US Two-Year Yield Hits Lowest Since May After PPI: Markets Wrap - Yahoo Finance

(Bloomberg) -- Treasury two-year yields hit the lowest since May as an unexpected decline in producer prices reinforced bets on Federal Reserve rate cuts this year.

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While traders continued to expect the first Fed reduction in May, they now see a slightly bigger chance of a cut in March. The data came just a day after a hotter-than-anticipated reading on consumer prices — underscoring the bumpy path officials face in bringing inflation back to the 2% target. Wall Street also sifted through a raft of bank results as Corporate America’s earnings season got underway. Geopolitical risks also captured investors’ attention.

“We suspect there is little to dissuade the market from pressing the March cut trade, and wouldn’t fade the move ahead of the weekend,” said Ben Jeffery at BMO Capital Markets. “Let us not forget the geopolitical escalations in the Red Sea and the implied headline risk — relevant from both a flight to quality and supply side inflation perspective.”

Two-year US yields fell nine basis points to 4.15%. The S&P 500 fluctuated, while still poised for a weekly advance. Oil jumped as the US and its allies launched airstrikes against Houthi rebels in Yemen, retaliating for attacks on ships in the Red Sea that have imperiled flows of fuel and goods through the vital waterway. Gold rose.

To Chris Larkin at E*Trade from Morgan Stanley, it may be a bit of stretch to describe today’s cooler-than-expected numbers as a “surprise” given that producer prices have already been retreated faster than consumer inflation for quite a while.

“The market has tended to run with any data that fits the ‘falling inflation means lower interest rates’ narrative, but we’ll see if that storyline bumps up against the reality of a market that has already priced in multiple rate cuts,” he noted.

Investors have slashed expectations for hawkish surprises from the Fed this year, while they see a growing risk of such moves from central banks in the euro zone and other regions, Bank of America’s latest monthly sentiment survey shows.

The number of respondents who anticipate a more hawkish move on policy than market pricing fell to 33% in the bank’s latest poll, from 51% in December. Despite the slide, “the Fed is still viewed as more likely to deliver a hawkish surprise than others,” BofA strategists including Ralf Preusser wrote in a note.

Corporate Highlights:

JPMorgan Chase & Co. closed out the most profitable year in US banking history with its seventh consecutive quarter of record net interest income and a surprise forecast that the windfall may continue this year.
Wells Fargo & Co.’s fourth-quarter costs came in higher than expected, swollen by severance charges and the bank’s contribution to replenish the Federal Deposit Insurance Corp.’s main fund after bank failures last year.
Citigroup Inc. said it will eliminate 20,000 roles in a move that will save it as much as $2.5 billion as part of Chief Executive Officer Jane Fraser’s quest to boost the Wall Street giant’s lagging returns.
Bank of America Corp.’s earnings fell short of expectations as the bank’s numerous charges in the fourth quarter cut into profit and the firm’s fixed-income traders posted a surprise drop in revenue.
BlackRock Inc. clients jumped into its long-term funds in the fourth quarter, adding $63 billion to ETFs and other products in a sign investors put cash to work as stock and bond markets surged.
Delta Air Lines Inc. backed away from its 2024 profit target as persistently high costs counter the gains from a rebound in international travel.
The US Federal Aviation Administration said it will increase its oversight of Boeing Co.’s production and manufacturing operations, a day after it opened a formal investigation into the planemaker over last week’s accident on a 737 Max 9 jet.
UnitedHealth Group Inc. reported higher fourth-quarter medical costs than Wall Street analysts expected, even as overall results beat estimates.