Equity rally fades as Fed caution prevails as markets close

(Bloomberg) – US stock index futures traded lower as investors debated whether inflation was eased enough to encourage the Federal Reserve to ease monetary tightening.

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Contracts on the S&P 500 and Nasdaq 100 indices each fell about 0.1% after Tuesday’s rally in US stocks on the back of a fifth-month decline in consumer price growth. Treasuries rallied for a second day as the dollar slipped. The Stoxx Europe 600 index fell for the second time in three days. Charter Communications Inc. fell 4.5% in premarket trading in New York on concerns that its capital spending plan could reduce cash flow.

While a lower-than-expected figure for the US consumer price index fueled a rally in stocks and bonds, gains were tempered by caution that the Fed could remain firm on continued rate hikes. After a 50 basis point hike in the Fed’s policy rate later Wednesday was largely priced in, traders were left on edge on what signals policymakers could offer about when the hikes will stop and whether a rate cut is possible next. year.

“The question is, with inflation still at generational highs, will the Fed walk through that door?” Stephen Innes, managing partner at SPI Asset Management, wrote in a note. “After an initially spirited response, the relatively subdued reaction for equities is likely attributable to pre-event risk positioning, prevailing bearish growth sentiment, technicals and the devil in the details.”

The European equity benchmark fell after posting its largest one-day advance since Nov. 10 as caution trumped Fed messages later in the day and rate hike expectations from the European Central Bank and the Bank of America. ‘England on Thursday.

Treasuries with medium-term maturities, called the belly of the yield curve, posted the biggest gains on Wednesday. The five-year rate fell by 4 basis points, while the seven-year rate fell by 3 basis points. Traders are betting that the Fed, after today’s move, will opt for 50 basis points more hikes, and then an equivalent size cut by the end of next year.

Charter Communications Inc., the second-largest cable TV provider in the US, fell in early negotiations after saying it will spend $5.5 billion to bring faster broadband connections to customers. Higher capital spending and lower cash flow create near-term uncertainty, yet expanding footprint could fuel subscriber growth, analysts at Bloomberg Intelligence said.

In the UK, government bonds rallied across the curve, with the two-year yield down 4 basis points. Inflation in the country fell from a 41-year high in November, raising the possibility that the worst drop in the cost of living has passed.

The dollar fell by 0.3%. The New Zealand dollar fell in a decline that accelerated after the government warned that a recession was likely next year.

Shares in Hong Kong, Japan and Australia held higher, pushing the MSCI Asia Pacific index to a three-month high and a close 19% above its October low.

Nervousness about Fed policy echoed in the oil market, where West Texas Intermediate futures halted a two-day advance. Traders also weighed the demand outlook between a rapid easing of Covid restrictions in China and the effect of new cases on economic activity in the country.

Key events this week:

  • FOMC rate decision and Fed chair press conference, Wednesday

  • China medium-term loans, real estate investment, retail sales, industrial production, jobless surveyed, Thursday

  • ECB rate decision and briefing by ECB President Lagarde, Thursday

  • Rate decisions for BOE UK, Mexico, Norway, Philippines, Switzerland, Taiwan, Thursday

  • US Cross Border Investment, Corporate Inventories, Imperial Manufacturing, Retail Sales, Initial Jobless Claims, Industrial Production, Thursday

  • Eurozone S&P Global PMI, CPI, Friday

Some of the major moves in the markets:

Actions

  • The Stoxx Europe 600 was down 0.6% as of 9:48am London time

  • S&P 500 futures are down less than 0.1%

  • Nasdaq 100 futures fell 0.1%

  • Dow Jones Industrial Average futures were little changed

  • MSCI Asia Pacific index rose 0.9%

  • The MSCI Emerging Markets Index is up 1.1%

Currencies

  • Bloomberg Dollar Spot Index fell 0.3%

  • The euro rose 0.3% to $1.0663

  • The Japanese yen rose 0.3% to 135.15 to the dollar

  • The offshore yuan rose 0.2% to 6.9490 to the dollar

  • The British pound rose 0.3% to $1.2401

Cryptocurrencies

  • Bitcoin climbed 0.2% to $17,793.15

  • Ether was little changed at $1,319.45

Bonds

  • The 10-year Treasury yield fell by a basis point to 3.49%

  • German 10-year yield rose three basis points to 1.96%

  • UK 10-year yield fell by two basis points to 3.28%

Goods

  • Brent crude fell 0.2% to $80.52 a barrel

  • Spot gold fell 0.1% to $1,808.58 an ounce

This story was produced with assistance from Bloomberg Automation.

–With assistance from Richard Henderson, James Hirai and Georgina Mckay.

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