Wall Street is looking to extend Friday’s solid gains amid improving inflation prospects heading into the fourth quarter earnings season.
U.S. equity futures moved higher Monday, while the dollar extended its decline on foreign exchange markets, as investors looked to build on last week’s jobs-lead rally with and eye on key inflation data expected over the coming days.
Friday’s better-than-expected job report, which showed a firm 223,000 gain in net new positions alongside moderating wage growth, sparked the strongest single-day gain for the S&P 500 in more than a month, with Treasury yields moving sharply lower and the dollar shedding gains against its global peers as investors re-set Federal Reserve rate hike expectations amid hopes of slowing inflation.
The first contraction for the ISM services sector survey, a crucial reading of activity in the economy’s most important growth driver, added to Friday’s gains as bets on a smaller 25 basis point rate hike from the Fed on February 1 jumped to around 78.2%, according to the CME Group’s FedWatch.
Growth worries will temper some of those gains heading into the start of the week, with investors eyeing Thursday’s December inflation report and the start of the unofficial start of the third quarter earnings season on Friday, but a weaker dollar and softer Treasury bond yields, linked to a brightening inflation forecast, as giving U.S. and global stocks an early boost.
Federal Reserve Chairman Jerome’s Powell’s speech at a central banking conference in Sweden, just two days prior to a key reading on domestic inflation, will highlight a relatively muted week of economic releases on Wall Street heading into the start of the fourth quarter earnings season.
Powell, who is slated to address the Sveriges Riksbank International Symposium on Central Bank Independence in Stockholm at 9:00 am EST Tuesday, may address last week’s ‘goldilocks’ jobs report that showed firmer-than-expected hiring in December paired with moderating wage growth.
If Powell, who has countered market expectations for easing rate hikes over the past several months, allows the current consensus to carry over into Thursday’s inflation reading, stocks have a chance to build significant gains over the two weeks between now and the Fed’s February 1 policy decision.
Thursday’s CPI reading is expected to show headline inflation falling to 6.5% in December, from 7.1% in November, with so-called core consumer price pressures — which strip out food and energy costs — easing to an annualized rate of 5.7%.
Benchmark 2-year Treasury note yields were last seen slipping to 4.27% in early New York trading, with 10-year notes falling to 3.599%, while the U.S. dollar index, which tracks the greenback against a basket of its global peers, fell 0.38% to 103.5910, the lowest levels since late June.
On Wall Street, futures tied to the S&P 500 are priced for a 16 point opening bell gain while those linked to the Dow Jones Industrial Average are set for a 110 point bump. The tech-focused Nasdaq, which is on pace for a fifth consecutive weekly decline, is looking at a 52 point gain.
In overseas markets, China’s reopening of the Hong Kong border after more than three years, alongside the loosening of further Covid-era restrictions on travel and business, lifted Asia stocks firmly higher, with the region-wide MSCI ex-Japan index rising 2.43% into the close of trading.
European stocks were also higher, with the Stoxx 600 extending gains from its best week in nine months to trade 0.5% higher in early Frankfurt dealing, powered by last week’s softer-than-expected inflation data that has tamed some of the more hawkish expectations from the European Central Bank.
Oil prices jumped, as well, on bets that re-opening moves would ignite deeper commodities demand, while copper prices traded as the highest levels in six months.
Brent crude contracts for March delivery, the global benchmark, were last seen $2.60 higher on the session at $81.13 per barrel while WTI futures for February, which are more tightly-linked to U.S. gas prices, rose $2.63 5o $76.40 per barrel.