The world’s biggest bond market rebounded and stocks closed higher, with traders positioning for key inflation data that will help shape the outlook for the Federal Reserve’s next steps.

Treasuries climbed, with 10-year yields dropping from the highest levels in 2024. Equities erased losses in the final stretch of New York trading, with Tesla Inc. leading gains in megacaps. Nvidia Corp. sank as Intel Corp. unveiled a new version of its artificial-intelligence chip. Boeing Co. slid on a news report the Federal Aviation Administration is investigating whistleblower claims about safety issues with the 787 Dreamliner.

With no relevant economic data on schedule, traders positioned for Wednesday’s consumer price index. Markets have been tempering bets on Fed cuts as U.S. economic data remains strong, with officials pushing back against the need for easing.

“Investors are increasingly calling a June pivot into question, given the resiliency of the economy,” said Marta Norton, chief investment officer Americas at Morningstar Wealth. “A delay is within the range of possible outcomes, particularly if we see March inflation data surprise to the upside.”

The S&P 500 finished above 5,200. U.S. 10-year yields fell six basis points to 4.36 per cent. Oil dropped as traders assessed diplomatic efforts in the Middle East. Gold rose to a fresh record. The loonie underperformed ahead of the Bank of Canada decision on rates amid bets policymakers will turn more dovish.

“CPI is the critical number this week,” said Andrew Brenner at NatAlliance Securities. “The fear is that CPI has continued to be a thorn in the side of the Fed. But positioning is strongly bearish, and to quote some of the old traders we worked with in the past, ‘whatever hurts the most traders, when they are strongly positioned, is what happens’.”

The U.S. inflation prints for March and April will play an outsized role in determining whether the Fed proceeds to cut rates in June, according to Krishna Guha at Evercore. 

“We think the hurdle is not crazy severe and the odds are the data will come in good enough to go ahead,” Guha noted.

The swaps market late Tuesday was pricing in around 65 basis points of Fed rate cuts by the end of this year.

A survey conducted by 22V Research shows that 53 per cent of the investors think the reaction to CPI Wednesday will be “risk-on.”

“Fifty percent of our survey respondents think inflation is ‘not’ on a Fed-friendly glide path back to target,” said Dennis DeBusschere at 22V. “In February, the majority thought it was. The ‘yeses’ have been diminishing. Investors are not worried about Wednesday, but are concerned longer-term.”

To Mohamed El-Erian, the Fed’s longer-run inflation expectations should be revised higher as macro conditions — like supply chains and productivity — evolve. 

“Inflation will be sticky,” the president of Queens’ College, Cambridge and a Bloomberg Opinion columnist told Bloomberg Television. “But that shouldn’t stop the Fed, because the 2 per cent inflation target is too tight for a global economy going through a major rewiring.”

Former Fed Bank of St. Louis President James Bullard told Bloomberg Television he’s expecting three rate cuts this year as inflation moves toward the central bank’s target while the economy remains resilient.

“Cut timing hinges on inflation data,” according to Meghan Swiber at Bank of America Corp. “The market will be closely watching core goods and shelter for a read on the forward inflation trajectory.”

While bond yields are likely to remain volatile in the near term as markets shift views on the Fed’s path, UBS’s Chief Investment Office continues to see an attractive risk-reward outlook for quality bonds, including government and investment-grade corporate debt.

“We continue to favor quality bonds in our global portfolios and recommend investors lock in currently attractive bond yields,” said Solita Marcelli at UBS Global Wealth Management. “We prefer those with maturities in the 1–10-year bracket and see value in sustainable bonds.”

 “Valuations are so stretched right now that anything less than perfection from economic data or any geopolitical noise can create substantial and quick selloffs,” said David Bahnsen at the Bahnsen Group.

Following the recent reset in rate-cut expectations, the setback in stock markets should prove temporary and is a buying opportunity, according to HSBC strategists led by Max Kettner.

“Risk assets certainly got a scare last week,” they wrote. “We don’t think this will last, though.”

BofA clients were net sellers of U.S. equities last week, with health-care shares logging their biggest outflow in the firm’s data going back to 2008 during the period.

Clients pulled US$3.4 billion from U.S. stocks in the week ended April 5, with single stocks seeing their largest exit since July, quantitative strategists led by Jill Carey Hall wrote in a note to clients.

To Craig Johnson at Piper Sandler, a more tactical approach toward equities is prudent as we move into the second quarter.

“Although the market has shown some signs of broadening recently, we don’t have enough technical evidence to be convinced that a new leg higher can be sustained,” he noted. “The combination of high interest rates, sticky inflation, a short-term extended equity market, and mediocre breadth makes the S&P 500 vulnerable to a 5 per cent-10 per cent pullback/correction in upcoming weeks/months.”

Corporate Highlights:

• Boeing Co. deliveries in the first quarter were the lowest since mid-2021, highlighting how far the planemaker has to go on its road to recovery from a near-catastrophic accident early in January.
• Pfizer Inc.’s RSV shot produced immune reactions in young adults at higher risk of severe illness just as well as in older people, spurring the company’s plans to apply for wider U.S. approval.
• Cisco Systems Inc. was resumed at overweight by Morgan Stanley, which said the maker of computer networking equipment’s valuation discount is “too harsh.”
• Google unveiled a host of updates to its artificial intelligence offerings for cloud computing customers, emphasizing that the technology is safe and ready for use in the corporate realm, despite recent stumbles in consumer-facing tools.
• Best Buy Co. is tapping artificial intelligence to speed up and reduce the number of in-home visits, part of the company’s efforts to use the technology to streamline operations.
• A hydro-power plant owned by Enel SpA’s renewable arm Enel Green Power in Northern Italy was rocked by a deadly explosion.

Key events this week:

• Japan PPI, Wednesday
• Canada rate decision, Wednesday
• U.S. CPI, Fed minutes, Wednesday
• Chicago Fed President Austan Goolsbee speaks, Wednesday
• China PPI, CPI, Thursday
• Eurozone ECB rate decision, Thursday
• U.S. initial jobless claims, PPI, Thursday
• New York Fed President John Williams speaks, Thursday
• Boston Fed President Susan Collins speaks, Thursday
• China trade, Friday
• U.S. University of Michigan consumer sentiment, Friday
• Citigroup, JPMorgan and Wells Fargo due to report results, Friday.
• San Francisco Fed President Mary Daly speaks, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 rose 0.1 per cent as of 4 p.m. New York time
• The Nasdaq 100 rose 0.4 per cent
• The Dow Jones Industrial Average was little changed
• The MSCI World index rose 0.2 per cent

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro was little changed at $1.0856
• The British pound rose 0.2 per cent to $1.2675
• The Japanese yen was little changed at 151.75 per dollar

Cryptocurrencies

• Bitcoin fell 3.8 per cent to $68,994.26
• Ether fell 4.7 per cent to $3,514.03

Bonds

• The yield on 10-year Treasuries declined six basis points to 4.36 per cent
• Germany’s 10-year yield declined six basis points to 2.37 per cent
• Britain’s 10-year yield declined six basis points to 4.03 per cent

Commodities

• West Texas Intermediate crude fell 1.3 per cent to $85.34 a barrel
• Spot gold rose 0.5 per cent to $2,351.04 an ounce