Futures on US stock indices rose on Monday. The European stock market also posted modest gains. Investors are bracing for the week full of important releases, including data on US consumer prices. The CPI report may confirm that the Fed's fight against inflation is not over yet. This will further reinforce fears that the regulator will continue with its aggressive rate hikes this spring, pushing them above the levels predicted in early February.
Contracts on the S&P 500 were up 0.3%, and futures on the tech-heavy Nasdaq 100 rose by 0.4%. The European Stoxx 600 index advanced thanks to the construction sector, while the energy and real estate sectors lagged behind the general trend.
US Treasuries extended losses, pushing the 10-year Treasury yield up by seven basis points. The US dollar index gained value.
Meanwhile, some economists believe that investors are overestimating potential interest rate increases this year, even though data on inflation and employment is likely to be quite red-hot this week. This fuels expectations that the Fed rate will reach a new peak of 5.2% in July, compared to less than 5% a month earlier. Obviously, these expectations will keep the stock market nervous.
Following numerous similar comments made by committee members last week, Philadelphia Federal Reserve President Patrick Harker said that he sees the Fed's policy rate going up to somewhere above 5%. Federal Reserve Bank of Minneapolis President Neel Kashkari noted that he expects the Fed's benchmark interest rate to head to about 5.4%.
Strategists at Morgan Stanley also argue that US equities are ripe for a sell-off after a premature rally in January this year amid a pause in Fed rate hikes.
The Japanese yen fell to 132 per dollar after Friday's steep gains and reports that Kazuo Ueda will be appointed as the Bank of Japan's next governor.
Investors initially interpreted this decision as a potentially hawkish choice.
Traders are also closely watching geopolitical developments after the Pentagon shot down another unidentified object over Michigan's Lake Huron. This flying object was the fourth to be downed over the US or Canada in eight days.
From a technical point of view, pressure on risky assets eased a little. The S&P 500 index may extend losses only if bulls fail to return above $4,091 today. In addition, bulls need to take control of $4116, which will break a bear market. In this case, the asset will gain strong upside momentum and probably advance to the $4,150 mark. Moreover, the index has a chance of touching the level of $4,184, but it is unlikely to rise above it. In the case of a downward movement and weak demand, buyers are likely to regain control of the market in the area of $4,091. Its breakout will push the trading instrument down to $4,064 and open the way to the $4,038 mark.