Stocks rise as Wall Street backs Fed bets: Markets Wrap

(Bloomberg) — Stocks rose as Treasury yields fell after comments from Federal Reserve officials boosted speculation that the central bank is moving toward another increase in interest rates. Oil fell after its biggest rise since April.

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All major groups in the S&P 500 advanced, with the gauge near 4,400. Megacaps outperformed with Tesla Inc rising 3% and Amazon.com Inc gaining after launching its fall sale for Prime subscribers. PepsiCo Inc. Went up on bullish forecasts. U.S.-listed Chinese stocks such as Alibaba Group Holding Ltd. and JD.com Inc. rose as Bloomberg News reported that Asian countries are considering a new round of economic stimulus.

Read: Stock bulls can’t ignore the impact of rates on earnings this season

Treasuries rallied as cash trading closed in the US on Monday, coinciding with a global bond rally. US 10-year yields fell 18 basis points to 4.62% before paring their decline. Fed swaps currently show about a 60% chance that the Fed will remain on hold in December, compared to a 60% chance just a week ago that there would be another hike by then. The dollar fell for a fifth straight session, heading for its longest decline since July.

Fed Bank of Atlanta President Rafael Bostic said the policy is restrictive enough to get inflation back to their 2% target. Top Fed officials are rallying around the idea that tighter financial conditions following the recent surge in U.S. Treasury yields could be an option for additional hikes to their benchmark interest rate. Fed Vice Chairman Philip Jefferson said Monday that officials were “proceeding with caution.”

“Policymakers have begun to accept less need for further policy action, as financial conditions have tightened significantly following the recent surge in Treasury yields,” said Ben Jeffery at BMO Capital Markets. “This approval would have reduced concerns about the need for additional rate increases.”

According to Anna Wong at Bloomberg Economics, investors will be keeping an eye on the minutes of the September Fed meeting on Wednesday for any signs that would suggest the Fed will not follow through with the last hike signaled in its economic projections. He said two important upcoming economic indicators — Thursday’s consumer price index and Friday’s University of Michigan consumer-sentiment survey — could give more definitive information.

“The risks to the CPI this week are to the upside, reflecting dynamics in individual components such as auto prices. “The surprise on the upside is that the market may see even more buying on the downside, as investors remain extremely concerned about rising energy prices,” said Lauren Goodwin, economist and portfolio strategist at New York Life Investments.

Read: US consumers see possibility of higher inflation, tighter debt in the near term

While Goodwin says additional increases may still be on the way, she cites the fact that market financial conditions are tightening – reflecting higher risks to the real economy, government funding and geopolitical developments.

“That could be enough to deter the Fed,” Goodwin said.

Global investors also kept a close eye on geopolitics. The death toll in the war with Hamas has passed 1,000, as the conflict enters its fourth day.

The shekel regained its footing as the central bank dueled short sellers to prevent market fallout from Israel’s conflict with terrorist group Hamas.

The currency strengthened by 1% in the first half hour of trading on Tuesday and was little changed against the dollar as of 4:42 pm local time. The country’s benchmark stock index, which fell 6.5% on Sunday, rose 1.4% before paring gains.

Major events of this week:

• Germany CPI, Wednesday

• NATO defense ministers meeting in Brussels on Wednesday

• Russia Energy Week in Moscow, with officials of OPEC members and others on Wednesday

• US PPI, Wednesday

• Minutes of the Fed’s September policy meeting, Wednesday

• The Fed’s Michelle Bowman and Raphael Bostic speak at separate events on Wednesday

• Japan Machinery Orders, PPI, Thursday

• Bank of Japan’s Asahi Noguchi speaks, Thursday

• UK industrial production, Thursday

• US initial jobless claims, CPI, Thursday

• The European Central Bank published accounts of its September policy meeting on Thursday

• Fed’s Rafael Bostic speaks, Thursday

• China CPI, PPI, Trade, Friday

• Eurozone industrial production, Friday

• US University of Michigan consumer sentiment, Friday

• Results from Citigroup, JPMorgan, Wells Fargo, BlackRock, quarterly earnings season begins on Friday

• G20 finance ministers and central bankers meet on Friday as part of the IMF gathering

• ECB President Christine Lagarde, IMF Managing Director Kristalina Georgieva speak at IMF panel on Friday

• Fed’s Patrick Harker speaks, Friday

Some key movements in the markets:

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• The S&P 500 rose 1% as of 11:34 a.m. New York time

• Nasdaq 100 rose 1.1%

• Dow Jones Industrial Average rose 0.6%

• Stoxx Europe 600 up 2%

• MSCI World Index rose 1.4%

currencies

• Bloomberg dollar spot index fell 0.2%

• The euro rose 0.4% to $1.0607

• The British pound rose 0.3% to $1.2273

• The Japanese yen fell 0.2% to 148.74 per dollar

cryptocurrency

• Bitcoin fell 0.6% to $27,418.77

• Ether fell 0.4% to $1,570.27

bond

• The yield on 10-year Treasuries fell 16 basis points to 4.64%

• Germany’s 10-year yield rose one basis point to 2.78%

• UK 10-year yield fell four basis points to 4.44%

Goods

• West Texas Intermediate crude fell 0.7% to $85.77 a barrel

• Gold futures rose 0.5% to $1,873.10 an ounce

This story was generated with the assistance of Bloomberg Automation.

–With assistance from Wildana Hajrick, Isabelle Lee and Liz Capo McCormick.

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Source: ca.finance.yahoo.com