U.S. Stock Futures Rise as Inflation Nerves Settle: Markets Wrap

U.S. futures rose amid optimism that companies can weather the supply-side crisis and central banks will keep fueling stock rallies. Treasuries were steady. 

S&P 500 futures climbed with Nasdaq 100 contracts, suggesting further gains are in store after the S&P 500 snapped its longest winning streak since August 2020. In premarket trading, Tesla Inc. fell 2.5% in the premarket after Elon Musk raised the idea of selling more of his shares in online sparring with U.S. Senator Bernie Sanders. Blank-check company Gores Guggenheim rose as much as 25% as the stock was touted among retail traders.

Strong corporate earnings are helping drive investors into stocks and overshadowing fears about the hottest U.S. inflation print in three decades. The sentiment found its way into bond markets, which calmed following a period of pronounced swings on bets policy makers will move to curb price pressures with faster-than-expected rate increases.

“Central banks may be becoming less accommodative, but they will be anxious not to derail the recovery or financial markets,” according to Cesar Perez Ruiz, chief investment officer at Pictet Wealth Management and head of asset allocation Christophe Donay. “Q3 results have offered further proof of corporate strength.”

Inflationary headwinds may become a bigger force against U.S. stocks next year, according to Morgan Stanley strategists who prefer peers in Europe and Japan. They forecast the S&P 500 will end 2022 at 4,400 — some 6% below current levels. For bonds, they expect 10-year yields to rise to 2.10% by the end of next year on improving growth and higher real rates, up from 1.54% on Monday.

“One reason we like equities in Europe and Japan is that we think inflationary challenges there are much less daunting than elsewhere,” strategists led by Andrew Sheets wrote Sunday. They also cited “more reasonable valuations, limited central bank tightening and less risk from higher taxes” vis-a-vis the U.S.

In commodities, oil fell as traders wait to see what President Joe Biden might do to alleviate gasoline prices amid growing criticism about the impact of rising costs. 

The Stoxx 600 Europe Index extended its longest weekly winning streak since mid-April after rising for six weeks. Retailers and travel firms led gains.

Shares fluctuated in Hong Kong and dipped in China, where traders weighed stronger-than-expected retail sales and industrial output, central bank liquidity support and a drop in home prices. Beijing’s crackdown on real-estate leverage is among the headwinds for the world’s second-largest economy. 

Biden will meet virtually with Chinese President Xi Jinping on Monday. Tensions between the two countries have been building over issues including Taiwan and restrictions on sales of U.S. technology to China. 

What to watch this week:

• President Joe Biden, President Xi Jinping to meet virtually. Monday
• Fed Presidents Thomas Barkin, Esther George, Raphael Bostic, Patrick Harker speak at various events. Tuesday
• Reserve Bank of Australia Governor Philip Lowe delivers a speech. Tuesday
• RBA minutes of November meeting. Tuesday
• U.S. retail sales are poised to show an acceleration in October as consumer demand remains resilient. Tuesday
• Euro zone CPI. Wednesday
• Conference Board U.S. leading index, initial jobless claims. Thursday
• Fed’s Richard Clarida and Mary Daly speak at Asia Economic Policy Conference. Friday

For more market analysis, read our MLIV blog.

Stocks

• Futures on the S&P 500 rose 0.4% as of 8:17 a.m. New York time
• Futures on the Nasdaq 100 rose 0.4%
• Futures on the Dow Jones Industrial Average rose 0.4%
• The Stoxx Europe 600 rose 0.2%
• The MSCI World index rose 0.1%

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro was little changed at $1.1446
• The British pound rose 0.2% to $1.3441
• The Japanese yen was little changed at 113.85 per dollar

Bonds

• The yield on 10-year Treasuries declined one basis point to 1.55%
• Germany’s 10-year yield was little changed at -0.27%
• Britain’s 10-year yield declined one basis point to 0.90%

Commodities

• West Texas Intermediate crude fell 1.2% to $79.83 a barrel
• Gold futures were little changed

Source: Bloomberg