Treasuries Fall After Factory Data as Fed in Focus: Markets Wrap

(Bloomberg) — The world’s biggest bond market extended losses after solid US factory data reinforced speculation the Federal Reserve will be in no rush to cut interest rates.

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Treasuries fell across the US curve — with 10-year yields climbing over 10 basis points — after data showed manufacturing unexpectedly expanded for the first time since September 2022 — while input costs climbed. Equities edged lower after the S&P 500 notched its fifth-straight month of gains — spurring speculation of a consolidation or pullback.

“Overall, it was a strong showing from the manufacturing sector that has contributed to the weak start to the week for the Treasury market,” said Ian Lyngen at BMO Capital Markets. “Yields were already higher on the day ahead of the ISM release in a move that suggests a flow specific or deal-related move as opposed to simply reflecting the data.”

Later this week, a report is expected to show employment gains continued in March while wage growth moderated, indicating the nation’s labor market is poised to keep stoking the economy with limited risk of an inflation resurgence. Jerome Powell — who is set to speak Wednesday — said Friday policymakers are awaiting more evidence prices are contained.

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The S&P 500 hovered near 5,240 after notching its 22nd record this year. The tech-heavy Nasdaq 100 outperformed, with Alphabet Inc. and Nvidia Corp. leading gains in megacaps. Tesla Inc. and Apple Inc. dropped. Gold rose to a record high.

“If you did not like what Powell said on Friday, you have a chance to watch him in Prime Time, with a speech directly on the outlook of the US economy,” said Andrew Brenner at NatAlliance Securities. And with the deluge of Fed speakers this week, “expect to be jerked left and right based on what is said.”

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Fed Chair Powell’s comments last Friday remained consistent with the “run hot” scenario that is poised to keep pushing stocks higher, according to Chris Senyek at Wolfe Research.

“That said, trading is likely to get much choppier following an incredibly strong run and little fear baked into stock prices,” he noted.

Gains in the US stock market last quarter boosted confidence among equity investors to the highest in nearly two years, but sentiment is still far from the “euphoric” levels that typically signal a top, according to Bank of America Corp. strategists.

BofA’s Sell-Side Indicator edged up 22 basis points in March to 55%, the highest level since May 2022, a team led by head of US equity and quantitative strategy Savita Subramanian said on Monday in note to clients. Whenever the indicator was same level or lower than that average recommendation, returns were positive 94% of the time over the subsequent 12 months.

“Equity gains likely bolstered confidence,” she wrote, with the S&P 500 Index’s strongest first quarter since 2019 at 10.6% gain.

The rally in the S&P 500 has expanded valuations across the board, with an equal-weighted version of the benchmark gauge — where the likes of Nvidia Corp. carry the same heft as Dollar Tree Inc. — topping 17 times earnings. Although that ranks in the 92nd percentile of observations since 1985, Goldman Sachs Group Inc. found that previous periods of similar overvaluation in the benchmark have usually been preceded by further gains.

“Overvaluation alone has not historically been cause for imminent concern,” a team led by Ryan Hammond told clients in a note last week. “Periods of overvaluation often persist for nearly a year and are typically benign if the subsequent economic growth environment is healthy.”

Investors who just booked profits from one of the strongest first quarters for the S&P 500 in decades are preparing for what comes next — whether that’s stocks climbing higher or crashing back to earth.

With the stock market sitting at an all-time high as the second quarter begins, the tells for what traders are thinking lie in the options market. Demand for put options that pay off if there’s a minor correction is around the lowest in years. Meanwhile, traders are quietly picking up tail-risk hedges: instruments that do little if there’s a slight downdraft but offer protection if stocks swing wildly.

Corporate Highlights:

• Micron Technology Inc. climbed after Bank of America Corp. raised its price target on the memory-focused chipmaker to $144 from $120.

• United Parcel Service Inc. said it has been awarded a significant air cargo contract by the United Stated Postal Service and will become the USPS’s primary air cargo provider.

• A federal court approved the 3M Co.’s offer of at least $10 billion to settle PFAS claims of roughly 12,000 public water systems across the US.

• Advent International is in advanced talks to buy Canadian payments processor Nuvei Corp., people familiar with the matter said, in a further sign that confidence is returning among private equity dealmakers.

Key events this week:

• Eurozone S&P Global Manufacturing PMI, Tuesday

• US factory orders, light vehicle sales, JOLTS job openings, Tuesday

• Fed’s John Williams, Loretta Mester, Mary Daly and Michelle Bowman speak, Tuesday

• St. Louis Fed President Alberto Musalem takes office, Tuesday. He replaces James Bullard.

• China Caixin services PMI, Wednesday

• Eurozone CPI, unemployment, Wednesday

• Japan services PMI, Wednesday

• US ADP employment, ISM Services, Wednesday

• NATO foreign ministers meet in Brussels through Thursday, to mark the 75th anniversary of the alliance, Wednesday. The NATO-Ukraine Council also meets

• Fed Chair Jerome Powell speaks, Wednesday

• Fed’s Austan Goolsbee, Adriana Kugler and Michelle Bowman also speak, Wednesday

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

• US initial jobless claims, Challenger job cuts, Thursday

• Fed’s Loretta Mester, Alberto Musalem, Thomas Barkin, Patrick Harker, Austan Goolsbee speak, Thursday

• European Central Bank publishes account of March rate decision, Thursday

• Eurozone retail sales, Friday

• US unemployment, nonfarm payrolls, Friday

• Fed’s Michelle Bowman, Thomas Barkin and Lorie Logan speak, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 fell 0.1% as of 10:33 a.m. New York time

• The Nasdaq 100 rose 0.3%

• The Dow Jones Industrial Average fell 0.6%

• The MSCI World index fell 0.3%

Currencies

• The Bloomberg Dollar Spot Index rose 0.2%

• The euro fell 0.4% to $1.0747

• The British pound fell 0.4% to $1.2573

• The Japanese yen fell 0.2% to 151.71 per dollar

Cryptocurrencies

• Bitcoin fell 2.1% to $69,335.93

• Ether fell 2.9% to $3,527.33

Bonds

• The yield on 10-year Treasuries advanced 11 basis points to 4.31%

• Germany’s 10-year yield was little changed at 2.30%

• Britain’s 10-year yield was little changed at 3.93%

Commodities

• West Texas Intermediate crude rose 0.7% to $83.77 a barrel

• Spot gold rose 0.2% to $2,234.99 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Alexandra Semenova, Carly Wanna and Natalia Kniazhevich.

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