U.S. equities rose as mixed economic data and uncertainty caused by Russia’s war in Ukraine put traders back on bets, with the Federal Reserve aggressively raising interest rates next month.
Consumer Staples gained on the S&P 500 after better-than-expected data on income and personal spending. Meanwhile, gains in the tech-heavy Nasdaq 100 lagged as geopolitical tensions continued over high-value technology stocks.
Russia said it was ready to hold talks with Kiev after Chinese leader Xi Jinping called for talks on the second day of the invasion. However, there was no sign of acceding to Russian demands for Ukraine’s surrender, nor were there any signs of an interruption in fighting.
Treasuries, the dollar and gold all retreated, indicating that demand for heaven has eased. Meanwhile, crude oil fell slightly to about $ 91 a barrel in New York.
“Investor reactions to such situations are usually both grim and short-lived. We expect investors to eventually revisit the conflict and underlying economic fundamentals,” said Nikesh Patel, Head of Client Solutions at Campaign Capital Management.
Consumer sentiment was still sharply down since January, according to an index from the University of Michigan. Still, US consumer spending advanced more than expected last month, despite inflation and the Omicron virus variant.
“Solid economic growth confirms that the Fed can, or could, go ahead with higher interest rates,” said Sam Stovall, chief investment strategist at CFRA Research. “Inflation says it’s needed and higher economic activity says it has potential because they will raise rates and not necessarily throw us into recession.”
However, a prolonged conflict could deal a major blow to global markets and slow the normalization of central bank policy that is expected this year. Disruptions in raw materials and food could also fuel already high prices and put pressure on central banks to act swiftly to curb inflation.
The Federal Reserve reiterated its view on Friday that it would be “soon” to raise interest rates. The market still saw a nearly six quarter-point rise by the Fed, but bets on hiking cycles of other central banks in recent days.
“This conflict means the already difficult growth-inflation trade-off central banks are facing, making upcoming decisions particularly difficult,” Sylvia Dell’Angelo, senior economist for international trade at Federated Hermes, wrote in a note. It’s been tough.” Note to customers. “The downside risks of developments from a geopolitical background mean they are likely to proceed slowly and cautiously.”
In contrast, Chris Zacarelli, chief investment officer of the Independent Advisors Coalition, said the idea that riskier assets should rally because the Fed was less likely to raise rates sounded like a “head-fake.”
“The market has been incredibly optimistic about the impact of the war in Ukraine, completely missing out on why the Fed is raising rates and why they can’t slow their pace of tightening,” he said. “With disruptions likely to escalate because of the inflation war, the Fed needs to do the opposite of what they normally do, and that is to fight the even greater threat of inflation.”
Here are some events to watch this week:
- US Consumer Income, US Durable Goods, PCE Deflator, University of Michigan Consumer Sentiment Friday
Some of the main moves in the markets:
- The S&P 500 is up 1.6% as of 11:30 a.m. New York time
- Nasdaq 100 up 1%
- The Dow Jones Industrial Average rose 1.7%
- Stoxx Europe 600 Pink 3.3%
- MSCI World Index up 2%
- Bloomberg Dollar Spot Index down 0.3%
- The euro rose 0.6% to $1.1256 . Done
- The British Pound rose 0.2% to $1.3409
- The Japanese yen was little changed at 115.59 per dollar.
- Yield on 10-year Treasuries rose two basis points to 1.98%
- Germany’s 10-year yield rose six basis points to 0.23%
- Britain’s 10-year yield rose one basis point to 1.46%
- West Texas Intermediate crude fell 1.7% to $91.21 a barrel
- Gold futures fell 2% to $1,887.70 an ounce