Wall Street set for gains as investors look for cooler inflation, Fed 'pause'

A global index of stocks rose slightly on Monday while US Treasury yields also edged higher ahead of key US inflation readings and interest rate decisions later this week from central banks including the US Federal Reserve.

The US dollar inched higher on Monday, trading within a narrow range, with the Fed widely expected to end its meeting on Wednesday without an interest rate hike, which would be the first pause in hikes since January 2022.

Investors will also be monitoring US Consumer Price Index (CPI) data, due to be released on Tuesday, and Producer Price Index data for a reading of how well the Fed’s tightening cycle has managed to curb high inflation. The benchmark S&P 500 last week rose 20 per cent from its Oct. 12 finishing low, heralding the start of a new bull market, as defined by some market participants.

The gains reflected expectations for a Fed tightening pause and for CPI and PPI to come in lower than the prior month, Sam Stovall, chief investment strategist at CFRA Research, said.

“Investors are leaning toward the Fed skipping a rate hike on Wednesday which would allow the market to continue to drift higher as it traditionally has done after eclipsing the 20 per cent advance from the prior bear market low,” Stovall added.

The Dow Jones Industrial Average rose 33.48 points, or 0.1 per cent, to 33,910.26, the S&P 500 gained 9.47 points, or 0.22 per cent, to 4,308.33 and the Nasdaq Composite added 71.12 points, or 0.54 per cent, to 13,330.26. The pan-European STOXX 600 index rose 0.17 per cent and MSCI’s gauge of stocks across the globe gained 0.22 per cent.

Emerging market stocks rose 0.13 per cent. MSCI’s broadest index of Asia-Pacific shares outside Japan closed 0.21 per cent higher, while Japan’s Nikkei rose 0.52 per cent. Traders are pricing in a roughly 75 per cent chance of the Fed keeping rates steady, and a 25 per cent chance of a 25-basis-point rate hike, according to the CME FedWatch tool.

While the Fed is expected to keep rates steady, surprise rate hikes by the Reserve Bank of Australia and the Bank of Canada last week kept investors alert to the idea of prolonged tightening cycles. The Bank of Japan is due to deliver its rate decision on Friday and is expected to maintain its ultra-loose policy. Japan’s wholesale inflation slowed for the fifth month in a row in May, data showed.

In US Treasuries, benchmark 10-year notes were up 2.2 basis points to 3.767 per cent, from 3.745 per cent late on Friday. The 30-year bond was last up 2.3 basis points to yield 3.9098 per cent, from 3.887 per cent. The 2-year note was last down 0.6 basis points to yield 4.5981 per cent, from 4.604 per cent.

In currencies, the dollar index rose 0.087 per cent, with the euro was up 0.07 per cent to $1.0754. The Japanese yen weakened 0.11 per cent versus the greenback to 139.52 per dollar, while Sterling was last trading at $1.2511, down 0.46 per cent on the day.

Oil prices fell on Monday ahead of the central bank policy meetings amid concerns about the prospects for Chinese demand and rising Russian supply. Spot gold dropped 0.2 per cent to $1,956.39 an ounce. US gold futures fell 0.42 per cent to $1,954.00 an ounce.

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