US Futures Edge Higher at Start of a Crunch Week: Markets Wrap

Wall Street equity futures crept higher and European stocks climbed as investors positioned themselves for an action-packed week. Key events include Tuesday’s release of US consumer price data that may confirm the inflation battle isn’t over, dashing hopes of a Federal Reserve rate pivot.

Contracts on the S&P 500 gained about 0.2% while those on the tech-heavy Nasdaq 100 advanced 0.5%, signaling something of a rebound for the underlying index after its first weekly loss of 2023. Sorrento Therapeutics Inc. slumped in premarket trading after the drug developer filed for Chapter 11 bankruptcy protection in Texas. Europe’s Stoxx 600 index was lifted by construction, industrial goods and consumer stocks while energy and real estate underperformed.

Treasuries were rangebound following a selloff in US government debt Friday that pushed up the 10-year Treasury yield by seven basis points. A gauge of dollar strength steadied after rising earlier.

Investors are reassessing how high US interest rates will rise this year, with inflation and jobs data likely to still come in hot later this week. That has fueled bets for the Fed rate to peak at 5.2% in July, up from less than 5% a month ago.

“We are certainly continuing to be very cautious on equities,” Nannette Hechler-Fayd’Herbe, chief investment officer at Credit Suisse International Wealth Management, said on Bloomberg Television. “We find at the moment there is a disconnect in valuations versus where interest rates by the Fed — but also by other central banks — are going to be for the remainder of the year.”

Philadelphia Fed President Patrick Harker was the latest central banker to unveil expectations for rates to climb above 5% after a drum-beat of commentary last week that included a prediction from Minneapolis Fed President Neel Kashkari that the level would reach 5.4%.

Meanwhile, Morgan Stanley strategists argued that US stocks are ripe for a selloff after prematurely pricing in a pause in Fed rate hikes.

“While the recent move higher in front-end rates is supportive of the notion that the Fed may remain restrictive for longer than appreciated, the equity market is refusing to accept this reality,” a team led by Michael Wilson wrote in a note.

Wilson — the top-ranked strategist in last year’s Institutional Investor survey — expects deteriorating fundamentals, along with Fed hikes that are coming at the same time as an earnings recession, to drive equities to an ultimate low this spring. “Price is about as disconnected from reality as it’s been during this bear market,” the strategists said.Traders are also keeping a keen eye on geopolitical developments after the Pentagon shot down an unidentified object that it tracked over Michigan, according to US officials familiar with the matter. This was the fourth time in eight days a balloon or high-flying craft has been shot down over the US or Canada.

The yen weakened past 132 per dollar after whipsawing Friday following news reports that Kazuo Ueda would be picked to become the Bank of Japan’s next governor. Investors initially interpreted the decision as a potentially hawkish choice. Those gains were trimmed after Ueda spoke to reporters and said the BOJ’s stimulus should stay in place. Japan’s government is set to officially announce the nomination of the new BOJ governor on Tuesday.

Elsewhere, oil dropped as traders weighed a looming reduction in Russian supply with returning supplies elsewhere in the world. Gold slipped lower.

Key events:

• India CPI, Fed Governor Michelle Bowman speaks at the American Bankers Association Monday
• US CPI, UK jobless claims, Eurozone GDP, New York Fed President John Williams gives the keynote speech at New York Bankers Association event Tuesday
• Japan’s new BOJ governor nomination Tuesday
• US retail sales, UK CPI Wednesday
• US jobless claims, Australia unemployment, Cleveland Fed President Loretta Mester speaks at Global Interdependence Center event Thursday
• France CPI, Russia GDP Friday

Some of the main moves in markets:

Stocks

• S&P 500 futures rose 0.2% as of 8:27 a.m. New York time
• Nasdaq 100 futures rose 0.5%
• Futures on the Dow Jones Industrial Average were little changed
• The Stoxx Europe 600 rose 0.6%
• The MSCI World index was little changed

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro was little changed at $1.0686
• The British pound rose 0.3% to $1.2104
• The Japanese yen fell 1% to 132.62 per dollar

Cryptocurrencies

• Bitcoin fell 0.4% to $21,655.02
• Ether fell 1.8% to $1,484.72

Bonds

• The yield on 10-year Treasuries advanced one basis point to 3.74%
• Germany’s 10-year yield advanced two basis points to 2.38%
• Britain’s 10-year yield advanced four basis points to 3.43%

Commodities

• West Texas Intermediate crude fell 1% to $78.93 a barrel
• Gold futures fell 0.2% to $1,870.20 an ounce

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