US two-year yield lowest since May after PPI: Markets wrap

(Bloomberg) — Two-year Treasury yields fell to their lowest since May as an unexpected decline in producer prices reinforced this year's Federal Reserve rate cuts.

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While traders continue to expect the first Fed rate cut in May, they now see a slightly greater chance of a March cut. The data came a day after a warmer-than-expected reading in consumer prices — underscoring the bumpy road officials face in bringing inflation back to the 2% target. Wall Street extracted bank results as corporate America's earnings season kicked off. Geopolitical risks also caught investors' attention.

“We suspect the March cut will do little to prevent the market from pressuring trading, and the action will not fade into the weekend,” said Ben Jeffrey at BMO Capital Markets. “Let's not forget the geopolitical escalations in the Red Sea and the implied headline risk – relevant from a plane to the quality and supply-side inflation outlook.”

Two-year U.S. yields fell nine basis points to 4.15%. The S&P 500 was volatile, poised for another week's advance. Oil jumped as the United States and its allies launched airstrikes against Houthi rebels in Yemen in response to attacks on ships in the Red Sea. Gold rose.

For Chris Larkin at E*Trade from Morgan Stanley, it might be a bit of a stretch to describe today's cool numbers as a “surprise,” given that producer prices are already retreating faster than consumer inflation.

“The market tends to run with any data that fits the 'falling inflation means lower interest rates' narrative, but we'll see if that narrative plays out against the reality of a market that has already priced in multiple rate cuts,” he said. Mentioned.

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While such moves from central banks in the euro zone and other regions see increased risk, investors have lowered expectations of a hawkish surprise from the Fed this year, Bank of America's latest monthly sentiment survey showed.

In the bank's latest poll, the number of respondents who expected a worse move in policy than market prices fell to 33%, down from 51% in December. Despite the slide, “the Fed is still seen as more of a hawkish surprise than others,” BofA strategists including Ralph Breuser wrote in a note.

Company Highlights:

  • JP Morgan Chase & Co. Bank of America ended its most profitable year in history with its seventh consecutive quarter of net interest income and a surprise forecast that the boom could continue this year.

  • Wells Fargo & Co.'s fourth-quarter expenses came in higher than expected, driven by breakup charges and an increase in the bank's contribution to replenish the Federal Deposit Insurance Corp.'s core funding after last year's bank failures.

  • Citigroup Inc. Wall Street said it would eliminate 20,000 roles in a move that will save $2.5 billion as part of Chief Executive Officer Jane Fraser's quest to boost the company's lagging revenue.

  • Bank of America Corp.'s earnings fell short of expectations in the fourth quarter as the bank's many charges cut into profits and the company's fixed-income traders reported a surprise drop in earnings.

  • BlackRock Inc. Clients jumped into its long-term funds in the fourth quarter, adding $63 billion to ETFs and other products, a sign investors put money to work as stock and bond markets rallied.

  • Delta Air Lines Inc. It retreated from its 2024 profit target as higher costs countered gains from a recovery in international travel.

  • The U.S. Federal Aviation Administration said it would increase oversight of Boeing Co.'s production and manufacturing operations, a day after opening a formal investigation into the planemaker's 737 Max 9 jet crash last week.

  • UnitedHealth Group Inc. Fourth-quarter health care spending was reported to be higher than Wall Street analysts had expected.

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Some key movements in the markets:

Shares

  • The S&P 500 was down 0.1% at 11:49 a.m. New York time

  • The Nasdaq 100 fell 0.1%

  • The Dow Jones industrial average fell 0.6%

  • The Stoxx Europe 600 rose 0.8%

  • The MSCI world index rose 0.2%

Coins

  • The Bloomberg Dollar Spot Index was little changed

  • The euro was little changed at $1.0962

  • The British pound fell 0.1% to $1.2746

  • The Japanese yen rose 0.3% to 144.86 per dollar

Cryptocurrencies

  • Bitcoin fell 5.2% to $43,765.26

  • Ether rose 1.9% to $2,652.49

Bonds

  • The yield on 10-year Treasuries fell a basis point to 3.95%

  • Germany's 10-year yield fell five basis points to 2.18%

  • Britain's 10-year yield fell five basis points to 3.79%

materials

  • West Texas Intermediate crude rose 1.3% to $72.94 a barrel.

  • Spot gold rose 1.1% to $2,051.36 an ounce

This story was produced with the help of Bloomberg Automation.

–With assistance from Cicely Kutscher.

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