US Stocks Rise as Data Eases Inflation Fears: Markets Wrap

(Bloomberg) -- US stocks rose as fears about inflation and the pace of monetary tightening faded, while commodities got a boost from China’s $220 billion stimulus plan.

The S&P 500 climbed as much as 1.1% earlier in the session and the tech-heavy Nasdaq 100 also pushed higher. The US two- and 10-year yield curve remained inverted for a third day. US jobless claims rose last week, signaling that the strength in the labor market is moderating. Commodities from oil to copper rose as the dollar retreated for the first time in five days.

Investors have been whipsawed in the past two weeks between concern over runaway inflation and the fear of a US recession. Even though the minutes of the Federal Reserve’s last meeting showed policy makers’ resolve to continue raising rates, recent economic data has hinted at slower growth, calming investors over the pace of tightening needed.

“Signs of modest disinflation continue to roll in,” Dennis DeBusschere, founder of 22V Research, wrote in a note. “If inflation isn’t all supply-related, which we don’t think it is, the Fed doesn’t have to crush growth as aggressively while the supply-related component is easing. Growth will continue to slow, and recession risk is elevated, but a deep recession should not necessarily be the base case.”

Worries about a brutal recession may also be assuaged by latest credit and debit card data which shows that consumer spending has remained resilient despite inflation. And as investors shift their focus from inflation to growth risks, they’ve regained their faith in Treasuries as a portfolio hedge, Bank of America strategists said. An inverted yield curve, however, still signals fears of a recession. 

While commodities were boosted as China’s Ministry of Finance is said be considering allowing local governments to sell 1.5 trillion yuan ($220 billion) of special bonds this year, the Bloomberg Commodity Spot Index is down about 21% from a June high.

“We’ve seen a big pull in commodities that’s sort of easing those inflation fears that have been driving the fear of recession and of more aggressive tightening,” said Fiona Cincotta, senior financial markets analyst at City Index Ltd.

In the UK, Johnson left as the head of the government amid a series of scandals. The pound rose as much as 0.8% on the news before paring the gains to 0.6%.

Bitcoin rose, continuing to wobble around the $20,000 level.

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What to watch this week:

• EIA crude oil inventory report, Thursday
• Fed Governor Christopher Waller, St. Louis Fed President James Bullard, scheduled to speak, Thursday
• ECB account of its June policy meeting, Thursday
• US employment report for June, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 rose 1% as of 10:30 a.m. New York time
• The Nasdaq 100 rose 1.3%
• The Dow Jones Industrial Average rose 0.6%
• The Stoxx Europe 600 rose 1.7%
• The MSCI World index rose 0.1%

Currencies

• The Bloomberg Dollar Spot Index fell 0.2%
• The euro was little changed at $1.0176
• The British pound rose 0.6% to $1.1996
• The Japanese yen rose 0.2% to 135.71 per dollar

Bonds

• The yield on 10-year Treasuries advanced three basis points to 2.96%
• Germany’s 10-year yield advanced seven basis points to 1.28%
• Britain’s 10-year yield was little changed at 2.10%

Commodities

• West Texas Intermediate crude rose 4.6% to $103.04 a barrel
• Gold futures rose 0.4% to $1,743.60 an ounce

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