Futures Rise, Dollar Extends Drop Before CPI Data: Markets Wrap

(Bloomberg) — US equity-index futures advanced ahead of key inflation data due later on Tuesday. Treasury yields dipped and the dollar extended a decline.

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Contracts on the S&P 500 and Nasdaq 100 posted modest increases after the S&P completed its best four-day surge since June on Monday following robust pre-order data for Apple Inc.’s iPhone 14 Pro Max. The Bloomberg Dollar Spot index declined a third day, the longest losing streak in more than a month, as investors weigh positive signs in the economy against hawkish rhetoric from Federal Reserve policy makers.

Corporate news helped buoy the Stoxx Europe 600 index, with UBS Group AG rising after raising its dividend and share-buyback target. The gauge pared its advance after a report showed investor confidence in Germany’s economy, already beneath its pandemic low, deteriorated further as fears grow that a winter energy squeeze will trigger a recession. Retailers and grocers pared some of their recent rally after Ocado Group Plc said inflation and energy costs will weigh on profit.

The US inflation report is expected to show headline CPI cooled for a second month in August. That’s ignited a debate among market participants about the outlook for monetary policy, with some wagering the Fed could end its tightening cycle sooner. Others warn that the central bank will want more evidence of sustained moderation in price increases, with tighter policy weighing on economic growth and riskier assets.

“It’s way to early to expect the Fed to react to the fact that we’re past peak inflation,” Nannette Hechler-Fayd’Herbe, chief investment officer at Credit Suisse International Wealth Management, told Bloomberg TV. “When you look at S&P 500 we have seen very big support levels from a technical point of view, so I can very well envisage that volatility takes us down to these levels once the market finally realizes the Fed will not cut rates as early as 2023.”

Read more: Markets Look for Soft CPI But Devil Will Be in the Details

Bank of America Corp.’s latest survey showed investors are fleeing equities en masse amid the specter of a recession, with allocations to stocks at record lows and cash exposure at all-time highs. The number of investors expecting a recession has reached the highest since May 2020, strategists led by Michael Hartnett wrote in a note on Tuesday.

But JPMorgan Chase & Co. said a soft landing is becoming the more likely scenario for the global economy, which will continue to provide tailwinds for risky assets. Recent data pointing to moderating inflation and wage pressures, rebounding growth and stabilizing consumer confidence suggest the world will avoid a recession, a team including Marko Kolanovic and Nikolaos Panigirtzoglou wrote on Tuesday.

“The fact is that two consecutive reports showing a sharp deceleration combined with last month’s goldilocks jobs report will be a really encouraging sign and could trigger a broader risk rebound in the markets,” said Craig Erlam, a senior market analyst at Oanda Europe Ltd. “It may not be enough to tip the Fed balance in favor of a more modest 50 basis point rate hike next week but it may slow the pace of tightening thereafter.”

Among other assets, crude oil extended gains as a weaker dollar offset global demand concerns, and progress toward an Iranian nuclear deal stalled. Bitcoin held above $22,000.

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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 0.2% as of 10:24 a.m. London time

  • Futures on the S&P 500 rose 0.4%

  • Futures on the Nasdaq 100 rose 0.3%

  • Futures on the Dow Jones Industrial Average rose 0.3%

  • The MSCI Asia Pacific Index rose 0.6%

  • The MSCI Emerging Markets Index rose 0.6%

Currencies

  • The Bloomberg Dollar Spot Index fell 0.3%

  • The euro rose 0.3% to $1.0157

  • The Japanese yen rose 0.4% to 142.25 per dollar

  • The offshore yuan fell 0.2% to 6.9353 per dollar

  • The British pound rose 0.2% to $1.1711

Bonds

  • The yield on 10-year Treasuries declined four basis points to 3.32%

  • Germany’s 10-year yield advanced two basis points to 1.67%

  • Britain’s 10-year yield was little changed at 3.09%

Commodities

  • Brent crude rose 0.8% to $94.74 a barrel

  • Spot gold rose 0.1% to $1,726.68 an ounce

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