Stocks edge higher as US Treasuries hold below 4%

BLOOMBERG

Global stocks edged higher Tuesday, as Treasury bond yields held below the key 4% mark and investors waited to see what policy message Federal Reserve Chair Jerome Powell would deliver at his Congressional testimony later in the day.
Contracts on the S&P 500 pointed to a bounce after the underlying gauge closed flat, having erased a gain of as much as 0.8%. Europe’s Stoxx 600 equities gauge also posted slight gains, after a surprise increase in German factory reinforced the picture of a resilient euro zone economy.
Many investors remain sidelined after being burnt repeatedly betting on an inflation peak, cooling US economy and Fed policy pivot. While the S&P 500 index is up 2% this month, recouping some of February’s losses, traders appear reluctant to push the gauge much higher, until they get more clarity on how high interest rates might go and whether the world’s largest economy will dodge recession.
“There have been some positive developments — growth has been better than expected and interest rates have adjusted higher without too much volatility on equities,” said Francois Savary, chief investment officer at Swiss wealth manager Prime Partners. “We are at a point where the market is more or less correctly valued, so there is no need to be too negative on equities.”
He expects the S&P 500 to trade in a range, however, for the time being, adding that aside from the inflation question, “there are more challenges down the road on growth and it will be up to companies to show they can maintain earnings.”
The testimony of the Fed Chair will set the tone for markets this week. He’ll have the chance of telegraphing how much more policy tightening he thinks is needed, ahead of the next US rates decision on March 22. While a 25 basis-point rate hike is priced for the upcoming meeting, there is an outside chance of a half-point increase.
The next key event is Friday’s monthly jobs report which could show if the labour market is starting to cool. An outsize reading for January saw investors ramp up bets on further Fed policy tightening, with markets now factoring peak US rates around 5.4%.
Ten-year US Treasury yields remained around 3.92% however, unable to sustain last week’s run above 4%, with investors noting the attraction of that yield level for buyers. Retail investors are also piling into Treasuries, snapping up the most six-month T-bills in nearly 30 years at an auction.
In Europe too, bonds rallied, shrugging off the strong German factory reading, as a European Central Bank survey showed inflation expectations declining to 2.5% for three years ahead.
The aggressive repricing of peak rates is the reason why Christopher Harvey, head of equity strategy at Wells Fargo, sees a case for equity resilience, at least in the short term.
“We wanted to take the other side of lower stock prices and more hawkish Fed Fund expectations because only a small change in perceptions would likely pop equities,” said Harvey. “We believe there’s more near-term upside.”
In premarket US trading, Meta Platforms Inc. rallied, with the Facebook-owner seen cutting thousands more employees as soon as this week.
With investors reluctant to place large bets, the activity of trend-following quants is moving stocks,. Commodity Trading Advisors bought $12 billion of equities on March 2-3,  as per Nomura Holdings Inc., helping Wall Street chalk up its best week in a month.
On currency markets, the dollar traded modestly firmer against a basket of peers, seeking to extend four days of gains. The Australian dollar lost the most ground after nation’s central bank said inflation may have peaked and further tightening will depend on incoming data.
The Aussie and other commodity currencies also face pressure from China’s decision to set a lower-than-expected economic growth target.