US Stocks Test Record Rally as Bonds Fall: Markets Wrap

(Bloomberg) — US stocks tested their record rally, while bonds were under pressure ahead of a Treasury auction Tuesday.

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The S&P 500 rose 0.07% after the equities benchmark set a closing record in the last session. US bond yields rose with the longer maturities rising the most. An $69 billion auction of policy-sensitive two-year notes will test investor demand today.

BMO’s Ian Lyngen says the Treasury market is settling into its new range after the Federal Reserve’s half-point rate cut last week. The recent bearishness raises the prospect of dip buyers eventually stepping in.

“In the event there is a spike in unemployment or mounting headwinds to consumption, the grind higher in 10- and 30-year yields will bring in otherwise sidelined investors,” according to Lyngen.

US Traders have been wagering on nearly three-quarters of a point of policy easing by year-end, suggesting at least one more major rate cut is in store. Investors are now awaiting data on the Fed’s preferred price metric and US personal spending later this week for further clues on the depth of future reductions.

Elsewhere, the mood was risk-on as equities climbed after China announced a slew of stimulus aimed at shoring up economic growth. European stock gauges traded higher as sectors exposed to the Chinese economy rallied. The dollar slumped.

China’s broad package of monetary stimulus on Tuesday included reduced reserve requirements for banks and at least 800 billion yuan ($114 billion) of liquidity support for stocks. A gauge of the nation’s stocks had its best day since July 2020 and the emerging-market equities index added more than than 1%.

Still, Michael Sneyd, head of cross-asset and macro quantitative strategy at BNP Paribas, said it would take time for the economic impact of stimulus to feed through. “That China stimulus news is probably not enough to take off those downside risks in the European economy just yet.”

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Oil prices climbed on hopes of a stronger Chinese economy and as a major Israeli strike on Hezbollah targets in Lebanon kept tensions high in the Middle East. Gold hit a record.

Key events this week:

• Mexico CPI, Tuesday

• Bank of Canada Governor Tiff Macklem speaks, Tuesday

• Australia CPI, Wednesday

• China medium-term lending facility rate, Wednesday

• Sweden rate decision, Wednesday

• Switzerland rate decision, Thursday

• ECB President Christine Lagarde speaks, Thursday

• US jobless claims, durable goods, revised GDP, Thursday

• Fed Chair Jerome Powell gives pre-recorded remarks to the 10th annual US Treasury Market Conference, Thursday

• Mexico rate decision, Thursday

• Japan Tokyo CPI, Friday

• China industrial profits, Friday

• Eurozone consumer confidence, Friday

• US PCE, University of Michigan consumer sentiment, Friday

Story continues

Some of the main moves in markets:

Stocks

• The S&P 500 was little changed as of 9:31 a.m. New York time

• The Nasdaq 100 rose 0.2%

• The Dow Jones Industrial Average rose 0.1%

• The Stoxx Europe 600 rose 0.5%

• The MSCI World Index rose 0.2%

Currencies

• The Bloomberg Dollar Spot Index fell 0.1%

• The euro rose 0.2% to $1.1137

• The British pound rose 0.3% to $1.3383

• The Japanese yen fell 0.3% to 144.03 per dollar

Cryptocurrencies

• Bitcoin rose 0.2% to $63,428.13

• Ether fell 1.1% to $2,631.82

Bonds

• The yield on 10-year Treasuries advanced four basis points to 3.78%

• Germany’s 10-year yield advanced two basis points to 2.17%

• Britain’s 10-year yield advanced five basis points to 3.98%

Commodities

• West Texas Intermediate crude rose 2.2% to $71.95 a barrel

• Spot gold rose 0.2% to $2,632.77 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Mark Cudmore, Winnie Hsu, Aya Wagatsuma, Margaryta Kirakosian and John Viljoen.

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