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Stocks rebound on Target inflation angle; bond yields slip

Economy Jun 07, 2022 05:01PM ET
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2/2 © Reuters. A man wearing a protective mask, amid the coronavirus disease (COVID-19) outbreak, walks past an electronic board displaying graphs (top) of Nikkei index outside a brokerage in Tokyo, Japan, March 10, 2022. REUTERS/Kim Kyung-Hoon 2/2
 
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By Herbert Lash

NEW YORK (Reuters) -World shares rebounded on Tuesday on the notion inflation may be peaking after Target Corp (NYSE:TGT) said it would offer deep discounts to clear inventory as consumers change their shopping habits, while Treasury yields fell after a surprise rate hike in Australia.

Target, a major retail chain, cut its quarterly profit margin forecast and said it would mark down prices in the second quarter in a surprise revision that sent shares of the retailer 2.31% lower.

Target, along with Walmart (NYSE:WMT), had reported a much steeper-than-expected drop in quarterly profit in May, roiling the retail industry. The retail sector of the pan-European STOXX index on Tuesday closed down 0.94%.

But Target's warning was seen as having a positive impact on inflation and could help the Federal Reserve and other central banks fight the sharp rise in consumer prices without sharply boosting interest rates and sparking a deep slowdown.

"Target cuts both ways. On the one hand obviously it's negative news for Target. But on the other it's one of the first large signals that inflation may be peaking," said Rick Meckler, a partner at Cherry Lane Investments.

"Of course, this is the scenario of a soft landing. That we raise rates, that it reins in inflation some, but it doesn’t stop the economy," he said.

The MSCI's benchmark for global stocks gained 0.40%, while the STOXX 600 index fell 0.28% - before the idea that Target aids the inflation fight took hold.

Anthony Saglimbene, global market strategist at Ameriprise Financial (NYSE:AMP), said Target's announcement suggested more companies will begin to lay the groundwork for reduced earnings.

"We could see an earnings recession this year without seeing an economic recession, which would mean we would get zero earnings growth," he said. "That's a headwind for stocks."

On Wall Street, the Dow Jones Industrial Average rose 0.8%, the S&P 500 gained 0.95% and the Nasdaq Composite added 0.94%.

The Reserve Bank of Australia overnight raised rates by 50 basis points - the most in 22 years - and flagged more tightening ahead as it moves to restrain inflation.

Later this week, the European Central Bank is expected to start a tightening cycle.

"Central bankers are playing catch-up with the fact that inflation is very, very high and they need to kind of tamp it down through higher rates," Saglimbene said.

The yield on 10-year Treasury notes fell 5.3 basis points to 2.985%, below the key 3% threshold ahead of data on Friday expected to show still high U.S. inflation.

A high reading would firm up expectations that the Fed could raise rates more than the anticipated 50 basis points increase at its upcoming policy meeting next week and in July.

In Europe, benchmark 10-year German bund yields also dipped 1.6 basis points but held near Monday's highs ahead of the ECB meeting on Thursday. They last traded at 1.303%.

British Prime Minister Boris Johnson survived a no-confidence vote among his Conservative Party's lawmakers on Monday, but the thin margin of victory spurred talk of a move to replace him, hitting sterling and gilts.

Ten-year gilt yields touched a seven-year high at 2.279% before ending almost flat on the day.

In foreign exchange markets, the dollar index fell 0.146%, with the euro up 0.09% to $1.0704 on expectations of a hawkish ECB tilt.

The U.S. currency rose to its highest since 2002 against the yen and was last up 0.57% after the Bank of Japan governor promised support for the economy and easy monetary policy even as prices start to rise.

Sterling was last trading at $1.2592, up 0.49% on the day.

The Australian dollar gained as much as 0.76% just after the supersized RBA rate hike, but quickly shed gains to trade flat on the day.

Oil prices gained about 1%, with U.S. crude closing at a 13-week high, on supply concerns, including the lack of a nuclear deal with Iran and the prospect of higher demand after China relaxes lockdowns imposed to control the coronavirus pandemic.

