The Wage Survey Boosts Inflation Optimism

Despite a survey showing Americans have drastically reduced their expectations for household income growth, Wall Street equity indexes advanced one day before US consumer prices are released. 

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After posting its first weekly loss of 2023, the tech-heavy Nasdaq 100 rose 1.3% after adding 0.9% with every sector but energy showing gains.

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According to Trade Algo, a January Federal Reserve survey revealed little change in one-year inflation expectations. 

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Having a drop in household income for one month in nearly a decade is positive (for stocks), according to him, because it indicates wage disinflation expectations.

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As a result of the much stronger-than-expected January employment figures, two-year Treasury yields rose to a new high for the year.

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It has fueled bets that the US interest rate will reach 5.2% in July, up from less than 5% a month ago, as inflation and jobs data come in hot later this week. 

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Despite prominent strategists' warnings, equity indexes rose Monday. Investors should be buying bonds, according to Marko Kolanovic at JPMorgan Chase & Co., since "a recession is not priced into equity markets yet." Morgan Stanley’s Michael Wilson argued the market has prematurely priced in a pause in Fed rate hikes, causing US stocks to fall.

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A rise in US dollar liquidity, weak positioning, and short covering has boosted recent action, according to Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management, even though equity and credit markets have priced a soft landing based on peaking short-term rates and inflation. As a result of the extraordinary COVID reopening, the rosy view is also unsupported by other capital markets.

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Stocks rose Monday because investors saw the glass as half full, according to B. Riley's chief market strategist, Art Hogan. 

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According to him, the market is facing more tailwinds than headwinds at present. "There's a lot more going right than wrong and investors are reacting that way right now."

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The Stoxx 600 index rose on the back of construction, industrial goods, consumer, and energy stocks outperforming energy and real estate.

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For the first time in three months, India's inflation rate exceeded the central bank's target of 6.5%. In the wake of news reports that Kazuo Ueda would be chosen as the new governor of the Bank of Japan, the yen weakened past 132 per dollar Friday. A nomination for the new BOJ governor is expected to be announced on Tuesday by the Japanese government.

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US officials familiar with the matter said traders are also monitoring geopolitical developments after the Pentagon shot down an unidentified object over Michigan. It was the fourth time in eight days that a balloon or high-flying craft had been shot down over the US or Canada.