Stocks rally on interest rate relief wagers; pound slips

BLOOMBERG

Stocks extended gains as investors welcomed cooler-than-expected inflation readings in the US and the UK as evidence central banks may be done with their aggressive interest-rate increases.  Europe’s Stoxx 600 Index rose 0.6%. Alstom SA slumped 17% after the train maker said it’s cutting jobs and selling assets to shore up its balance sheet. US equity futures rose more than 0.2%, after the S&P 500 ended with its biggest advance since April.
London’s FTSE 100 index advanced more than 1% and the pound slipped after UK inflation slowed more than forecast, a similar outcome to November 14’s reading of US prices. That news strengthed optimism that — like the Federal Reserve — the Bank of England may be finished raising rates.
Markets are now looking ahead to Wednesday’s data on US retail sales and producer prices.  While swaps have almost priced out Fed rate hikes and are expecting a 50 basis-point rate cut by July, stronger data readings could temper some of the rate-cut exuberance.
“If the Fed is done hiking interest rates, there’s a sense of relief out there that this big headwind to market appreciation is being removed,” said Matt Stucky, chief equity portfolio manager at Northwestern Mutual Wealth Management Co. “If we just see overall less strength in the data, what we’re likely to see is that the Fed continues to be on pause.”
Fed officials welcomed the latest data showing receding inflation, but added there’s still a ways to go before it reaches the central bank’s 2% target.  Investors will also monitor consumer demand through this week’s earnings from retailers Target Corp and Walmart Inc, with the former seen posting  a second consecutive sales drop.  Home Depot Inc reported signs of a pullback in big-ticket purchases.
The inflation figures lifted the Bloomberg Global Aggregate Bond Index 1.3% to within a fraction of erasing this year’s losses. Ten-year Treasury yields rose two basis points on Wednesday to about 4.46%, after tumbling 19 basis points in the previous session.  The dollar was flat after declining 1.2%, its biggest drop in a year.
In Asia, MSCI’s gauge of the region’s stocks rose more than 2%. Sentiment was further lifted by the Chinese central bank’s decision to inject the largest amount of cash since 2016 into the banking system as it sought to boost growth. Wednesday’s meeting between Chinese President Xi Jinping and his US counterpart Joe Biden will also be closely watched for potential thawing of tensions.
Elsewhere, oil steadied after a short-lived relief rally as the market digested differing  views on the supply and demand outlooks.