Markets optimistic ahead of Fed meeting

Stocks and US equity futures rose as investors awaited policy decisions from the US and Japan this week for near-term trading cues.

The Stoxx Europe 600 edged higher at the open, with consumer products leading the advance as Reckitt Benckiser Group Plc rebounded after last week’s selloff following a legal setback in the US. Futures on the S&P 500 and Nasdaq 100 climbed after Bloomberg reported that Apple Inc. is in talks to build Google’s Gemini artificial intelligence engine into the iPhone, a move that has the potential to shake up the AI industry.

The Federal Reserve’s policy meeting Wednesday may dictate the direction of global stocks for the next quarter. Prior to the blackout period, Chairman Jerome Powell indicated the central bank was close to having the confidence to cut, while others debated how deep, or shallow, those declines will be.  

Bond traders, meanwhile, appear to have painfully surrendered to a higher-for-longer reality. Yields on policy sensitive two-year Treasuries have climbed 11 basis points this month to 4.73%, extending last month’s gain. Swaps traders are pricing about 71 basis points of rate cuts by year-end, down from 134 basis points at the start of the year, according to data compiled by Bloomberg. 

“The Fed may have less confidence on inflation than before, but it still has confidence in the disinflation trend,” and may keep its median forecast of three cuts this year, Bank of America economists including Michael Gapen wrote in a note to clients. “This may be fanciful thinking on our part, but there are several inflation reports and plenty of time between now and June to change course if needed.”

The 10-year Treasury yield held near a three-week high after rising more than 20 basis points last week, and a gauge of the dollar was steady.

The MSCI Asia Pacific Index rose as Japanese equities outperformed the region. The Nikkei 225 index climbed the most in a month as bets mounted that the Bank of Japan will end its negative-rate policy on Tuesday. The yen traded weaker against the dollar.

“Japanese stocks are rising, driven by weakness of the yen, and expectations that the currency won’t strengthen even if the central bank hikes,” said Charu Chanana, a strategist at Saxo Capital Markets based in Singapore. “Seems like BOJ is all priced in and focus is much more on Nvidia and Fed this week.”

In China, equities rallied on surprisingly strong economic numbers, which added to evidence of more traction for the world’s second-largest economy. 

Elsewhere this week, the Reserve Bank of Australia is set to extend its rate pause while Bank Indonesia and the Bank of England also deliver policy decisions. Eurozone inflation data is due as well as Reddit Inc.’s initial public offering. 

In earnings news, FedEx Corp.’s updated outlook for the year will provide hints on the state of the US economy, while Nike Inc., Lululemon Athletica Inc., General Mills Inc., and Darden Restaurants Inc. results will show whether consumers are pulling back on spending or trading down, especially with inflation hanging around.

In commodities, oil hit a fresh four-month high — building on the biggest weekly advance in a month — as macro-economic data from China came in ahead of expectations, and Ukrainian attacks on Russian refineries heightened geopolitical risks. Copper declined from the highest close in a year. Gold edged lower.

Key events this week: 

• Eurozone CPI, Monday
• Australia rate decision, Tuesday
• Japan rate decision, Tuesday
• Canada inflation, Tuesday
• China loan prime rates, Wednesday
• Indonesia rate decision, Wednesday
• UK CPI, Wednesday
• US rate decision, Wednesday
• Brazil rate decision, Wednesday
• ECB President Christine Lagarde speaks, Wednesday
• New Zealand GDP, Thursday
• Taiwan rate decision, Thursday
• Switzerland rate decision, Thursday
• Norway rate decision, Thursday
• UK rate decision, Thursday
• Mexico rate decision, Thursday
• European Union summit in Brussels, Thursday
• Japan CPI, Friday

Some of the main moves in markets:  

Stocks

• The Stoxx Europe 600 rose 0.1% as of 8:07 a.m. London time
• S&P 500 futures rose 0.3%
• Nasdaq 100 futures rose 0.5%
• Futures on the Dow Jones Industrial Average were little changed
• The MSCI Asia Pacific Index rose 0.9%
• The MSCI Emerging Markets Index rose 0.4%

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro was little changed at $1.0896
• The Japanese yen was little changed at 149.13 per dollar
• The offshore yuan was little changed at 7.2054 per dollar
• The British pound was little changed at $1.2743

Cryptocurrencies

• Bitcoin fell 0.4% to $68,019.26
• Ether fell 0.6% to $3,611.52

Bonds

• The yield on 10-year Treasuries was little changed at 4.30%
• Germany’s 10-year yield was little changed at 2.44%
• Britain’s 10-year yield declined one basis point to 4.09%

Commodities

• Brent crude rose 0.6% to $85.83 a barrel
• Spot gold fell 0.2% to $2,150.64 an ounce

This story was produced with the assistance of Bloomberg Automation.

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