US Yields Fall as Powell Cites Disinflation Signs: Markets Wrap

(Bloomberg) — The world’s biggest bond market rose despite a solid labor-market reading, with traders looking at prospects for Federal Reserve rate cuts after Jerome Powell cited signals the US is back on a disinflationary path.

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Just a few days ahead of the US payrolls report, data showed job openings unexpectedly rose, interrupting a months-long downtrend that underscored a gradual slowdown in labor demand. Powell said there’s been a “substantial” move toward better balance in the labor market between the supply of and demand for workers. He continued to describe the job market as strong, but said it is cooling off appropriately so.

“Powell’s comments have been more relevant to the direction of yields as the Chair observed there has been ‘quite a bit of progress’ on the inflation front in the US,” said Ian Lyngen at BMO Capital Markets. “Moreover, the risks are being characterized as more balanced as opposed to skewed toward the inflation side of the Fed’s dual mandate.”

Treasury 10-year yields declined two basis points to 4.44%. The S&P 500 hovered near 5,470. Tesla Inc. led gains in megacaps, rallying almost 10% after its deliveries beat estimates.

The S&P 500 will rally to new peaks by the end of the year as economic strength outweighs market risks, according to RBC Capital Markets strategist Lori Calvasina.

She raised her year-end target to 5,700 from 5,300 — among the highest on the street. That implies a gain of about 4% from the most recent close. Still, Calvasina noted risks and referred to her target hike as a “nervous raise.” The market has “gotten a bit ahead of itself” in terms of valuations and some sentiment metrics.

Deutsche Bank AG strategists expect US earnings to rise by an above-average 13% for the second quarter, driven by megacap growth and tech stocks. The outlook is for a sixth straight quarter of above average beats. However, the team led by Binky Chadha expects market reaction to be subdued as stocks have rallied in the run-up to the season.

The record-setting surge in US equities, driven chiefly by American technology behemoths, is once again igniting comparisons to prior boom-and bust cycles on Wall Street. But parallels to the dot-com era and stock-market frenzies of the past are so far exaggerated, if history is any guide.

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While the S&P 500 has posted an 85% advance since 2019, even despite some drawdowns over the period, major bull runs of the 20th century dwarf that return. The US stock benchmark soared 220% in the last five years of the Internet bubble at the turn of the century, according to Bloomberg Intelligence data, and 238% in the same-period stretch of the Roaring Twenties.

Bank of America Corp. clients rushed out of US equities for a second consecutive week, with outflows driven by hedge funds as institutional and retail investors were net buyers.

Clients offloaded $3.1 billion of US stocks in five-day period ended June 28, quantitative strategists led by Jill Carey Hall said.

Corporate Highlights:

• Lennar Corp. and D.R. Horton Inc. were downgraded by Citigroup Inc. analyst Anthony Pettinari on concerns the housing market could stay “sluggish” in the second half of the year.

• Novo Nordisk A/S and Eli Lilly & Co. fell after US President Joe Biden demanded price cuts on their blockbuster weight loss and diabetes drugs.

• Robinhood Markets Inc. is considering offering cryptocurrency futures in the US and Europe in the coming months, according to people familiar with the commission-free investing and trading platform’s plan.

• Moderna Inc. secured nearly $200 million from the US government to speed development of an mRNA vaccine for pandemic influenza as a dangerous strain of bird flu sweeps through the nation’s dairy farms, fueling concern about a budding health crisis.

• Northern Data AG is speaking with potential advisers about a US initial public offering of its combined artificial intelligence cloud computing and data center businesses, according to people familiar with the matter.

• BYD Co. will work with French car-leasing firm Ayvens SA to expand its presence in Europe, in a deal that gives the Chinese electric-car maker better access to the region’s lucrative corporate market.

Key events this week:

• China Caixin services PMI, Wednesday

• Eurozone S&P Global Eurozone Services PMI, PPI, Wednesday

• US Fed minutes, ADP employment, ISM Services, factory orders, initial jobless claims, durable goods, Wednesday

• Fed’s John Williams speaks, Wednesday

• UK general election, Thursday

• US Independence Day holiday, Thursday

• Eurozone retail sales, Friday

• US jobs report, Friday

• Fed’s John Williams speaks, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 was little changed as of 12:01 p.m. New York time

• The Nasdaq 100 rose 0.2%

• The Dow Jones Industrial Average was little changed

• The Stoxx Europe 600 fell 0.4%

• The MSCI World Index was little changed

Currencies

• The Bloomberg Dollar Spot Index was little changed

• The euro was little changed at $1.0735

• The British pound rose 0.2% to $1.2675

• The Japanese yen was little changed at 161.55 per dollar

Cryptocurrencies

• Bitcoin fell 2.2% to $61,822.3

• Ether fell 1.5% to $3,410.45

Bonds

• The yield on 10-year Treasuries declined two basis points to 4.44%

• Germany’s 10-year yield was little changed at 2.60%

• Britain’s 10-year yield declined three basis points to 4.25%

Commodities

• West Texas Intermediate crude fell 0.3% to $83.13 a barrel

• Spot gold fell 0.3% to $2,324.54 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Robert Brand, Julien Ponthus, Alexandra Semenova and Aya Wagatsuma.

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