On the evening of the 12th, Beijing time, U.S. stocks opened higher on Monday. The U.S. dollar fell sharply after a hawkish signal from a senior European Central Bank official. The market will focus on the August CPI inflation data to be released this week to judge the Fed’s policy outlook.
The Dow rose 113.46 points, or 0.35%, to 32,265.17 points; the Nasdaq rose 60.11 points, or 0.50%, to 12,172.42 points; the S&P 500 rose 22.65 points, or 0.56%, to 4,090.01 points.
The U.S. dollar fell sharply on Monday, with the ICE U.S. Dollar Index (DXY) falling below 108, its lowest level since August 26. The dollar fell sharply, mainly related to the hawkish stance of the European Central Bank. Last week, the European Central Bank announced a sharp rate hike, suppressing the dollar’s recent uptrend.
On Sunday, Bundesbank President Joachim Nagel, a member of the ECB’s Governing Council, said that if the current trend in consumer prices persists, the ECB will have to take further clear-cut measures to raise interest rates.
European Central Bank policymakers reportedly believe they will have to raise key interest rates to 2 percent or more to curb record inflation in the euro zone.
Jane Foley, head of foreign exchange strategy at Rabobank, pointed out: “At the moment, everyone is long the dollar, and the European Central Bank’s sudden and aggressive monetary tightening speech over the weekend has led to wild market volatility.”
Upcoming U.S. inflation data is likely to fall, also prompting investors to stay away from the safe-haven dollar, although the dollar’s decline may be short-lived.“We are clearly in a minor correction in the dollar right now, mainly driven by a recovery in risk sentiment and some unwinding of long dollar positions,” said Francesco Pesole, currency strategist at ING Groep NV.
US stocks recorded gains last week, the Dow rose 2.6%, the S&P 500 rose 3.7%, and the Nasdaq rose 4.1%. All three major stock indexes got rid of the previous three consecutive trading days.
Stocks continued to fluctuate ahead of the Federal Reserve’s September meeting. The central bank is widely expected to raise interest rates by 0.75 percentage points for the third time in a row to combat high inflation. The Fed will hold its next monetary policy meeting on September 20-21.
Investors have been looking for signs that future rate hikes may be smaller as inflation cools. Federal Reserve Chairman Jerome Powell reiterated last week that he is “firmly committed” to lowering inflation.
“We think the post-pressure rally in equities is in line with the recent U.S. dollar as the market believes central bank hawkishness has peaked in the near term and markets are relatively defensive,” Citi strategist Ebrahim Rahbari said in a note to clients. The broad corrective trend of ‘ will continue into this week.”
Investors on Tuesday will face the consumer price index (CPI) report for August, which will be one of the last inflation data to be seen before the Federal Reserve’s September monetary policy meeting.
U.S. gasoline prices are likely to rise again later this year, Treasury Secretary Janet Yellen said on Sunday. “The risk is there, and we’re working on a price cap to try to address that risk,” she said.
The market currently expects the overall US CPI growth to slow to 8%, while the core CPI will accelerate growth. Nearly all traders are expecting a third major rate hike from the Fed next week, following two 75-basis-point hikes.
Fed Governor Waller said he was leaning toward another big rate hike at this month’s meeting, suggesting 75 basis points would be appropriate. St. Louis Fed President Bullard made a similar point.
Reports on retail sales and industrial output will be released on Thursday.
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