(Bloomberg) — US equities extended the week’s rally after a key measure of US inflation cooled last month by more than expected, suggesting the Federal Reserve may be close to ending its rate-hiking campaign. The dollar pared an advance.
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Excluding food and energy, the Fed’s preferred inflation gauge — the personal consumption expenditures price index — rose 0.3% in February, slightly below the median estimate of 0.4% in a Bloomberg survey of economists. Likewise, the PCE price index was up 5% from a year earlier, a deceleration from January but far higher than the Fed’s 2% goal.
The S&P 500 rose 0.8%, while the tech-heavy Nasdaq 100 gained 0.8%, with the underlying index set for its strongest quarter since 2020.
“Overall, it was a round of data consistent with the peak inflation narrative but also with the Fed’s insistence that there remains work to be done to reestablish price stability,” Ian Lyngen of BMO Capital Markets wrote in a note.
If equities “end the week in the green, that’s a big deal considering how almost disastrous the rest of the month was,” said Craig Erlam, a senior market analyst at Oanda. “Confidence is easily shattered and difficult to restore and a positive end to the week would send a strong signal that investors are feeling reassured by the lack of turmoil recently.”
Treasury yields drift Friday at the end of a quarter of wild swings. Investors have struggled to adjust for banking collapses and the shifting outlook for interest rates amid high inflation and threats to economic growth. The two-year yield was around 4.10% Friday while the 10-year maturity was about 3.51%.
Traders remain on guard for any choppiness amid quarter-end rebalancing from pension funds and options hedging activity. A gauge of global shares is headed for a second-straight quarterly gain as technology shares have led gains in the US. However, analysts caution only a small percentage of stocks actually account for the US stock rally.
“Extremely narrow rallies are not healthy ones at all, so it is going to be essential for the bulls to see more groups participate in the rally going forward,” Matt Maley, chief market strategist at Miller Tabak + Co., wrote.” If they don’t, it will only be a matter of time before a correction in the big cap tech names turns this nice rally into an ugly decline.”
In Europe, equities rallied as euro-area inflation plunged by the most on record. However, a new high for underlying price gains highlighted the tricky task facing the European Central Bank.
Elsewhere, oil headed for a weekly surge of more than 7% amid ongoing disruption to Iraqi exports. Gold was little changed. Bitcoin was set to end its best quarter since March 2021 with a gain of about 70%. And Digital World Acquisition Corp., the blank-check firm taking Donald Trump’s media company public, rallied after he became the first former president to be indicted.
Key events this week:
ECB President Christine Lagarde speaks, Friday
New York Fed President John Williams speaks, Friday
Some of the main moves in markets:
The S&P 500 rose 0.8% as of 11:31 a.m. New York time
The Nasdaq 100 rose 0.8%
The Dow Jones Industrial Average rose 0.7%
The Stoxx Europe 600 rose 0.7%
The MSCI World index rose 0.7%
The Bloomberg Dollar Spot Index rose 0.1%
The euro fell 0.4% to $1.0863
The British pound fell 0.1% to $1.2371
The Japanese yen fell 0.2% to 132.90 per dollar
Bitcoin rose 0.9% to $28,403.1
Ether rose 1.9% to $1,829.05
The yield on 10-year Treasuries declined four basis points to 3.51%
Germany’s 10-year yield declined seven basis points to 2.30%
Britain’s 10-year yield declined two basis points to 3.50%
This story was produced with the assistance of Bloomberg Automation.
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