(Bloomberg) – Wall Street struggles with mixed economic data, keeping U.S. Treasuries under pressure and traders showing patience before the Federal Reserve decides to cut interest rates this year. I expect it to be deaf.
Most Read Articles on Bloomberg
Bond losses were driven by shorter maturities, as data showed consumer spending exceeded expectations even as the Fed's recommended measure of underlying inflation slowed to its lowest level in nearly three years. . Policymakers have signaled they want to see signs of a sustainable economic downturn before cutting borrowing costs, but the numbers only reinforced the view that a turnaround in March remains very difficult.
Investors have not given up bets on a rate cut in the first quarter, but they are still fully pricing in a rate cut in May. Of course, it all depends on the next few economic reports, and the impact of shipping disruptions is not yet clear. Wall Street will be waiting to hear how everything plays out on the balance of risk as Jerome Powell and his colleagues gather next week.
“There remains an expectation that the Fed will be discussing 'when', not 'if', to begin a rate cutting cycle,” said Quincy Crosby, chief global strategist at LPL Financial. “The Fed is likely to wait until May or June to begin cutting rates unless next month's collection of inflation-related data conclusively highlights a clear path toward 2%.”
The yield on the US two-year bond exceeded 4.35%. The S&P 500 lost momentum after hitting another all-time high at the close. Still, it was heading for its third rise in a week. Disappointing forecasts from Intel and KLA weighed on semiconductor makers, causing the Nasdaq 100 to underperform.
Mohamed El-Erian says it's too early for U.S. policymakers to declare victory as the economy moves from the inflation sweet spot to a more difficult environment ahead.
El-Erian, president of Queen's College at the University of Cambridge, told Bloomberg TV on Friday that the world's largest economy's third and fourth quarter results were “remarkable.” But “the big risk for the administration is that the economy will slow this year because some of last year's growth engines are no longer present.” And second, inflation will stop falling. ”
“U.S. economic data continues to provide a positive backdrop for the market, with solid growth, moderate inflation and prospects for interest rate cuts,” said Solita Marcelli of UBS Global Wealth Management. “We expect the Fed to be comfortable cutting rates starting in May, but that will require further signs that the economy is cooling between now and then,” she said.
The Federal Open Market Committee will meet in Washington on January 30th and 31st and is widely expected to keep interest rates unchanged for the fourth time in a row, but the real focus will be on what happens after the March FOMC meeting. Dew.
Mr. Powell and his colleagues are certainly not going to cut interest rates to counter economic contraction, as they have often done in the past, so they can certainly take their time before easing begins. Rather, it will adjust policy to reflect the surprisingly sharp decline in inflation from multi-decade highs a year and a half ago.
“A soft landing seems increasingly obvious,” said TradeStation's David Russell. “The big question now is how quickly Jerome Powell will normalize policy when there is no pressing need. Going forward, data will be less important and conversations within the Fed will be more important. ”
PNC's Gus Faucher said the Fed doesn't need inflation to reach 2% year over year in order to cut interest rates, but a tight labor market and strong consumer growth could reignite inflationary pressures. It would be prudent to consider this. LPL Financial's Jeffrey Roach said the Fed has more work to do and should not be tempted to declare “mission accomplished.”
“With inflation nearly stalled, the question for the Fed is how to maintain inflation, and in particular how far to cut interest rates in 2024 to achieve a more neutral setting,” said Evercore ISI's Krishna Guha. “It's moving to,” he said. “Growth remains strong for now, raising questions about whether near-term neutral rates could be higher than most expect. I support it.”
Apart from next week's FOMC meeting, traders will be keeping an eye on the latest labor market data. U.S. payrolls are expected to increase by about 180,000 in January, following an increase of 216,000 in December, according to a Bloomberg survey of economists.
And when the Treasury Department previews bond and debt auction sizes for the next three months on January 31, some of the expected sizes could be the largest investors have ever seen. is high. Bond yields have fallen sharply since October on expectations that the Federal Reserve, which has raised interest rates 11 times in the past two years to stem soaring inflation, will start cutting rates this year.
Businesses and governments took on $721 billion in new debt on international markets this month, a record amount, and investors eager to take on credit risks while yields are still plentiful. I found out something. Investors are insatiable in the primary market, piling up high-yielding bonds before central banks cut interest rates.
Next week, some of the mega-cap stocks that have been the driving force behind the sharp rise in stock prices from their October 2022 lows, including Apple, Microsoft and Google's parent company Alphabet, are also expected to report results.
Enthusiasm about artificial intelligence and growing optimism about the economy are contributing to the rally, but the ongoing fourth-quarter earnings season will be a key factor in determining the course of stocks this year. Expert opinion has been divided, especially recently, with some seeing the wild rally as a sign that the market is overheating, and others hoping for further gains in the future.
“This week's impressive technical rally was further reinforced by encouraging macro data,” said Nationwide's Mark Hackett. “Goldilocks economic indicators (strong growth, easing inflation) have eased investor concerns heading into next week's FOMC meeting. Economic and market data are great, but mixed earnings season results provide headwinds That could be the case, but we'll know more after next week's flurry of announcements.”
Elsewhere, Bitcoin briefly rose above $42,000 as outflows from the $20 billion Grayscale Bitcoin Trust slowed, helping to halt a two-week slump in Bitcoin. That's possible, strategists say. Decreasing US stockpiles and the prospect of more stimulus from the Chinese government help oil prices break out of a months-long range, with oil prices posting their biggest weekly increase since October did.
Company highlights:
-
JetBlue Airways warns its $3.8 billion takeover of Spirit Airlines could be scrapped within days, potentially leading to a clash between the two airlines over the thorny deal. did.
-
Airbus SE is concentrating on a once-in-a-lifetime chance to win big orders from struggling rival Boeing Co. by persuading customers to return some aircraft slots and hand them over to United Airlines Holdings Inc.
-
American Express said its 2024 profit forecast exceeded analyst expectations and remained committed to its long-term profit and revenue goals.
-
Salesforce will cut about 700 employees, accelerating a brutal cycle of technology layoffs in early 2024.
-
Saudi Aramco, the world's largest oil company, continues to send tankers laden with crude oil and fuel through the southern Red Sea, where Houthi militants have threatened commercial ships for months in response to Israel's war in Gaza. ing.
-
Grifols SA is suing Gotham City Research over a report that claims the company inflated profits and misrepresented accounting.
The main movements in the market are:
stock
-
As of 1:45 p.m. New York time, the S&P 500 was down 0.2%.
-
Nasdaq 100 fell 0.6%
-
The Dow Jones Industrial Average is little changed.
-
MSCI World Index little changed
currency
-
Bloomberg Dollar Spot Index little changed
-
The euro rose 0.1% to $1.0859.
-
The British pound was almost unchanged at $1.2706.
-
The Japanese yen fell 0.3% to 148.11 yen to the dollar.
cryptocurrency
-
Bitcoin rose 5.7% to $42,179.97
-
Ether rose 2.2% to $2,266.45.
bond
-
The 10-year Treasury yield rose 4 basis points to 4.16%.
-
German 10-year bond yield remains unchanged at 2.30%
-
UK 10-year bond yields fell 2 basis points to 3.96%.
merchandise
-
West Texas Intermediate crude rose 0.4% to $77.70 per barrel.
-
Spot gold fell 0.2% to $2,017.49 an ounce.
This article was produced in partnership with Bloomberg Automation.
–With assistance from Michael Mackenzie and Liz Capo McCormick.
Most Read Articles on Bloomberg Businessweek
©2024 Bloomberg LP
