Stocks Climb While Dollar Slides Most Since May: Markets Wrap

(Bloomberg) -- Stocks rose as a report showing the fastest inflation in about four decades was roughly in line with market expectations, with traders keeping their bets on a rate hike in March.

Commodity and retail companies led gains in the S&P 500. Electric-vehicle maker Tesla Inc. and Google’s parent Alphabet Inc. paced a rally in megacaps. Financial shares underperformed, with major banks set to report their results Friday. Goldman Sachs Group Inc. and Morgan Stanley tumbled, while Jefferies Financial Group Inc. slid after saying fixed-income trading revenue plunged 50% from a year earlier. The Bloomberg Dollar Spot Index had its worst session since May.

The bond market reaction to the inflation data was fairly muted in part because yields have already surged since the start of the year, with traders bracing for the Federal Reserve to begin raising rates. Ahead of the report, positioning in the broad Treasury market was the most net-bearish since late 2017, according to the latest survey by JPMorgan Chase & Co.

The U.S. economy grew at a modest pace in the final weeks of last year, but businesses’ expectations for growth over the next several months have cooled in some places, the Fed said in its Beige Book survey. During a Wall Street Journal Live event streamed on Twitter, Fed Bank of Cleveland President Loretta Mester said “the case is very compelling that we remove accommodation.”

Comments:

• “Wall Street was worried that a much hotter inflation report could have not only cemented four Fed rate hikes this year, but potentially made the May FOMC meeting a possibility for when the balance-sheet runoff could start,” said Edward Moya, senior market analyst at Oanda, referring to the Federal Open Market Committee.
• “Fears about higher and persistent inflation have been well telegraphed in recent months. Today’s rise in the rate of inflation falls within investors’ expectations,” said Richard Flynn, managing director at Charles Schwab U.K.
• “Bond markets are currently pricing in about a 90% probability that the Fed delivers four rate hikes in 2022, and today’s inflation data should not dissuade the central bank from delivering the first of those hikes in March,” said Jai Malhi, global market strategist at J.P. Morgan Asset Management.

Here are some key events this week:

• U.S. initial jobless claims, PPI on Thursday.
• U.S. Senate Banking Committee hearing for Lael Brainard, nominated as Fed vice-chair on Thursday.
• Richmond Fed President Thomas Barkin, Philadelphia Fed President Patrick Harker,
• Chicago Fed President Charles Evans speak on Thursday.
• Bank of Korea policy decision and briefing on Friday.
• Wells Fargo, Citigroup, JPMorgan due to report earnings on Friday.
• U.S. business inventories, industrial production, University of Michigan consumer sentiment, retail sales on Friday.
• New York Fed President John Williams speaks Friday.

For more market analysis, read our MLIV blog.

Some of the main moves in markets:

Stocks

• The S&P 500 rose 0.3% as of 4 p.m. New York time
• The Nasdaq 100 rose 0.4%
• The Dow Jones Industrial Average rose 0.1%
• The MSCI World index rose 0.9%

Currencies

• The Bloomberg Dollar Spot Index fell 0.6%
• The euro rose 0.7% to $1.1449
• The British pound rose 0.6% to $1.3711
• The Japanese yen rose 0.7% to 114.52 per dollar

Bonds

• The yield on 10-year Treasuries was little changed at 1.73%
• Germany’s 10-year yield declined three basis points to -0.06%
• Britain’s 10-year yield declined three basis points to 1.14%

Commodities

• West Texas Intermediate crude rose 1.9% to $82.75 a barrel
• Gold futures rose 0.5% to $1,827 an ounce

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