[1/3]A street sign for Wall Street is seen outside the New York Stock Exchange (NYSE) in New York City, New York, U.S., July 19, 2021. REUTERS/Andrew Kelly/File Photo
Jul.10 (Reuters) – Wall Street shares rose slightly on Monday, as oil prices and the dollar fell, as investors digested Chinese economic data and looked ahead to a major US inflation report and corporate earnings.
US equities rose slightly. The Dow Jones Industrial Average (.DJI) rose 0.62%, the S&P 500 (.SPX) gained 0.24% and the Nasdaq Composite (.IXIC) rose 0.18%. European equities rose slightly on Monday, with the travel and leisure sector leading gains. The pan-European STOXX 600 index (.STOXX) ended 0.18% higher.
Chinese consumer price data fell in June, remaining virtually unchanged from a year earlier, while producer prices fell deeper into negative territory.
The weakness implies room for further monetary policy easing, but also underlines the challenge China faces to re-inflate its economy and avoid a deflationary spiral.
“China is just a symptom. We are seeing weaker growth globally due to the effect of higher interest rates,” said Matthias Scheiber, global head of multi-asset portfolio management at Allspring Global Investments in London.
Citigroup (CN) downgraded US equities on Monday ahead of a pullback in growth stocks and a recession in the fourth quarter of the year, while betting on downgraded counterparts in Europe with an upgrade.
The brokerage downgraded its rating for US equities from “overweight” to “neutral” after a strong rally in the first half of the year. It warned that growth stocks were poised for a pullback as the “euphoria” around artificial intelligence enters a more “digestive” phase.
Earnings season kicks off this week with JPMorgan (JPM.N), Citi, Wells Fargo (WFC.N), State Street (STT.N) and PepsiCo (PEP.O) among others.
CPI DELAY
U.S. consumer prices are expected to show headline inflation on Wednesday that has slowed to its lowest level since early 2021 at 3.1%, down from 9.1% a year earlier.
Separately, US wholesale inventories remained unchanged in May after falling for two consecutive months, suggesting that inventory investment could support economic growth in the second quarter.
“The markets are coming to our view that central banks will be forced to keep policy tight to curb inflationary pressures,” the BlackRock Investment Institute strategists wrote in a note Monday. “This week’s stubbornly high US CPI inflation data could reinforce the recent rise in bond yields as markets expect the Fed to raise rates.”
Markets still think the Federal Reserve is likely to hike rates this month, but a weak CPI could reduce the risk of a further move in September.
Currently, futures imply about a 90% probability of an increase to 5.25%-5.5% this month, up 25 basis points.
The Fed will likely have to raise rates further to curb inflation, but the end of the current monetary policy tightening cycle is approaching, several U.S. central bank officials said Monday.
“I think we’re close,” said Michael Barr, Fed Vice Chair for Supervision.
Markets have also priced in higher rates in Europe and the UK. Canada’s central bank meets this week and markets imply a 69% chance of another hike.
The risk of longer global higher rates has wreaked havoc on bond markets, with US 10-year yields rising 23 basis points, German 24 basis points and UK 26 basis points last week. The yield on 10-year US bonds fell 4 basis points to 4.008% on Monday.
The US two-year yield was last at 4.870%, after hitting a 16-year high of 5.12% last week.
The dollar fell to a three-week low against the yen on Monday as investors continued to price in expectations that the Federal Reserve is nearing the end of its tightening cycle.
The dollar index fell by 0.3%, while the euro rose by 0.3% and the pound rose by 0.16%.
In commodity markets, little changed for gold after a slight gain last week.
Oil prices fell on Monday following weak economic data from top consumers from the US and China, though expected declines in crude oil supplies from Saudi Arabia and Russia limited losses.
US crude fell 0.9% to $73.18 a barrel and Brent was at $77.86, down about 0.8% on the day.
Reporting by Lawrence Delevingne in Boston and Nell Mackenzie in London; Edited by Mark Heinrich, David Evans, Will Dunham and Christina Fincher
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