Peak inflation and solid GDP growth has stocks on the move Thursday, even as bonds continue to flash recession warnings for the world’s biggest economy.
U.S. equity futures moved firmly higher Thursday, while the dollar retreated on foreign exchange markets and Treasury yield slipped, as investors growing increasingly comfortable with Fed rate projections and the health of the U.S. economy.
Investors closely tracked yesterday’s parade of Federal Reserve speakers, including New York Fed President John Williams, for any deviation from Chairman Jerome Powell’s assessment that two more rate hikes are likely needed — extending the current tightening cycle to ten — in order to tame inflation and cool the red-hot labor market.
Williams told an event hosted by the Wall Street Journal that a two further hikes, which would take the Fed Funds target rate to a range of between 5% and 5.25%, “seems a very reasonable view of what we’ll need to do this year in order to get the supply and demand imbalances down.’
Richmond Fed President Thomas Barkin, in fact, said Thursday that inflation has likely peaked, but noted that price pressures remain elevated and will take time to return to the central bank’s preferred 2% target.
Weekly jobless claims data, as well, might add some reinforcement to that view, with new applications for jobless benefits rising by 13,000 over the period ending on February 4 to a bigger-than-expected total of 196,000.
The Fed’s consistent messaging, alongside a stronger-than-expected auction of $35 billion in 10-year notes yesterday that drew historic interest from foreign investors, looks to have added to market optimism that inflation has peaked in the world’s biggest economy.
The CME Group’s FedWatch suggests both a 93.7% chance of another 25 basis point rate hike from the Fed next month in Washington, and a 68.4% chance of a follow-on move in May.
At the same time, the Atlanta Fed’s GDPNow forecasting tool suggests current quarter growth is running at a 2.2% pace, suggesting solid momentum that could keep the economy from slipping into recession.
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Bond yields were marked modestly lower in overnight trading, with 10-year notes trading at 3.582% and 2-year notes pegged at 4.434%, putting the gap between the two benchmarks at around 92 basis points.
The U.S. dollar index, which tracks the greenback against a basket of its global peers, was marked 0.38% lower at 103.020.
On Wall Street, futures tied to the S&P 500 were marked for a 36 point opening bell gain while those linked to the Dow Jones Industrial Average are set for a 255 point advance. The tech-focused Nasdaq was marked 175 points in the green.
Disney (DIS) – Get Free Report shares were the notable early mover, rising 5.7% after returning CEO Bob Iger unveiled a raft of changes at the media and entertainment group as it fends off an activist challenge from billionaire investor Nelson Peltz.
Salesforce (CRM) – Get Free Report rose 2% amid reports that a fifth activist investor, Dan Loeb’s Third Point Hedge fund, has taken a stake in the world’s biggest enterprise software group.
PepsiCo (PEP) – Get Free Report jumped 1.95% after modestly better-than-expected fourth-quarter earnings, and a boost in its annual dividend, even as sales suggested that consumers are starting to feel the impact of relentless price hikes.
Mattel (MAT) – Get Free Report shares, meanwhile, plunged 11% after the Barbie Doll maker posted weaker-than-expected holiday quarter earnings and cautioned that fading consumer demand would last for much of the current financial year even as the toy industry shows ‘resilience’ to “macroeconomic challenges”.
In overseas markets, Europe’s Stoxx 600 was marked 0.92% higher in mid-day Frankfurt trading, taking the regional benchmark to a fresh one-year high, amid a busy earnings session and a softer-than-expected reading for German inflation over the month of January.
Overnight in Asia, the region-wide MSCI ex-Japan index was marked 0.57% higher into the close of trading, as China stocks bounced from a one-month low, while the Nikkei 225 slipped 0.08%.
