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Wall Street’s Reversal Curbs Bond Trader Euphoria: Markets Wrap

(Bloomberg) — The world’s largest bond market saw a day of swings, with Treasuries snapping their weekly rally as strong economic data bolstered the view that it may be too early for the Federal Reserve to claim victory against inflation.

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At the end of a week marked by optimism that the Fed will be closer to ending its interest-rate increase, a report shows consumer sentiment rose to an almost two-year high – while the short term price expectations increased. Bonds reacted quickly, with the front-end of the US curve bearing the brunt of the selling. Stocks posted slight losses as traders cited “consolidation” after a rally that still drove the S&P 500 to its best week since mid-June.

“It doesn’t look like ‘mission accomplished’ yet,” said Don Rissmiller, one of Strategas’ founding partners, referring to the economic data. “The most important variable for consumer spending remains employment, which is still strong. But the tight US labor market is also key for long-term inflation considerations.

The two-year US yield, which is more sensitive to impending central bank moves, rose 13 basis points to 4.76%. That’s a big difference from the slide in rates over the past few days. The dollar posted a small gain, cutting its biggest weekly loss since November.

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Investors also sifted through results from JPMorgan Chase & Co., Wells Fargo & Co. and Citigroup Inc, which benefited from higher interest rates – but easily beat downbeat analyst estimates. UnitedHealth Group Inc.’s surged as profits allayed fears of spiraling medical costs. AT&T Inc. sank to a 29-year low amid growing concerns about potentially higher costs for the phone giant.

Equity strategies boosted earnings forecasts for the S&P 500 next year faster than they had marked it, pushing a key indicator that tracks the momentum of analyst revisions well past a November nadir. this.

After hitting negative 70% late last year, this metric – which focuses on forward earnings-per-share over 12 months – is closer to positive territory at minus 28%, according to data compiled by Bloomberg Intelligence. The indicator is recognized as a forward-looking gauge of the profit outlook that may support the case for stock gains in the coming year.

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US economic data is encouraging, and the possibility of a soft landing increases with each data point that shows stability, according to Solita Marcelli of the UBS Chief Investment Office. However, he maintains his preference for high-quality bonds over equities for three reasons.

“The good macro news is already priced into the S&P 500,” Marcelli said. “In the second part, we expect an environment where inflation continues to decline, but growth in the US is also slow. That situation is good for bonds, but generally not equities. Third, the uncertain scale the lagged impact of earlier interest rate hikes means a recession and a Federal Reserve policy flaw remain potential risks.

Bank of America Corp.’s Michael Hartnett, who has been rightly bearish on stocks for the past year, says market optimism that the economy will run neither too hot nor too cold is unlikely to last.

“Goldilocks rules risk assets for now,” but the second half is likely to bring higher consumer price inflation, policy tightening and savings, the strategist wrote. “We’ll look at short risk assets in late August or early September and note a big, fat secular trading range remains the base case.”

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Fed officials, for their part, remain cautious.

On Thursday, Fed Governor Christopher Waller said he expected two more rate hikes this year to bring the inflation rate to the Fed’s 2% goal, although more good data on rates would hold back. of the need for a second increase. Fed Bank of Chicago President Austan Goolsbee told Fox News that recent consumer price data showing easing inflation is “promising,” even though inflation is still higher than the target. policymakers.

For Krishna Guha of Evercore ISI, it’s no surprise that Fed policymakers — even less hawkish officials — are taking a cautious tone.

“This serves the purpose of maintaining an option – even if it is currently an out-of-the-money option – to hike a second time later in the year if the data surprises with an increase,” Guha added. “But it’s also a way to keep the market’s rate cut expectations from pulling forward while modeling a reaction function that implies a highly informed outcome-based basis for to finally ease the policy.”

Swaps pricing reflects expectations that the Fed is almost certain to raise its benchmark rate by another 25 basis points when it meets this month, with about a one-third chance the central bank will do one more. steps before stopping his cycle.

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Smaller, lesser-known digital tokens such as Solana and Avalanche outperformed Bitcoin for a second day after a federal court decision in a case involving Ripple Labs Inc.

Shares of companies with exposure to crypto rose this week as investors hailed a key decision on a token as a victory for the industry. Coinbase Global Inc. is on track to post a weekly gain of more than 30%, its best performance for the period since mid-March, despite whipsawing in regular trading Friday.

A gauge of emerging-market currencies saw its best week since January.

Nikola Corp. finally restored some of the enthusiasm of his once die-hard day-trading fans. The electric-vehicle maker is set to close the week with a nearly 60% surge.

Some of the main movements in the markets:

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