(Bloomberg) — European stocks and US futures extended a rally and the dollar retreated as traders bet inflation is near peaking even as policy makers ramp up hawkish rhetoric.
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The Stoxx Europe 600 index climbed for a third day, with retailers and miners leading the advance and all major regional benchmarks in the green. Futures on the S&P 500 and Nasdaq 100 rose, suggesting US stocks may add to last week’s gains. Treasury yields ticked lower. Crude oil turned higher along with industrial metals.
A gauge of the dollar fell for a second day, on track for its biggest two-day drop in almost three months, as all G-10 peers surged expect the yen. The euro jumped the most in six months after Bundesbank President Joachim Nagel signaled support for further interest-rate hikes in Europe, while news of Ukrainian gains in the war against Russia also boosted sentiment. Sweden’s krona soared 1.7% as a coalition of right-wing parties looks set to secure a narrow victory in a general election.
Investor focus is on August US inflation data due Tuesday, with headline CPI expected to cool to an 8% a year pace while the core measure that excludes food and energy is seen accelerating. Traders almost fully expect another jumbo-sized Fed hike next week, following two 75-basis-point increases, and forward guidance by Fed officials has supported that view.
“A downside surprise in US CPI is likely more of a concern and that could see the dollar weakening further,” Charu Chanana, a strategist at Saxo Capital Markets, said on Bloomberg Television. “That could potentially be a risk to watch.”
Hawkish remarks from Fed officials and recession worries have driven equities close to oversold levels before last week’s rebound. The Levkovich Index, a sentiment gauge, fell to -16, a hair away from the -17 level that defines panic. Bank of America Corp.’s bull-and-bear indicator slid to the “maximum bearish” level — often seen as a contrarian buy signal.
Fed Governor Christopher Waller said he favors “another significant” increase in interest rates when the central bank meets later this month, signaling his backing for a 75 basis-point move. Fed Bank of St. Louis President James Bullard said he was leaning “more strongly” toward a third straight boost of that magnitude, while his Kansas City counterpart Esther George noted officials have a “clear-cut” case for continuing to remove monetary support.
“Should tomorrow’s CPI data show a notable moderation in price pressures, the market’s defiance of the Fed’s forward guidance may gain some support, to the benefit of relatively higher-risk assets,” Rand Merchant Bank economists said in a note Monday. “Having said that, the risk remains that the Fed sticks to its hawkish guns as inflation may remain well above levels that it is comfortable with for a prolonged period of time, meaning it may still be premature to bet against further US dollar strength at this time.”
Markets also have to digest the implications of Ukraine’s counter-offensive, after its forces continued their rapid advance in the Kharkiv region, exploiting a retreat of Russian defenses.
Here are some key events to watch this week:
US CPI, Tuesday
UK CPI, Wednesday
US PPI, Wednesday
US business inventories, empire manufacturing, retail sales, initial jobless claims, industrial production, Thursday
China home sales, retail sales, industrial production, fixed assets, surveyed jobless rate, Friday
Euro area CPI, Friday
US University of Michigan consumer sentiment, Friday
Some of the main moves in markets:
Stocks
The Stoxx Europe 600 rose 0.9% as of 10:15 a.m. London time
Futures on the S&P 500 rose 0.6%
Futures on the Nasdaq 100 rose 0.7%
Futures on the Dow Jones Industrial Average rose 0.5%
The MSCI Asia Pacific Index rose 0.7%
The MSCI Emerging Markets Index rose 0.7%
Currencies
The Bloomberg Dollar Spot Index fell 0.6%
The euro rose 1.4% to $1.0181
The Japanese yen fell 0.2% to 142.73 per dollar
The offshore yuan rose 0.4% to 6.9127 per dollar
The British pound rose 0.8% to $1.1684
Bonds
The yield on 10-year Treasuries declined two basis points to 3.29%
Germany’s 10-year yield was little changed at 1.69%
Britain’s 10-year yield was little changed at 3.09%
Commodities
Brent crude rose 1% to $93.73 a barrel
Spot gold rose 0.6% to $1,726.40 an ounce
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Source: https://finance.yahoo.com/news/asia-set-join-risk-rally-224354915.html