Stocks Edge Higher in Countdown to US Inflation: Markets Wrap

(Bloomberg) — US equity futures and European stocks ticked higher as investors prepared for inflation data that will help clarify the path for Federal Reserve policy.

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Contracts for the S&P 500 pointed to small gains after the gauge wiped out all losses from the start of the year and closed just short of an all-time high set two years ago. Cryptocurrency stocks extended an advance in premarket trading after regulators approved exchange-traded funds that invest directly in Bitcoin. Citigroup Inc. slipped after the bank said it would set aside a $1.3 billion reserve covering risk in both Argentina and Russia.

The US inflation report is top of mind for traders Thursday. More evidence of cooling price pressures will support optimism around expectations for Fed interest-rate cuts, but a hot reading could spur volatility. Economists tracked by Bloomberg expect year-over-year core inflation to fall to 3.8% in the December data from 4% in the prior month.

“Confirmation that prices are easing will boost confidence that a May cut can be expected, and that could prompt some rally in stocks and bonds,” said Stuart Cole, chief macro economist at Equiti Capital in London. “But you need to be cognizant of the underlying CPI component. If services prices are still going in the wrong direction, then this could potentially stall any rally.”

US Treasuries climbed, with the yield on the 10-year benchmark dipping below 4%. Oil rose as persistent tensions in the Middle East lifted prices.

Bitcoin briefly scaled $47,000 in a muted climb after the Securities and Exchange Commission’s green light for ETFs. The largest digital currency had already jumped over 160% in the past 12 months in anticipation of the decision as well as looser monetary policy.

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In Europe, the Stoxx 600 index gave up most of its 0.8% advance. A gauge of Asian stocks earlier rallied more than 1% as Japanese equities hit a fresh three-decade high. thanks in part to the yen’s recent weakness. Strategists also said a newly introduced tax-free retirement savings program may help attract more domestic inflows to the market.

“The recent rally shows that overall, both domestic individual investors and foreign investors have been forced to change their attitude toward Japanese stocks to a more positive one,” said Ikuo Mitsui, fund manager at Aizawa Securities Co. “There is also a sense that investors who were late to the market are buying to follow the rise in the index.”

Investors are gearing up for a bout of turbulence in Treasuries when the US consumer price data are published later. Bond traders have trimmed bets on gains for Treasuries this month, and the swaps market shows a lower chance of expected Fed cuts by March relative to pricing late last year.

Fed Bank of New York President John Williams said Fed officials need to see more signs of cooling in the economy before reducing rates, but noted current policy levels are adequate to bring inflation back to the central bank’s target. JPMorgan Asset Management, meanwhile, says the Fed may end up cutting interest rates more than it’s currently signaling as the US economy slows, driving a rally in shorter-maturity Treasuries.

“On the data side, the risks are quite substantial,” said Marija Veitmane, senior multi-asset strategist at State Street Global Markets. “I think you need to sell risk on both up and downside surprises. So data needs to be just right for the market to keep risk-on sentiment, which, of course, is possible but not hugely likely.”

Key events this week:

• US CPI, initial jobless claims, Thursday

• China CPI, PPI, trade, Friday

• UK industrial production, Friday

• US PPI, Friday

• Some of the biggest US banks report fourth-quarter results, Friday

• Minneapolis Fed President Neel Kashkari speaks, Friday

• ECB chief economist Philip Lane speaks, Friday

Some of the main moves in markets:

Stocks

• S&P 500 futures rose 0.1% as of 6:43 a.m. New York time

• Nasdaq 100 futures rose 0.4%

• Futures on the Dow Jones Industrial Average were little changed

• The Stoxx Europe 600 rose 0.2%

• The MSCI World index rose 0.2%

Currencies

• The Bloomberg Dollar Spot Index fell 0.1%

• The euro was little changed at $1.0979

• The British pound rose 0.2% to $1.2764

• The Japanese yen rose 0.2% to 145.42 per dollar

Cryptocurrencies

• Bitcoin rose 2.2% to $46,948.56

• Ether rose 5% to $2,654.25

Bonds

• The yield on 10-year Treasuries declined four basis points to 3.99%

• Germany’s 10-year yield was little changed at 2.22%

• Britain’s 10-year yield declined three basis points to 3.79%

Commodities

• West Texas Intermediate crude rose 2% to $72.77 a barrel

• Spot gold rose 0.5% to $2,033.85 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Chiranjivi Chakraborty, Jan-Patrick Barnert, Farah Elbahrawy and Krystof Chamonikolas.

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