Wall Street equity futures and European stocks climbed as investors positioned themselves for an action-packed week. Key events include Tuesday’s release of US consumer price data that may confirm the inflation battle isn’t over, dashing hopes of a Federal Reserve rate pivot.
Contracts on the S&P 500 gained about 0.3% while those on the tech-heavy Nasdaq 100 advanced, signaling a rebound for the underlying index after its first weekly loss of 2023. Sorrento Therapeutics Inc. slumped in premarket trading after the drug developer filed for Chapter 11 bankruptcy protection in Texas. Europe’s Stoxx 600 index was lifted by construction, industrial goods and consumer stocks while energy and real estate underperformed.
Investors are reassessing how high US interest rates will rise this year, with inflation and jobs data likely to still come in hot later this week. That has fueled bets for the Fed rate to peak at 5.2% in July, up from less than 5% a month ago.
“We are certainly continuing to be very cautious on equities,” Nannette Hechler-Fayd’Herbe, chief investment officer at Credit Suisse International Wealth Management, said on Bloomberg Television. “We find at the moment there is a disconnect in valuations versus where interest rates by the Fed — but also by other central banks — are going to be for the remainder of the year.”
Philadelphia Fed President Patrick Harker was the latest central banker to unveil expectations for rates to climb above 5% after a drum-beat of commentary last week that included a prediction from Minneapolis Fed President Neel Kashkari that the level would reach 5.4%.
Read More: Fed’s Harker Favors Rates Above 5%, Says Soft-Landing Odds Grow
Meanwhile, Morgan Stanley strategists argued that US stocks are ripe for a selloff after prematurely pricing in a pause in Fed rate hikes.
“While the recent move higher in front-end rates is supportive of the notion that the Fed may remain restrictive for longer than appreciated, the equity market is refusing to accept this reality,” a team led by Michael Wilson wrote in a note.
Wilson — the top-ranked strategist in last year’s Institutional Investor survey — expects deteriorating fundamentals, along with Fed hikes that are coming at the same time as an earnings recession, to drive equities to an ultimate low this spring. “Price is about as disconnected from reality as it’s been during this bear market,” the strategists said.
The yen weakened past 132 per dollar after whipsawing Friday following news reports that Kazuo Ueda would be picked to become the Bank of Japan’s next governor.
Investors initially interpreted the decision as a potentially hawkish choice. Those gains were trimmed after Ueda spoke to reporters and said the BOJ’s stimulus should stay in place. Japan’s government is set to officially announce the nomination of the new BOJ governor on Tuesday.
Traders are also keeping a keen eye on geopolitical developments after the Pentagon shot down an unidentified object that it tracked over Michigan, according to US officials familiar with the matter. This was the fourth time in eight days a balloon or high-flying craft has been shot down over the US or Canada.
Elsewhere, oil steadied after falling as the dollar climbed and as exports resumed from a key Turkish port. Gold edged lower.
Source: finance.yahoo.com
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