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Stocks and bonds retreated before key inflation readings from the US and China later this week and the earnings season kicks off on Friday. US stock futures dropped with Europe’s Stoxx 600 benchmark as investors shrugged off tech-led gains that rolled across global markets and drove a Japanese gauge to a 34-year high. The Nasdaq 100 jumped the most since November and the S&P 500 traded near a record high while Japan’s Nikkei 225 index closed up 1.2% — a level unseen since March 1990.
As the bounce fades, investors are focusing on key inflation readings from the US and China later this week and the start of the earnings season on Friday. Federal Reserve Governor Michelle Bowman said inflation could fall towards the central bank’s 2% target with interest rates held at current levels, and offered potential backing for lowering borrowing costs if price pressures fade.
“The new year is already putting the 2023 Santa rally to the test,” said Evelyne Gomez-Liechti, a strategist at Mizuho International, citing pressures including an unexpected US labor strength, an overextended rally and heavy supply of new government and corporate debt.
At the same time, US 10-year yields are unlikely to breach last week’s highs before the release of the US inflation report on Thursday, she said. The benchmark 10-year yield traded above 4%, a level former bond king Bill Gross called “overvalued.” even after it surged 17 basis points last week as robust labor-market data spurred traders to pare bets on rapid Fed easing.
European government bonds slumped before new borrowing from the UK, Netherlands and Austria, with the yield on 10-year British and German benchmarks up as much as 5 basis points.
The tech rally in US stocks on Monday came as Nvidia Corp surged after announcing new artificial-intelligence products for personal computers. In contrast, Boeing Co sank as its 737 Max 9 model was temporarily grounded by authorities.
Elsewhere, Bitcoin dipped after surging past $47,000 on bets that the US is poised to approve the launch of the nation’s first exchange-traded funds investing directly in the world’s largest digital asset. Oil held the largest drop in about a month on signs of a weaker physical market.