(Bloomberg) — Treasury yields rose and stocks wavered as traders weighed mixed data on US spending and inflation for clues on the Federal Reserve’s next steps.
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US two-year yields, which are more sensitive to imminent Fed moves, rose four basis points to 4.34%. The S&P 500 struggled for direction after the US benchmark capped a sixth straight day of gains. The tech-heavy Nasdaq 100 underperformed as disappointing forecasts from Intel Corp. and KLA Corp. weighed on chipmakers.
The Fed’s preferred gauge of underlying inflation cooled to an almost three-year low — even with robust holiday spending — keeping the debate alive over whether officials will soon cut borrowing costs. Policymakers have been cautious to declare victory on inflation and have said they want to see sustainable signs of cooling before lowering borrowing costs.
Wall Street’s Reaction:
“The improving inflation trajectory is improving, giving the Fed leeway to cut rates this year. However, the Fed has further work to do and should not be tempted to declare ‘mission accomplished.’ Investors shouldn’t be surprised to see a temporary uptick next month in goods inflation from the disruptions in shipping.”
“The Fed’s job is basically done, and they have a good argument to cut rates and help stem risks in the job market. Of course, the Fed may opt to be patient and wait for more evidence that inflation is in the bag. But markets see the evidence, and they’re preparing for cuts in the next few months. I’m interested in hearing how the latest PCE data will impact Jay Powell’s language around the balance of risks after next week’s meeting.”
“A soft landing seems increasingly evident. The big question now is how quickly Jerome Powell will normalize policy when there’s no immediate need. The data matters less going forward and internal conversations at the Fed matter more.”
“Although inflationary pressures continue to normalize with ‘core’ numbers inching ever closer to the Fed’s 2% target, the Fed will continue to monitor the effect of stronger consumer spending coupled with the promise of fiscal stimulus on igniting a bout of inflation.
“Still, expectations remain that the Fed will be discussing ‘when’ — not ‘if’ —- to initiate its rate cut cycle at its upcoming meeting. Unless next month’s collection of inflation-related data underscores decisively that the path towards to 2% is squarely in sight, the Fed will most likely wait until May or June to begin easing rates.”
“The FOMC does not need to have inflation at 2% year-over-year to cut rates, but will be cautious given the potential for the tight labor market and strong consumer growth to reignite inflationary pressures in the US economy.”
“Today’s reports are essentially neutral for Treasury yields and the dollar as the inflation data was favorable, but real spending growth was robust.”
“We don’t expect December’s data will materially shift March cut odds ahead of the weekend, and instead we’ll look for next week’s supply announcements, FOMC decision, and payrolls print to quickly take the market’s focus as the PCE print is digested.”
“We view today’s PCE and Personal Spending data as bullish for both the Fed’s path to their 2% target and also for the stock market. Based on strong recent GDP data and jobs data, we expect the first rate cut to be in the May-June period. If jobs and or economic data softens a bit and inflation continues to drop quickly, that could increase the chances of a rate cut in March, but that is not our base case yet.”
Elsewhere, Bitcoin rose past $41,000 amid a slowdown in outflows from the $20 billion Grayscale Bitcoin Trust that strategists said may help to stanch a two-week slump in the token. Oil dipped — but was still heading for the biggest weekly gain since October — as lower US stockpiles and the prospect of more government stimulus in China helped propel crude out of its recent range.
American Express Co. said it’s sticking to its long-term profit and revenue goals and forecast earnings for 2024 that topped analysts’ estimates.
Visa Inc. posted a profit that beat Wall Street predictions as credit-card spending climbed amid strong US economic growth.
T-Mobile US Inc. reported earnings that missed analysts’ estimates, overshadowing a surprisingly strong increase in new mobile phone subscribers.
Saudi Aramco, the world’s largest oil company, is continuing to send tanker loads of crude and fuels through the southern Red Sea, where Houthi militants have for months been menacing merchant ships in response to Israel’s war in Gaza.
Some of the main moves in markets:
The S&P 500 was little changed as of 9:31 a.m. New York time
The Nasdaq 100 fell 0.5%
The Dow Jones Industrial Average was little changed
The Stoxx Europe 600 rose 1.1%
The MSCI World index rose 0.1%
The Bloomberg Dollar Spot Index fell 0.1%
The euro rose 0.1% to $1.0862
The British pound rose 0.2% to $1.2733
The Japanese yen fell 0.2% to 147.89 per dollar
Bitcoin rose 3% to $41,120.5
Ether rose 1.2% to $2,245.5
The yield on 10-year Treasuries advanced two basis points to 4.14%
Germany’s 10-year yield advanced one basis point to 2.30%
Britain’s 10-year yield declined two basis points to 3.97%
This story was produced with the assistance of Bloomberg Automation.
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