The Durability of the Stock Rally Is Fundamental for Traders

Bloomberg — Stocks may extend a rally Monday though questions abound about how long the bear market can be kept at bay amid high inflation, monetary tightening and the risk of a recession.

Futures rose for Japan, Australia and Hong Kong after a near-5% jump in global shares last week, the best such performance in a month, as investors snapped up beaten-down shares in defensive sectors like healthcare and technology.

Contracts for the S&P 500 and Nasdaq 100 slipped in the wake of a more than 3% surge in both indexes on Friday. A gauge of the dollar edged lower.

Treasury yields have retreated from June highs as growth worries take center stage, leaving the US 10-year yield at 3.13%. Whether that marks the end of the worst Treasury bear market of the modern era is another live debate.

Oil dropped to about $106 a barrel, sapped again by concerns about demand. Traders are also monitoring a summit of the Group of Seven leaders, who plan to commit to indefinite support for Ukraine in its defense against Russia’s invasion. The G-7 in addition is weighing a price cap on Russian oil.

Investors are parsing incoming data to work out if the highest inflation in a generation is close to cresting. In time, that could give policy makers latitude to ease up on sharp interest-rate hikes. A more troubling scenario is of lasting price pressures and tighter policy even as the global economy falters.

“There’s a feeling that things aren’t as bad as we thought they were going to be,” Carol Pepper, founder of Pepper International, said on Bloomberg Radio. She added “there’s a hope that perhaps we’ve oversold, perhaps there’s not going to be a recession.”

Federal Reserve Bank of San Francisco President Mary Daly said Friday she favors another 75 basis-point rate increase in July. Meanwhile, Fed Bank of St. Louis President James Bullard said fears of a US recession are overblown.

Elsewhere, Russia defaulted on its foreign-currency sovereign debt for the first time in a century, the culmination of ever-tougher Western sanctions that shut down payment routes.

The US, UK, Japan and Canada also plan to announce a ban on new gold imports from Russia during the G-7 summit. Prices for the precious metal rose.

In cryptocurrencies, Bitcoin and a range of other tokens weakened slightly but the largest virtual coin held above $21,000.

What to watch this week:

• China industrial profits, US durable goods, Monday
• San Francisco Fed President Mary Daly comments, Tuesday
• ECB President Christine Lagarde, Federal Reserve Chair Jerome Powell, BOE Governor Andrew Bailey and Cleveland Fed President Loretta Mester due to speak at ECB event, Wednesday
• US GDP, Wednesday
• St. Louis Fed President James Bullard speaks, Wednesday
• China PMI, Thursday
• US consumer income, PCE deflator, initial jobless claims, Thursday
• Eurozone CPI; US construction spending, ISM Manufacturing, Friday

Some of the main moves in markets:

Stocks

• S&P 500 futures fell 0.1% as of 8:30 a.m. in Tokyo. The S&P 500 rose 3.1%
• Nasdaq 100 futures fell 0.1%. The Nasdaq 100 rose 3.5%
• Nikkei 225 futures rose 1.3%
• Australia’s S&P/ASX 200 Index futures added 1.6%
• Hang Seng Index futures rose 0.9% earlier

Currencies

• The Bloomberg Dollar Spot Index fell 0.1%
• The euro was at $1.0572
• The Japanese yen was at 135.15 per dollar
• The offshore yuan was at 6.6860 per dollar

Bonds

• The yield on 10-year Treasuries advanced four basis points to 3.13%
• Australia’s 10-year bond yield rose one basis point to 3.73%

Commodities

• West Texas Intermediate crude fell 0.9% to $106.63 a barrel
• Gold was at $1,831.24 an ounce, up 0.2%