US stocks rose on Monday as investors bet that forthcoming economic data would ease the pressure on the Federal Reserve to continue lifting interest rates.
Wall Street’s blue-chip S&P 500 index finished 1.1 per cent higher, with all sectors except energy making gains. The tech-heavy Nasdaq Composite added 1.5 per cent. US equities last week recorded their biggest five-day decline in two months.
US stocks have declined and government bonds yields have jumped since data in early February showed the economy added more than 500,000 jobs in the first month of the year, roughly triple the number that had been forecast.
The numbers suggested the US economy was stronger than expected, and traders bet the Fed would be forced to raise rates further to combat inflation. After a confident start to 2023, “investor positioning has turned decidedly more bearish”, said analysts at JPMorgan.
Monday’s gains come ahead of US inflation figures for January on Tuesday. The consumer price index showed that prices declined for a sixth consecutive month in December, registering an annual increase of 6.5 per cent, the lowest level since October 2021. Economists expect CPI for January to decline to 6.2 per cent. That would represent the smallest decrease in the annual rate of inflation since September.
However, Francesco Pesole, forex strategist at ING, said such a reading would probably embolden officials at the Fed who wanted to raise rates more aggressively. That would increase the chances of a quarter percentage point rate rise in May. Investors expect a move of the same size at the US central bank’s next meeting in March.
“US data in January should be strong throughout, largely thanks to greatly improved weather conditions compared to December,” Pesole said. “The big jump in hiring seen in the latest jobs report also suggests increased demand.”
Michelle Bowman, a senior Fed official, on Monday said she expected “ongoing increases” in US rates would be needed to bring inflation back to the central bank’s 2 per cent target. “We are still far from achieving price stability and I expect that it will be necessary to further tighten monetary policy to bring inflation down towards our goal,” she said.
The two-year Treasury yield rose 0.01 percentage points to 4.52 per cent, its highest level since late November. The 10-year Treasury yield fell 0.03 percentage points to 3.71 per cent.
In Europe, the region-wide Stoxx 600 rose 0.9 per cent with the FTSE 100 in London closing 0.8 per cent higher at a record high.
A measure of the dollar’s strength against a basket of six other currencies fell 0.3 per cent. The yen weakened 0.6 per cent against the greenback to ¥132.27 as investors digested news of the expected appointment of academic Kazuo Ueda as the next Bank of Japan governor.
Brent crude, the international oil benchmark, settled 0.3 per cent higher at $86.61 a barrel, having risen just over 8 per cent last week. US marker West Texas Intermediate rose 0.5 per cent to trade at $80.14.
In Asia, Hong Kong’s Hang Seng index fell 0.1 per cent, Japan’s Topix declined 0.5 per cent and South Korea’s Kospi dropped 0.7 per cent. China’s CSI 300 added 0.9 per cent.