Stocks Rise as Solid Treasury Sale Spurs CPI Bets: Markets Wrap

(Bloomberg) — Stocks joined bonds higher after a solid $39 billion Treasury sale triggered speculation that Wednesday’s inflation reading will help make the case for the Federal Reserve to cut rates this year.

Big tech led gains in equities as Apple Inc. jumped to a record. Banks remained under pressure, with giants like JPMorgan Chase & Co. and Citigroup Inc. getting hit. Treasury yields fell across the curve. Demand in an auction of 10-year debt was strong, with the bid-to-cover ratio of 2.67 being the highest since February 2022 — the month before the start of the tightening cycle.

“The US Treasury market is finally smiling after many, many months with at best mediocre auctions,” said Peter Boockvar at the Boock Report. “Is the market sniffing out a softer CPI tomorrow? Worried about economic growth?”

The S&P 500 closed at a fresh all-time high. In late trading, Oracle Corp. surged as solid bookings signaled further cloud momentum. US 10-year yields fell seven basis points to 4.40%. Treasuries were also bid as unease over political upheaval in Europe intensified, triggering a rout in French bonds.

“May’s CPI report looks to be encouraging, and will likely be followed by a string of similar reports this summer,” according to Anna Wong at Bloomberg Economics. “That should set the stage for the Fed to start cutting rates in September.”

A survey conducted by 22V Research showed most investors polled are betting both the consumer price index and the Fed decision will be “risk on.”

“63% of investors believe that the Fed will first cut because of a soft landing and that inflation is on a Fed-friendly path toward sub-3%, so there will be a cut because policy doesn’t need to be as restrictive,” said Dennis DeBusschere at 22V.

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.”

“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.

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. 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:

• 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.
• 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.
• 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.
• 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:

• China PPI, CPI, Wednesday
• Germany CPI, Wednesday
• US CPI, Fed rate decision, Wednesday
• G-7 leaders summit, June 13-15
• Eurozone industrial production, Thursday
• US PPI, initial jobless claims, Thursday
• Tesla annual meeting, Thursday
• New York Fed President John Williams moderates a discussion with Treasury Secretary Janet Yellen, Thursday
• Bank of Japan’s monetary policy decision, Friday
• Chicago Fed President Austan Goolsbee speaks, Friday
• US University of Michigan consumer sentiment, Friday

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 0.7%
• The Dow Jones Industrial Average fell 0.3%
• The MSCI World Index was little changed

Currencies

• The Bloomberg Dollar Spot Index rose 0.2%
• The euro fell 0.2% to $1.0741
• The British pound was little changed at $1.2742
• The Japanese yen was little changed at 157.09 per dollar

Cryptocurrencies

• Bitcoin fell 3.3% to $67,342.41
• Ether fell 4.8% to $3,493.7

Bonds

• The yield on 10-year Treasuries declined seven basis points to 4.40%
• Germany’s 10-year yield declined five basis points to 2.62%
• Britain’s 10-year yield declined five basis points to 4.27%

Commodities

• West Texas Intermediate crude rose 0.2% to $77.89 a barrel
• Spot gold rose 0.2% to $2,315.13 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.

©2024 Bloomberg L.P.