U.S. crude futures rose 91 cents to settle at $119.41 a barrel, while Brent settled up $1.06 at $120.57.

Gold rose as the dollar gave up some gains, while investors positioned for U.S. inflation readings later this week for cues on the Fed's interest rate hike trajectory.

U.S. gold futures settled 0.5% higher at $1,852.10 an ounce.

Stocks rebound on Target inflation angle; bond yields slip
 

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Comments (11)
Larry DeAngelis
Larry DeAngelis Jun 07, 2022 11:59PM ET
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what's the next illogical headline? Market up after major retailer goes out of business?when are you going to figure it out. Simply there were more buyers than sellers.
James Wills
James Wills Jun 07, 2022 9:06PM ET
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Pamela Anderson? You must be kidding you gronk scammer.
Marco cuevas
Marco cuevas Jun 07, 2022 2:08PM ET
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You all should rename your site to gqmbling.Com because this isn't investing anymore ...it's just one huge casino.
So Sad
So Sad Jun 07, 2022 12:15PM ET
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lol you relate everything to a different unreliable excuse
me ish
me ish Jun 07, 2022 9:04AM ET
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"British Prime Minister Boris Johnson survived a no-confidence vote among his Conservative Party's lawmakers on Monday" - I'm sure that's a misprint - it should read "Conservative Party's law BREAKERS"
Marco cuevas
Marco cuevas Jun 07, 2022 8:33AM ET
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They will any world excuse to drop the market to justify their short selling and profit taking.
jason xx
jason xx Jun 07, 2022 5:46AM ET
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What recent inflation data has proven stickier than expected?
Kerry Ditto
Kerry Ditto Jun 07, 2022 2:40AM ET
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US Fed will likely slow rate hiking to 25 bp or none, realizing need for forward looking. Inflation itself is a lagging indicator, but the rate of change in inflation trend is forward-looking leading indicator. Clearly PCE price index is trending lower, core Cpi looks trending lower as well. Trend is friend.
Kerry Ditto
Kerry Ditto Jun 07, 2022 2:07AM ET
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US Fed probably will stop rate hiking to stop other country's madness imitation of US fed rate policy.
Trumpster Rocks
Trumpster Rocks Jun 07, 2022 1:29AM ET
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Why is it liberals are the only one that OWN the News(JOKE)? All these articles are so propped up and even worse made up on a day to day basis... Might as well be getting your news from China and North Korea..useless~!
Matt Neeley
Matt Neeley Jun 07, 2022 1:29AM ET
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What are you tsling about. FOX news is the most warched news channel becsuse noderates andnliberals are diveded between nbc and CNN. Why is it the kast 3 republican Administrations have keft the whitw house wirh exonomynin shambles only fir the Democrat administration to come in and save the economy. Bush Sr inly needed 4 years to run it intonthe ground. Clinton turned int aronnd. GW and his administration femoving all regukations led to housing crisis and bankkng crisis. Obama comes in saves rhe day. Trumo piblicly oressuring the fed to keeo rates down wven rbough we were jn years 8-11 of a bulk market. Then zcovid lhit he lied about it. Rates coudlntnbe lowered first cuz they were already low when they should have been up. So Trump gives away 3 trillion to most Americans. Truno wanted to give more. And 15 bil to Farmers because the trade war he started with china. For sometone who rails aganst socialism he gave out more mineh in a year than Sanders plannwas to do in 4 yrs
Matt Neeley
Matt Neeley Jun 07, 2022 1:29AM ET
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Crazy. Whou woud think just handing out 3 trillion bux would afffext inflation. I mean were talkjg aboutna guy who ran a casino into the ground. 4 bankruotcies. Wouodnhave beenn 5 but the Uzs cant file
Tre Hsi
Tre Hsi Jun 07, 2022 1:29AM ET
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I bet you still think FoxNews is fair and balanced.....
 
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