The S&P 500 (.SPX) was gaining ground on Tuesday afternoon after a volatile morning while Treasury yields rose as investors waited anxiously for U.S. inflation data due later in the week.
The U.S. dollar was little changed versus the euro and other major currencies, hovering close to its weakest level in seven months as investors positioned themselves ahead of the December consumer price data due on Thursday.
U.S. Treasury yields rose as investors prepared themselves for how inflation numbers might influence the Federal Reserve’s interest rate hiking path as it has been prioritizing its fight against decades-high inflation.
The U.S. consumer price index (CPI) is expected to show December’s headline inflation at 6.5% versus 7.1% in November.
“Generally the markets are waiting for this Thursday’s CPI print coming out for December. It will probably be the biggest data point for the week and certainly give us some clarity around the direction of inflation,” said Mona Mahajan senior investment strategist at Edward Jones.
“We’re sensing a bit of sideways movement in the market today and probably we’ll continue to get that.”
The Dow Jones Industrial Average (.DJI) rose 135.62 points, or 0.4%, to 33,653.27, the S&P 500 (.SPX) gained 21.57 points, or 0.55%, to 3,913.66 and the Nasdaq Composite (.IXIC) added 88.16 points, or 0.83%, to 10,723.81.
The pan-European STOXX 600 index (.STOXX) lost 0.59% and MSCI’s gauge of stocks across the globe (.MIWD00000PUS) gained 0.22% but was still below its more than three-week intraday high reached on Monday.
Emerging market stocks (.MSCIEF) rose 0.16%.
Signs of slowing wage inflation from the December U.S. jobs report released on Friday had provided some reassurance that inflation has peaked, potentially giving the Fed leeway to slow its interest rate hikes.
But investors had been anxious ahead of an appearance by Fed Chair Jerome Powell on Tuesday where the policy maker avoided speaking about rate hikes in a speech in Sweden.
“What you might have had coming into today was a market that was a bit on edge as to what Powell might say and then a minor sigh of relief when he said nothing,” said Eric Theoret, Global Macro Strategist at Manulife Investment Management.
However, with consumer price increases still well above the central bank’s target of 2%, two Fed officials on Monday had issued a stark reminder that interest rates will have to keep rising, no matter what investors have priced in.
San Francisco Fed President Mary Daly told the Wall Street Journal she would pay close attention to the CPI data and that both 25- and 50-basis point hikes were options for her. Atlanta Fed President Raphael Bostic said his “base case” was for no rate cuts this year or next.
“Inflation and what the Fed’s response to it is still remains the number one focus and anxiety for the market,” said Manulife’s Theoret. “Any continued moderation in inflation should produce a continued sigh of relief.”
“The risk going into Thursday is really that the market is more vulnerable to an upside surprise in inflation. It just means the Fed has more work to do, more tightening and headwinds for asset prices,” he said.
In currencies, the dollar index rose 0.068%, with the euro up 0.09% to $1.0738.
The Japanese yen weakened 0.25% versus the greenback at 132.21 per dollar even after data showed a faster pick-up in Tokyo inflation that could prompt the Bank of Japan to tighten monetary policy more quickly.
In treasuries, benchmark 10-year notes were up 10 basis points to 3.617%, from 3.517% late on Monday.
The 30-year bond was last up 9.9 basis points to yield 3.7488%, from 3.65%. The 2-year note was last was up 5.5 basis points to yield 4.2535%, from 4.199%.
Oil prices were higher as the U.S. government forecast record global petroleum consumption next year and as the dollar hovered at seven-month lows.
U.S. crude settled up 0.66% at $75.12 per barrel and Brent finished at $80.10, up 0.56% on the day.
In precious metals, spot gold added 0.3% to $1,876.67 an ounce. U.S. gold futures fell 0.02% to $1,871.60 an ounce.
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