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U.S. stocks gain as yields climb on inflation data

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U.S. stocks gain as yields climb on inflation data

U.S. stocks continued a rebound from a correction, while treasury yields rose toward a four-year high as economic data supported expectations that the Federal Reserve will maintain a gradual approach to raising interest rates.
The S&P 500 Index climbed for a fourth day as banks and tech shares rallied. Futures on the gauge had tumbled on concern the Fed would quicken its pace of tightening following data that showed faster-than-forecast inflation last month. Those fears receded as investors digested a separate report showing weak retail sales that raised questions about the strength of the economy. Gold rallied and the dollar slumped.
According to Bloomberg, signs of an inflation pickup have roiled financial markets this month, putting stocks and bonds in a tug-of-war, with sinking equities sparking demand for the haven of treasuries, mitigating the selloff in fixed income. Investors must now judge whether the acceleration will force the Fed to raise rates faster than the market currently anticipates or if the retail sales signal a potential crack in economic fundamentals.
“We’re trying to weigh how much each data point is going to matter,” said Kristina Hooper, the chief global market strategist at Invesco Limited. “It’s about building a case for the FOMC.”
New Fed Chairman Jerome Powell suggested Tuesday that the Federal Open Market Committee would forge ahead with gradual tightening even as it keeps an eye on financial-system risks following the recent equity rout.
Stocks tumbled into a correction last week and yields pushed higher on the heels of a jobs report that signaled a tightening labor market. Stocks and bonds have been in a tug-of-war for over a week, with sinking equities sparking demand for the haven of treasuries, mitigating the selloff in fixed income.
In Europe, stocks advanced as investors traded on earnings from companies including Credit Suisse Group AG. The yen’s rise to a 15-month high weighed on Japan’s Topix index, while shares in Seoul, Hong Kong and Shanghai gained before a weeklong Lunar New Year holiday.
Pimco’s Mihir Worah and Stephen Parker of JPMorgan private bank discuss the January CPI data and the market impact.
The S&P 500 rose 0.4 percent in New York. The Stoxx Europe 600 Index increased 1.2 per cent. The MSCI Asia Pacific Index rose 0.7 per cent. The Bloomberg Dollar Spot Index fell 0.4 per cent. The euro rose 0.4 per cent to $1.2397. The Japanese yen increased 0.9 per cent to 106.88 per dollar. South Africa’s rand jumped 1.8 per cent to 11.7487 per dollar.
The yield on 10-year Treasuries rose five basis points to 2.88 per cent. Germany’s 10-year yield was little changed at 0.74 per cent.
West Texas Intermediate was little changed at $59.17 a barrel. Gold rose 1.4 per cent to $1,347.90 an ounce for the biggest gain since August.

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