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Equities gain as investors look for cooler inflation, Fed ‘pause’

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By Sinéad Carew and Elizabeth Howcroft

NEW YORK/LONDON (Reuters) – A global index of stocks was gaining ground on Monday while U.S. Treasury yields also edged higher ahead of key U.S. inflation readings and interest rate decisions later this week from the U.S. Federal Reserve and other central banks.

The U.S. dollar inched higher with the Fed widely expected to end its meeting on Wednesday without an interest rate hike, which would be the first time it has not hiked since January 2022.

However, crude oil futures sold off and touched their lowest levels since early May on concerns about rising global supplies and demand growth ahead of inflation data and the Fed meeting.

Investors will be monitoring U.S. Consumer Price Index (CPI) data, due to be released on Tuesday, and Producer Price Index data, due out Wednesday, for a reading of how well the Fed’s tightening cycle has managed to curb high inflation.

The benchmark S&P 500 last week rose 20% from its Oct. 12 finishing low, heralding the start of a new bull market, as defined by some market participants.

The equity index’s gains partly reflected expectations for a Fed tightening pause and for CPI and PPI to come in lower than the prior month, money managers and strategists said.

“Investors have been looking forward to a Fed pause in the rate hiking cycle since they started over a year ago. They’re trying to get out ahead of that,” said Burns McKinney, portfolio manager, NFJ Investment Group in Dallas.

In particular, McKinney saw out-performance on Monday of rate sensitive growth sectors such as technology, as bets that a low inflation readings would give the Fed the go-ahead to stop hiking rates, at least at this week’s meeting.

The Dow Jones Industrial Average rose 63.24 points, or 0.19%, to 33,940.02 while the S&P 500 gained 20.48 points, or 0.48%, to trade at 4,319.34 and the Nasdaq Composite climbed 134.50 points, or 1.01%, to 13,393.64.

MSCI’s gauge of stocks across the globe gained 0.36%, keeping it close to Friday’s session peak, which was its highest level since May 2022. The pan-European STOXX 600 index had earlier closed up 0.16%.

Traders are pricing in a roughly 74% chance of the Fed keeping rates steady, and a 26% chance of a 25-basis-point rate hike, according to the CME FedWatch tool.

While the Fed is expected to keep rates steady, surprise rate hikes by the Reserve Bank of Australia and the Bank of Canada last week have still kept investors alert to the idea of prolonged tightening cycles.

The Bank of Japan is due to deliver its rate decision on Friday and is expected to maintain its ultra-loose policy. Japan’s wholesale inflation slowed for the fifth month in a row in May, data showed.

In U.S. Treasuries, benchmark 10-year notes were up 2.6 basis points to 3.771%, from 3.745% late on Friday. The 30-year bond was last up 2.9 basis points to yield 3.9163%, from 3.887%. The 2-year note was last was down 0.4 basis points to yield 4.6002%, from 4.604%.

In currencies, the dollar index, which measures the greenback against a basket of major currencies, was 0.145%, with the euro up 0.02% to $1.0749.

The Japanese yen weakened 0.20% versus the greenback at 139.63 per dollar, while Sterling was last trading at $1.2499, down 0.56% on the day.

Oil prices fell ahead of the central bank policy meetings amid concerns about the prospects for Chinese demand and rising Russian supply.

U.S. crude settled down 4.35% at $67.12 per barrel and Brent settled at $71.84, down 3.94% on the day.

(Reporting by Sinéad Carew, Elizabeth Howcroft; Editing by Sharon Singleton, Chizu Nomiyama, Andrew Heavens and Nick Zieminski)

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