European equities and US futures continued to rise, while the dollar eased slightly as traders bet that inflation is nearing a peak, even as politicians keep calling for an interest rate hike.
The Stoxx Europe 600 index rose for the third day in a row, while automakers and banks were in the lead, while all major regional indexes remained in positive territory. S&P 500 and Nasdaq 100 futures edged higher, suggesting US equities could add to last week’s gains. Treasury yields have been stable. Crude oil leveled the earlier fall.
The dollar indicator fell for the second day, as all G-10 participants rose in anticipation of the yen. The euro jumped the most in six months after the President of the Bundesbank decided to further raise interest rates in Europe. Swedish krona up 1.5%
Traders and investors are focused on US inflation data for August, which is due on Tuesday and is expected. Market participants are confident of another big Fed raise next week after two 75 basis point hikes.
“A downside surprise in US CPI is likely more of a concern and that could see the dollar weakening further,” said Charu Chanana, a strategist at Saxo Capital Markets. “That could potentially be a risk to watch.”
The recovery of risky assets and the fall of the dollar are at odds with the increase in interest rates by the Fed. Recession fears have sent stocks near oversold levels. The Levkovich Index, a sentiment indicator, fell to -16 last week, a step away from the -17 level that defines panic. Bullish-bearish indicator of Bank of America Corp. dipped to the “maximum bearish” level, which is often seen as the opposite signal to buy.
The head of the Fed supports an increase of 75 basis points, which is also agreed by the president of the Federal Reserve Bank of St. Louis, James Bullard.
Markets must also accept the fallout from Ukraine’s counter-offensive after its troops made significant advances in the Kharkiv region, exploiting the Russian defense retreat.
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