U.S. stocks moved higher Monday, while the dollar retreated against its global peers and Treasury bond yields held steady, amid a boost in global risk appetite heading into what could be a crucial week for stocks on Wall Street.
Investors this week will navigate key readings on August inflation, retail sales and consumer confidence. Those reports will be paired against what could be a pivotal interest rate decision from the European Central Bank, as investors continue to track the pace of consumer-price pressures in the resilient U.S. economy.
Analysts expect a mixed reading for August inflation on Wednesday, with the headline consumer price index likely having quickened to 3.6% while the closely watched core reading slowed to around 4.3%.
The readings will add fuel to concern that a tight labor market, rising oil and gas prices and resilient consumer spending could add to autumn inflation pressures and trigger an end-of-year rate increase from the Federal Reserve.
“'Good news is bad news'” may have been the story last week: Stronger-than-anticipated economic data may have worried investors that the Fed will keep interest rates higher for longer. This week is more likely to be a 'good news is good, bad news is bad' story," said Chris Larkin, managing director for trading and investing at E-Trade from Morgan Stanley.
"The market’s ability to rebound in the near term could hinge on this week’s inflation numbers, especially Wednesday’s CPI, " he added. "If it comes in hotter than expected, it could fuel worries that the Fed may turn even more hawkish and raise rates again."
At present, CME Group's FedWatch suggests a 93% chance that the Fed will hold its benchmark lending rate unchanged, at between 5.25% and 5.5%, when it meets next week in Washington, with the odds of a November increase pegged at around 42%.
Benchmark 10-year Treasury note yields were modestly higher, at 4.3%, in the early New York session ahead of a $38 billion auction of new paper at midday on Tuesday. Two-year notes were holding at just under the 5% mark at 4.995%.
The U.S. dollar index, however, was marked 0.53% lower against a basket of its global peers in New York trading, pegged at 104.538, thanks in part to the biggest single-day move for the Japanese yen in two months.
The yen rose to 146.19 against the greenback following comments from Bank of Japan Gov. Kazuo Ueda that suggested a pullback from the country's negative rate policies should inflation find its way back to 2%.
The dollar retreat helped boost risk appetite in markets worldwide — although Japan's Nikkei 225 fell 0.43% in Tokyo – providing a solid tailwind for U.S. stocks heading into the trading day on Wall Street.
The S&P 500, which ended the Labor-Day-shortened week 1.3% lower, was marked 21 points, or 0.48% higher in early afternoon trading with gains paced by Tesla (TSLA) -), Warner Bros. Discovery (WBD) -) and M&T Bank. (MTB) -)
The Dow Jones Industrial Average, which fell 0.8% last week, gained 83 points, or 0.24%, while while the tech focused Nasdaq was up 91 points, or 0.62%.
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