NEW YORK LONDON -- The S&P 500 opened up more than 1 percent while the US Treasury yields fell and the dollar was little changed on Wednesday as investors bet that upcoming US inflation data would allow the Federal Reserve to slow the pace of interest rate hikes.
Longer-dated treasury yields fell a day before the release of December's US consumer price index data, as investors bet that inflation is on a downward path that could lead to the Fed reducing rate hikes or cutting rates.
The euro was close to a seven-month high against the dollar, but held within a narrow range as traders avoided big moves ahead of the inflation data, despite the fact that the dollar index was virtually unchanged.
Crude oil prices shrugged off early losses to rally 3 percent as hopes for an improved global outlook and concern over the impact of sanctions on Russian crude output outweighed a surprise build in US crude stocks.
Nela Richardson, chief economist at ADP, said that this week is bundled up with good inflation expectations data for Thursday.
We got the Goldilocks report for December with strong employment growth and moderate wage growth was the best scenario for the market. They're waiting for confirmation on Thursday that CPI is moderating. If they get that, the rally will continue this week and on into next week. The CPI is expected to show annual inflation at 6.5 percent in December, down from 7.1 percent in November. Richardson says that investors seem to over-prioritze data that suggests the Fed will pivot given the tight labor market that is not participating in the Fed's plan. The market seems to think that a moderation in inflation leads to a Fed pivot, but I don't. She said that the Fed keeps hiking rates and that they stay at higher levels for some time.
After a 50 basis point hike in December, expectations are for a 25 basis points rate increase at the February meeting.
Cliff Hodge, chief investment officer at Cornerstone Wealth said that the first step would be a downshift in the pace of hiking and the next step would be a pause.
The Dow Jones Industrial Average rose 268.91 points, or 0.8 percent, to 33,973. On 01, the S&P 500 gained 50.36 points, or 1.28 percent, to 3,969. 61 and the Nasdaq Composite added 189.04 points, or 1.76 percent, to 10,931. The pan-European STOXX 600 index went up 0.38 percent earlier in the day, while the MSCI's gauge of stocks gained 1.04 percent. Emerging market stocks rose by 0.28 percent.
The benchmark 10 year notes were down 8.9 basis points to a 3.530 percent yield, from 3.619 percent on Tuesday.
The 30 year bond was down 10.5 basis points to yield 3.6491 percent, from 3.754 percent last year. The 2 year note last was down 4.2 basis points to yield 4.2158 percent, from 4.258 percent.
Marvin Loh, Senior Global Macro strategist at State Street said the Fed was likely to face a battle in the coming months as the market prices in rate cuts or policymakers agree to cut rates.
He said that the Fed keeps saying it may have to keep rates higher than the market expects.
The dollar index fell 0.01 percent, with the euro going up 0.19 percent to $1.0754.
The Japanese yen fell 0.15 percent against the dollar at 132.45 per dollar, while the dollar was trading at $1.2147, down 0.07 percent on the day.
US crude settled up 3.05 percent at $77.41 per barrel and Brent settled at $82.67, up 3.21 percent on the day. Both benchmarks had settled at their highest levels since December 30, with WTI up for the fifth day in a row for the first time since October and Brent up for the third day in a row for the first time since October.
Spot gold was flat at $1,876 in precious metals. 43 an ounce after earlier scaling an eight month peak of $1,886.