Stock Market Today: Stocks mixed amid major Fed interest-rate reset, China surge

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U.S. equity futures were mixed in early Tuesday trading, while Treasury yields steadied and the dollar consolidated gains against its global peers, as investors continue to reprice Federal Reserve interest rate forecasts amid the surprising resilience of the domestic economy. 

Stocks tumbled on Monday, falling for the first session in three, amid one of the biggest two-day moves in the bond market in more than a decade following hawkish comments from Fed Chairman Jerome Powell and data suggesting a revival of inflation pressures in the services sector. 

Powell, who has effectively wiped away the chances of a March rate cut, told CBS’s “60 Minutes” that the Fed needs to “gain a little more confidence” that inflation is moving toward the central bank’s 2% target. 

That message was cemented further when January ISM data showed the biggest month-on-month gain in the key inflation reading since 2012, with overall activity in the economy’s most-important sector surging firmly past Street forecasts. 

The readings triggered a massive move higher in Treasury yields, which when added to Friday’s move following the blowout January jobs report, added up to the biggest two-day surge in yields since the summer of 2011. 

Benchmark 10-year notes were last trading at 4.162%, while 2-year notes were pegged at 4.456% in early New York dealing ahead of a $54 billion auction of 3-year notes later in the session, the first of three sales this week that will see the Treasury raise around $121 billion.

“Powell’s emphasis on confirming the trajectory of inflation aligns with the central bank’s dual mandate of price stability and maximum sustainable employment,” said Nigel Green of London-based financial advisory deVere Group. 

“The bond market’s response, with yields rising, reflects the shift of expectations regarding the inflationary environment and the Fed’s response.”

Traders are now pricing in just a 16.5% chance of a March rate cut, according to the CME Group’s FedWatch tool, with the odds of a May reduction now pegged at around 60%. The bulk of the bets suggest the Fed will lower its benchmark rate, which currently stands at 5.25% to 5.5%, by a quarter percentage point.

The U.S. dollar index, meanwhile, was marked 0.1% higher against a basket of its global peers and changing hands at 104.560, the highest since early November, as traders adjust to the Fed’s “higher for longer” rate message.

In stocks, investors will likely key on earnings from Eli Lilly  (LLY) – Get Free Report prior to the start of trading, as well as Ford Motor  (F) – Get Free Report after the closing bell, in a muted week for blue-chip reports and headline economic data.

Eli Lilly shares, in fact, jumped 3.3% after the group posted better-than-expected profits, with a roust near-term outlook, thanks to a surge in demand for its weight loss treatments.

Around 80% of the 230 S&P 500 companies have reported so far this earnings season, according to LSEG data, with collective profits estimated to rise 7.8% from a year earlier to a share-weighted $468.2 billion.

On Wall Street, futures tied to the S&P 500 are indicating a 4 point opening bell decline while those linked to the Dow Jones Industrial Average suggest a 35 point pullback. 

The Nasdaq, meanwhile, is looking at a 2 point bump thanks in part to more AI-related bullishness following a better-than-expected fourth-quarter earnings report from Palantir  (PLTR) – Get Free Report and further gains from Nvidia  (NVDA) – Get Free Report and Advanced Micro Devices  (AMD) – Get Free Report.

Overnight in Asia, reports that China President Xi Jinping will be briefed on markets and the economy, with benchmark stocks at the lowest in five years, sent shares soaring in overnight dealing.

Regulators also placed curbs on short-selling ahead of the Lunar New Year break, set to begin on Friday. That helped the benchmark CSI 300 rise 3.48%, its best gain in nearly 2 years, and the Hang Seng surge 3.9% by the close of trading.

In Europe, the regionwide Stoxx 600 was marked 0.06% higher in early Frankfurt trading. Britain’s FTSE 100 added 0.51% in London amid a 5.8% surge for BP plc after the oil major posted better-than-expected fourth-quarter profit and boosted its share-buyback plans.

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