Strong Economic Data and Fed’s Stance on Inflation Weigh on Bond Market
A surge in stronger-than-estimated economic data and indications that the Federal Reserve is not yet ready to declare victory over inflation have led to a slide in the bond market by Wall Street traders.
Treasuries Under Pressure
Treasuries have faced renewed pressure, with 10-year yields rising by 14 basis points to 4.16%. Fed swaps have nearly eliminated the chances of a rate move in March, and the possibility of a May rate cut has also decreased. In addition, the dollar is on track to reach its highest level since November. Amidst this, the S&P 500 has recovered from its lows as chipmaker Nvidia Corp. leads gains.
The Federal Reserve’s survey of lending officers known as SLOOS indicates that US banks have reported tighter credit standards and weaker demand for commercial and industrial loans in the fourth quarter.
US Service Sector Expands
The US service sector has showcased strong growth, with the Institute for Supply Management’s overall gauge of services reaching 53.4 – indicating expansion as it remains above the 50 level. The surge in prices for materials has caught investors’ attention, signaling that costs are rising at a faster pace.
Fed speakers have exercised cautious views, with Jerome Powell highlighting that policy makers are likely to postpone rate cuts beyond March. Fed Bank of Minneapolis President Neel Kashkari believes that officials should gauge incoming data before considering easing, and his Chicago counterpart Austan Goolsbee emphasizes the need for more favorable inflation data.
Impact on Treasuries and Market Players
Speculation surrounding the persistence of disinflation has led to treasuries experiencing their biggest two-day loss in months. Market players have failed to achieve further upside due to the influence of both Powell’s statements and ISM-services data. This has led to a climb in yields and their potential for further upside.
Analysts have responded to the market’s shifting interest rate expectation timeline as valid, indicating that June has been the probable month for a rate cut due to the Fed’s cautiousness. Concerns arise due to the possibility that the US consumer’s strength, driven by a robust job market, could undermine the disinflationary trend and extend tight monetary policy.
Key Corporate Highlights
Several key companies have made headlines:
- Boeing Co. faces further hurdles as more mistakes in the fuselage of its 737 Max jet have been discovered.
- Caterpillar Inc. reports higher fourth-quarter sales, dispelling concerns over a global economic slowdown.
- The US Attorney’s Office in Manhattan launches an investigation into Archer-Daniels-Midland Co.’s accounting practices.
- McDonald’s Corp. experiences sales that fall short of expectations in the face of conflict in the Middle East.
- Tyson Foods Inc.’s quarterly earnings exceed analysts’ estimates.
- Snap Inc. undergoes a 10% reduction in its global workforce, in line with other technology companies.
- Estée Lauder Cos. plans major restructuring as it aims to return to a growth trajectory.
Top Events This Week
This week will see several key events and economic releases:
- Reserve Bank of Australia’s rate decision
- Eurozone retail sales
- Germany factory orders
- UBS earnings
- Speech by Bank of Canada Governor Tiff Macklem
- Speeches by Fed’s Loretta Mester, Patrick Harker, and Adriana Kugler
- Germany industrial production
- Walt Disney earnings
- Speech by ECB Chief Economist Philip Lane
- Updates on US wholesale inventories, initial jobless claims, CPI revisions
- China’s PPI and CPI numbers
- Important Senate panels and hearings
- Visit by German Chancellor Olaf Scholz to the White House
Market Movements
Here are the main movements in global markets:
Stocks
- The S&P 500 remains relatively unchanged
- The Nasdaq 100 shows little change
- The Dow Jones Industrial Average falls 0.5%
- The MSCI World index records a drop of 0.2%
Currencies
- The Bloomberg Dollar Spot Index rises 0.4%
- The euro falls 0.4% to $1.0744
- The British pound declines 0.7% to $1.2538
- The Japanese yen falls 0.2% to 148.69 per dollar
Cryptocurrencies
- Bitcoin remains relatively unchanged at $42,776.58
- Ether shows little change at $2,301.64
Bonds
- The yield on 10-year Treasuries jumps by 14 basis points to 4.16%
- The 10-year yield for Germany advances by seven basis points to 2.32%
- Britain’s 10-year yield rises by nine basis points to 4.01%
Commodities
- West Texas Intermediate crude climbs 0.7% to $72.75 a barrel
- Spot gold falls 0.6% to $2,026.61 an ounce
Bloomberg Businessweek presents this news story, in collaboration with a leading news website, emphasizing the impact of strong economic data, the Federal Reserve’s stance, and major corporate developments. Please note that the article is for informational purposes only and does not provide investment advice.
For the original news story, please visit Bloomberg Businessweek.
