Shares rise, bond yields dip ahead of U.S. inflation data

By Sinéad Carew and Amanda Cooper

NEW YORK/LONDON (Reuters) – Wall Street equity indexes closed up more than 1% on Monday and U.S. Treasury yields slipped as investors bet that key U.S. economic data due out on Tuesday would show inflation is easing.

The U.S. Bureau of Labor Statistics is scheduled on Tuesday to release January’s Consumer Price Index (CPI) data, which is expected to show how effective Federal Reserve policy tightening has been in taming inflation so far.

U.S. equities have gained ground so far this year, as investors put their bets on the prospect of slowing inflation allowing the Federal Reserve to slow or pause rate hikes.

“Investors are positioning themselves ahead of what they believe will be a favorable inflation report which could trigger an upward move in equity prices,” said Sam Stovall, chief investment strategist at CFRA Research in New York.

With a host of economic reports due out this week including retail sales and industrial production, Brian Klimke, investment director at Cetera Investment Management LLC, said he expects more volatility as investors reconcile the data with expectations around what the Fed might do.

The Dow Jones Industrial Average rose 376.66 points, or 1.11%, to 34,245.93, the S&P 500 gained 46.83 points, or 1.14%, to 4,137.29 and the Nasdaq Composite added 173.67 points, or 1.48%, to 11,891.79.

The pan-European STOXX 600 index had closed up 0.90%. Emerging market stocks rose 0.07%.

The MSCI All-World index, which includes stocks across the globe, gained 0.88% on Monday. After rising more than 8% in the first five weeks of 2023, the global index fell 1.3% last week.

In U.S. Treasuries, benchmark 10-year yields turned lower after earlier hitting their highest level since Jan. 5.

Benchmark 10-year notes were down 3.4 basis points to 3.709%, from 3.743% late on Thursday. The 30-year bond was last down 4.1 basis points to yield 3.7853%, from 3.826%. The 2-year note was last was up 1.1 basis points to yield 4.5238%, from 4.513%.

After rising earlier, the dollar was lower against a basket of major currencies, recently down 0.319%, with the euro up 0.44% to $1.0722.

However, the greenback touched its highest against the rate-sensitive Japanese yen since Jan. 6 on bets the Fed would keep monetary policy tight for longer.

“The market doesn’t want to be short dollar/yen ahead of CPI tomorrow,” said Marc Chandler, chief market strategist at Bannockburn Forex in New York.

Also sources had said on Friday that former Bank of Japan board member Kazuo Ueda is set to become the next governor. In an interview the same day, Ueda said it was appropriate for the BOJ to maintain its current ultra-easy policy.

The Japanese yen weakened 0.63% versus the greenback at 132.27 per dollar, while Sterling was last trading at $1.2136, up 0.65% on the day.

Oil prices rebounded from early losses to settle slightly higher as investors weighed Russian plans to cut crude production and short-term demand concerns ahead of U.S. inflation data.

U.S. crude settled up 0.5% at $80.14 per barrel and Brent finished at $86.61, up 0.25% for the day.

Spot gold dropped 0.6% to $1,853.82 an ounce. U.S. gold futures fell 0.66% to $1,850.50 an ounce.

(Reporting by Sinéad Carew, Gertrude Chavez-Dreyfuss, Amanda Cooper, Wayne Cole, Editing by Mark Potter, Will Dunham, David Holmes and Deepa Babington)