June 21, 2024

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Stocks rise in Fed countdown fluctuates as euro falls: Markets wrap

Stocks rise in Fed countdown fluctuates as euro falls: Markets wrap

(Bloomberg) — The stock market struggled to gain much momentum as a selloff in European assets weighed on trader sentiment, with investors also bracing for the Federal Reserve’s decision this week.

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US stocks fluctuated near all-time highs, and Treasuries were mixed amid uncertainty across the Atlantic. European stocks fell after French President Emmanuel Macron called for a legislative vote following a crushing defeat in parliamentary elections. Yields on French 10-year government debt reached their highest level this year, while the country’s largest banks fell almost 10%. The euro led losses in developed world currencies.

New York Fed: “Short-term inflation expectations decline slightly”

The vote risks becoming the final showdown over Macron’s signature economic policies, which have largely reassured investors and businesses since he took office in 2017. In particular, plugging budget holes will become more difficult if he loses control of parliament and the government.

“Increasing uncertainty in Europe has pushed those markets from across the pond lower in a material way,” said Matt Maley of Miller Tabak + Co. “Although it is difficult to understand what that will mean for the global economy and global markets in the near term.” In the long run, it raises doubts about the long term.

The S&P 500 is hovering near 5,350. Nvidia Corp. Trading after dividing its shares by 10 for one. Apple Inc.’s developer conference will feature Whether the iPhone maker can become a major player in the burgeoning field of artificial intelligence remains to be seen.

10-year Treasury yields rose three basis points to 4.46%. The dollar rose 0.3%.

Investors are also preparing for the Fed’s decision on Wednesday.

“The guessing game on interest rates continues,” said Chris Larkin of Morgan Stanley’s E*Trade. “Even friendlier inflation numbers probably won’t prompt the Fed to act before September.”

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After Friday’s strong jobs report, traders pushed back on rate cut expectations, pricing in the first full 25 basis points of easing in December – rather than November.

The central bank – led by Chairman Jerome Powell – is widely expected to hold borrowing costs steady for the seventh straight meeting, but there is less certainty about officials’ expectations for interest rates.

A 41% majority of economists expect the Fed to signal two cuts in its closely watched “dot chart,” while a similar number expect forecasts to show only one cut or no cuts at all, according to the median estimate in a Bloomberg poll. .

“The release of a new ‘dot chart’ outlining the Fed’s expectations for the path of interest rates will be the biggest focus,” said Jason Pride and Michael Reynolds of Glenmede. “For fixed income investors, the Fed’s more patient approach will likely keep bond yields elevated as inflationary pressures persist.”

Wall Street’s top trading desks, from JPMorgan Chase & Co. to Citigroup, are urging investors to brace for a stock market shakeout this week after the latest inflation edition and the Federal Reserve’s interest rate decision, both arriving on Wednesday.

The options market is betting that the S&P 500 will move 1.3% to 1.4% in either direction by Friday, depending on the price of assets expiring that day, according to Andrew Tyler, head of U.S. market intelligence at JPMorgan Chase. Trading desk.

Meanwhile, investors are bracing for a Fed Day stock market move that will be the biggest since March 2023, according to Stuart Kaiser, head of U.S. equity trading strategy at Citigroup.

Investors remain highly optimistic about the timing of a Fed rate cut, according to RBC Capital Markets strategists led by Lori Calvasina.

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The benchmark index could fall to 4,900 points if the Fed keeps interest rates at current levels, inflation proves more steady than expected and the 10-year Treasury yield stays below 5%, strategists wrote in a note.

If the central bank cuts interest rates as expected, but earnings fall short of expectations, the S&P 500 would trade at about 5,100 points — about 5% below current levels, Calvasina said. The third scenario – bearish – sees the index decline by approximately 16% if stubborn inflation leads to interest rates being raised by the Fed.

“The stock market has had a great year, but there is currently a pause in the rally as doubts emerge around the Fed,” said David Donabedian, of CIBC Private Wealth US. “There is a real chance that if the economy does not slow down there will be no rate cuts this year.”

The company’s most prominent features:

  • Activist Elliott Investment Management has called for sweeping changes in Southwest Airlines’ leadership to reverse what she sees as years of poor performance by one of America’s largest airlines.

  • The US Supreme Court has agreed to consider throwing out a multibillion-dollar lawsuit accusing Meta Platforms Inc. of… Misled investors about a data harvesting scandal involving the political consulting firm Cambridge Analytica.

  • Advanced Micro Devices Inc. was downgraded. from Morgan Stanley, which said investor expectations for the chipmaker’s AI business “appear very high.”

  • KKR & Co. will join and CrowdStrike Holdings Inc. and GoDaddy Inc. to the S&P 500 as part of its latest quarterly weight change.

  • Noble, the world’s largest offshore oil drilling contractor by market value, has agreed to buy smaller rival Diamond Offshore Drilling in a deal worth $1.6 billion.

Main events this week:

  • The European Central Bank’s François Villeroy de Galhau, Robert Holzman and Philip Lane speak on Tuesday

  • China Producer Price Index, Consumer Price Index, Wednesday

  • German Consumer Price Index, Wednesday

  • US Consumer Price Index, Federal Interest Rate Decision, Wednesday

  • G7 Leaders Summit, June 13-15

  • Industrial production in the eurozone, Thursday

  • US Producer Price Index, Initial Jobless Claims, Thursday

  • Tesla annual meeting, Thursday

  • New York Fed President John Williams moderates a discussion with Treasury Secretary Janet Yellen on Thursday

  • Bank of Japan monetary policy decision, Friday

  • Christine Lagarde and Philip Lane of the European Central Bank speak on Friday

  • Chicago Fed President Austin Goolsbee speaks Friday

  • Consumer confidence index from the University of Michigan, Friday

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Some key movements in the markets:

Stores

  • The S&P 500 rose 0.1% as of 11:31 a.m. New York time

  • Nasdaq 100 index rises 0.3%

  • The Dow Jones Industrial Average fell 0.1%

  • The Stoxx Europe 600 index fell by 0.3%.

  • The MSCI World Index was little changed

Currencies

  • The Bloomberg Dollar Spot Index rose 0.2%.

  • The euro fell 0.5 percent to $1.0744

  • There was little change in the pound sterling at $1.2726

  • The Japanese yen fell 0.1% to 156.96 per dollar

Digital currencies

  • Bitcoin rose 0.2% to $69,835.16

  • Ethereum fell 0.3% to $3,687.46

Bonds

  • The yield on 10-year Treasury bonds rose by three basis points to 4.46%.

  • The yield on 10-year German bonds rose by five basis points to 2.67%.

  • The UK 10-year bond yield rose 6 basis points to 4.32%.

Goods

  • West Texas Intermediate crude rose 2.1% to $77.08 per barrel

  • Spot gold rose 0.5 percent to $2,304.92 per ounce

This story was produced with assistance from Bloomberg Automation.

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