounce

This story was produced with help from Bloomberg Automation.

– With assistance from Natalia Kniachevic, Red Bickert, Michael Msika, and Sagarika Jaisingani.

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