Stocks, US futures extend rally as dollar tumbles

Bloomberg

European stocks and US futures extended a rally and the dollar retreated as traders bet inflation is near peaking even as policy makers ramp up hawkish rhetoric.
The Stoxx Europe 600 index climbed for a third day, with retailers and miners leading the advance and all major regional benchmarks in the green. Futures on the S&P 500 and Nasdaq 100 rose, suggesting US stocks may add to last week’s gains. Treasury yields ticked lower. Crude oil turned higher along with industrial metals.
A gauge of the dollar fell for a second day, on track for its biggest two-day drop in almost three months, as all G-10 peers surged except the yen. The euro jumped the most in six months after Bundesbank President Joachim Nagel signalled support for further interest-rate hikes in Europe, while news of Ukrainian gains in the war against Russia also boosted sentiment. Sweden’s krona soared 1.7% as a coalition of right-wing parties looks set to secure a narrow victory in a general election.
Investor focus is on August US inflation data due on Tuesday, with headline CPI expected to cool to an 8% a year pace while the core measure that excludes food and energy is seen accelerating. Traders almost fully expect another jumbo-sized Fed hike next week, following two 75-basis-point increases, and forward guidance by Fed officials has supported that view.
Hawkish remarks from Fed officials and recession worries have driven equities close to oversold levels before last week’s rebound.
Fed Governor Christopher Waller said he favours “another significant” increase in interest rates when the central bank meets later this month, signalling his backing for a 75 basis-point move.
Fed Bank of St Louis President James Bullard said he was leaning “more strongly” towards a third straight boost of that magnitude, while his Kansas City counterpart Esther George noted officials have a “clear-cut” case for continuing to remove monetary support.
“Should tomorrow’s CPI data show a notable moderation in price pressures, the market’s defiance of the Fed’s forward guidance may gain some support, to the benefit of relatively higher-risk assets,” Rand Merchant Bank economists said.
The Stoxx Europe 600 rose 0.9% in London. Futures on the S&P 500 rose 0.6%. Futures on the Nasdaq 100 rose 0.7%. Futures on the Dow Jones Industrial Average rose 0.5%. The MSCI Asia Pacific Index rose 0.7%. The MSCI Emerging Markets Index rose 0.7%.
The Bloomberg Dollar Spot Index fell 0.6%. The euro rose 1.4% to $1.0181. The Japanese yen fell 0.2% to 142.73 per dollar. The offshore yuan rose 0.4% to 6.9127 per dollar. The British pound rose 0.8% to $1.1684.
The yield on 10-year Treasuries declined two basis points to 3.29%. Germany’s 10-year yield was little changed at 1.69%. Britain’s 10-year yield was little changed at 3.09%. Brent crude rose 1% to $93.73 a barrel. Spot gold rose 0.6% to $1,726.40 an ounce.