(Bloomberg) — Wall Street investors closely monitoring trade discussions between the US and China drove Treasuries higher, with a $58 billion bond auction set to test the appetite for American securities amid President Donald Trump’s fast-evolving tariff war.
A quiet session on the economic front saw traders driving US yields down ahead of the three-year note auction, the first in a trio of offerings that will culminate in Thursday’s sale of 30-year debt. The S&P 500 edged up, trading nearly 2% away from its all-time high. The dollar was little changed.
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The US and China resumed talks as the world’s largest economies try to agree to allow exports of key tech and industrial goods and avoid escalating their trade war. US Commerce Secretary Howard Lutnick said talks are going well.
“Today is lining up to be fairly quiet as far as scheduled catalysts are concerned,” said Tom Essaye at The Sevens Report. “However, any materially positive or negative trade talk headlines out of London where US and Chinese negotiations remain underway, could meaningfully move markets today before focus turns to tomorrow’s critical May CPI release.”
Data Wednesday is expected to show US consumers probably saw slightly faster inflation in May, notably for merchandise, as companies gradually pass along higher import duties. Prices of goods and services, excluding volatile food and energy costs, rose 0.3% in May, the most in four months.
The so-called core inflation, which is regarded as a better indicator of underlying inflation, is seen accelerating for the first time this year — to 2.9% — on an annual basis, based on the median projection.
“The combination of the May inflation figures and upcoming Treasury supply will provide investors tradable events and add to the market’s collective understanding of the early fallout from the trade war as well as demand for US debt in the current environment,” said Ian Lyngen at BMO Capital Markets.
Read: US Rate Markets May Remain in Range as Economy Slow and Steady
Yields on long-term global debt have soared in recent weeks as concern over spiraling debt and deficits led some investors to shun the securities and prompted others to demand a higher premium for the risk of lending to governments.
Investors betting that yields on long-dated Treasuries will keep rising faster than those on shorter notes risk getting burned, according to BNP Paribas SA.
Guneet Dhingra, the New York-based head of US rates strategy at the French bank, said 30-year Treasuries already price in the worsening fiscal picture and could rebound if there’s strong demand for an auction or deficit fears ease. He sees a case for buying the bonds at current levels.
Read: US Treasury Investor Optimism Increases This Week
Meantime, analysts at firms including Barclays Plc and JPMorgan Chase & Co. see further upside for US stocks, in part because they expect institutional investors to abandon their cautious stance and ramp up exposure to equities.
While stocks have roared back from their tariff-fueled April slide, big money managers remain remarkably underweight: Their overall equity positioning has been lower only 23% of the time since 2010, according to Deutsche Bank AG.
Bank of America Corp. clients were net sellers of US equities last week, with outflows led by institutional investors as hedge funds and retails purchased shares, strategists led by Jill Carey Hall said Tuesday in a note to clients.
“Our S&P 500 Index valuation work suggests a historical premium for domestically-oriented vs. foreign-exposed stocks, indicating that tariffs/de-globalization are generally priced in (but the tax bill not so much),” Carey Hall wrote.
Corporate Highlights:
- Mark Zuckerberg, frustrated with Meta Platforms Inc.’s shortfalls in AI, is assembling a team of experts to achieve artificial general intelligence, recruiting from a brain trust of AI researchers and engineers who’ve met with him in recent weeks at his homes in Lake Tahoe and Palo Alto.
- Cisco Systems Inc. is updating its networking and security products to make artificial intelligence networks speedier and more secure, part of a broader push to capitalize on the AI spending boom.
- JM Smucker Co. said US tariffs increasing costs in its coffee business would weigh on profit for the coming fiscal year, continuing a challenging run for the biggest US packaged food producers.
- McDonald’s Corp. dropped as Redburn Atlantic slapped the burger chain with its sole sell rating, saying shifting consumer patterns due to weight-loss drugs and inflation are cause for concern.
- Citigroup Inc. is set to put aside hundreds of millions of dollars more than it did last quarter to account for potential losses on loans and credit cards it issues to its clients, a sign of likely worsening consumer health that runs counter to analysts’ expectations.
- Paramount Global plans to cut several hundred employees on Tuesday due to a continuing decline in the cable-TV industry and the broader economic landscape.
- UBS Group AG fell as analysts warned that new capital demands imposed by Switzerland could crimp the bank’s competitiveness and its ability to make investor payouts.
- Novo Nordisk A/S climbed after a report that activist hedge fund Parvus Asset Management has built a stake as the Danish drugmaker struggles to keep its lead in the obesity market.
- Tencent Music Entertainment Group has agreed to acquire podcasting startup Ximalaya Inc. in a deal that would accelerate its push to become China’s answer to Spotify Technology SA.
- Taiwan Semiconductor Manufacturing Co., the main chipmaker for Nvidia Corp. and Apple Inc., reported a 40% jump in May revenue after companies stockpiled chips in response to mounting trade uncertainty.
Some of the main moves in markets:
Stocks
- The S&P 500 rose 0.3% as of 10:31 a.m. New York time
- The Nasdaq 100 rose 0.3%
- The Dow Jones Industrial Average was little changed
- The Stoxx Europe 600 was little changed
- The MSCI World Index rose 0.2%
- Bloomberg Magnificent 7 Total Return Index rose 0.7%
- The Russell 2000 Index rose 0.8%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro was little changed at $1.1433
- The British pound fell 0.2% to $1.3528
- The Japanese yen was little changed at 144.71 per dollar
Cryptocurrencies
- Bitcoin rose 0.1% to $108,895.04
- Ether rose 5.8% to $2,740.48
Bonds
- The yield on 10-year Treasuries declined one basis point to 4.46%
- Germany’s 10-year yield declined four basis points to 2.53%
- Britain’s 10-year yield declined eight basis points to 4.55%
Commodities
- West Texas Intermediate crude rose 1.1% to $66 a barrel
- Spot gold rose 0.2% to $3,332.70 an ounce
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