Stocks Retreat Before Crucial US Inflation Report: Markets Wrap

(Bloomberg) — US equity futures slipped in cautious trading before the release of keenly awaited inflation data that could provide clues on the timing of Federal Reserve interest rate cuts. Treasuries and the dollar were steady.

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The inflation report, which is expected to show the first reading below 3% on year-over-year headline inflation since March 2021, may not be enough to justify a more rapid shift to monetary easing. Employment, manufacturing and economic growth in the US have surprised on the upside, proving resilient to the fastest rate increases in a generation.

“Despite expecting CPI to print below 3% later, we still think the market is over-exuberant when it comes to when that first cut comes in,” Grace Peters, head of global investment strategy at JPMorgan Private Bank, said in an interview with Bloomberg TV.

Policy makers continued to message to markets that rate-cut bets have become overblown. Federal Reserve Bank of Richmond President Thomas Barkin Monday warned US businesses accustomed to raising prices in recent years may continue to fan inflation. The market is overlooking the risk of rate increases following the easing cycle, strategists at Citigroup Inc. warned Monday.

“Our base case is that it’s June. We don’t need to push the Fed to move too soon,” said Peters. “They are doing the right thing by waiting until you’ve got a firm body of data.”

Bond traders have pared bets on rate cuts to just four in 2024, down from seven forecast at the end of last year, and only slightly more than the three penciled in by policymakers.

Contracts on the S&P 500 and Nasdaq 100 dropped at least 0.3% before the inflation report.

Read: Citigroup Says Traders Need to Price in Risk of Future Fed Hikes

Story continues

The pound strengthened after UK wage growth slowed less than expected in the fourth quarter, underscoring the case for the Bank of England to wait before cutting interest rates. Money markets pared wagers on BOE easing, with traders betting on 71 basis points of cuts in 2024, down from 78 basis points on Monday.

Meanwhile, shares in Asia climbed for the first time in four days, led by equities in Japan. The nation’s Nikkei 225 index rallied the most since November 2022, as tech shares led gains after Tokyo Electron Ltd. boosted its full-year revenue and profit guidance. Markets are closed in China, Hong Kong, Taiwan and Vietnam for Lunar New Year holidays.

Corporate Highlights

• Arm Holdings Plc gained in premarket trading, extending a three-day rally that has driven its value up almost 100%, after a blockbuster earnings report last week showed artificial intelligence spending is bolstering sales.

• Activist investor Carl Icahn disclosed a 9.91% stake in JetBlue Airways Corp., calling the shares undervalued, and said he’s had talks with management about the possibility of representation on the board.

• Michelin rallied after the tiremaker’s earnings and a share buyback announcement.

Key Events This Week

• Germany ZEW survey expectations, Tuesday

• US CPI, Tuesday

• Eurozone industrial production, GDP, Wednesday

• BOE Governor Andrew Bailey testifies to House of Lords economic affairs panel, Wednesday

• Chicago Fed President Austan Goolsbee speaks, Wednesday

• Fed Vice Chair for Supervision Michael Barr speaks, Wednesday

• Japan GDP, industrial production, Thursday

• US Empire manufacturing, initial jobless claims, industrial production, retail sales, business inventories, Thursday

• ECB President Christine Lagarde speaks, Thursday

• Atlanta Fed President Raphael Bostic speaks, Thursday

• Fed Governor Christopher Waller speaks, Thursday

• ECB chief economist Philip Lane speaks, Thursday

• US housing starts, PPI, University of Michigan consumer sentiment, Friday

• San Francisco Fed President Mary Daly speaks, Friday

• Fed Vice Chair for Supervision Michael Barr speaks, Friday

• ECB executive board member Isabel Schnabel speaks, Friday

Some of the main moves in markets:

Stocks

• S&P 500 futures fell 0.3% as of 4:56 a.m. New York time

• Nasdaq 100 futures fell 0.5%

• Futures on the Dow Jones Industrial Average fell 0.2%

• The Stoxx Europe 600 fell 0.2%

• The MSCI World index rose 0.1%

Currencies

• The Bloomberg Dollar Spot Index was little changed

• The euro was little changed at $1.0766

• The British pound rose 0.2% to $1.2653

• The Japanese yen fell 0.2% to 149.59 per dollar

Cryptocurrencies

• Bitcoin rose 0.7% to $50,202.35

• Ether rose 1.7% to $2,677.62

Bonds

• The yield on 10-year Treasuries was little changed at 4.18%

• Germany’s 10-year yield was little changed at 2.36%

• Britain’s 10-year yield advanced three basis points to 4.08%

Commodities

• West Texas Intermediate crude rose 0.9% to $77.63 a barrel

• Spot gold rose 0.3% to $2,026.47 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Jan-Patrick Barnert.

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