Stocks fell amid quarterly portfolio rebalancing by institutional investors, with traders assessing whether inflation is cresting and recession can be averted.
Treasuries slipped, pushing the rate on the US 10-year note to 3.2%. Yields have retreated from June highs on growth worries, but whether that marks the end of the Treasury bear market is a live debate. The dollar fluctuated.
Meanwhile, one of Wall Street’s most prominent bears sees the rally in US stocks extending — prior to the selloff recommencing. Morgan Stanley strategists led by Michael Wilson say the S&P 500 Index may climb another 5% to 7%, before resuming losses.
Investors are parsing incoming data to work out if the highest inflation in a generation is close to topping out. In time, that could give policy makers latitude to ease up on sharp interest-rate hikes. A more troubling scenario is of lasting price pressures and tighter policy even as the global economy falters.
“There’s a feeling that things aren’t as bad as we thought they were going to be,” Carol Pepper, founder of Pepper International, said on Bloomberg Radio. She added “there’s a hope that perhaps we’ve oversold, perhaps there’s not going to be a recession.”
Elsewhere, Russia defaulted on its foreign-currency sovereign debt for the first time in a century, the culmination of ever-tougher Western sanctions that shut down payment routes.
Traders are monitoring a summit of the Group of Seven leaders, who are discussing the viability of a price cap on Russian oil and adopted a declaration pledging to support Ukraine “for as long as it takes.” President Volodymyr Zelenskiy joined the summit by video link from Kyiv and said he wants the war to be over by the end of the year, according to officials familiar with his remarks.
What to watch this week:
- San Francisco Fed President Mary Daly comments, Tuesday
- ECB President Christine Lagarde, Federal Reserve Chair Jerome Powell, BOE Governor Andrew Bailey and Cleveland Fed President Loretta Mester due to speak at ECB event, Wednesday
- US GDP, Wednesday
- St. Louis Fed President James Bullard speaks, Wednesday
- China PMI, Thursday
- US consumer income, PCE deflator, initial jobless claims, Thursday
- Eurozone CPI; US construction spending, ISM Manufacturing, Friday
Stocks
- The S&P 500 fell 0.3% as of 10:10 a.m. New York time
- The Nasdaq 100 fell 0.6%
- The Dow Jones Industrial Average fell 0.2%
- The Stoxx Europe 600 rose 0.2%
- The MSCI World index rose 0.2%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro rose 0.2% to $1.0577
- The British pound was little changed at $1.2280
- The Japanese yen was little changed at 135.18 per dollar
Bonds
- The yield on 10-year Treasuries advanced four basis points to 3.17%
- Germany’s 10-year yield advanced nine basis points to 1.54%
- Britain’s 10-year yield advanced seven basis points to 2.37%
Commodities
- West Texas Intermediate crude fell 0.4% to $107.18 a barrel
- Gold futures fell 0.1% to $1,827.80 an ounce
