Japanese stocks looked set to join the rally in global equities as traders return following Monday’s holiday, amid signs markets are beginning to stabilize after the biggest weekly rout in two years.
U.S. stocks advanced while the dollar fell and Treasuries rose as financial markets looked ahead to Wednesday’s inflation report.
The S&P 500 Index climbed for a third day, its longest winning streak since mid-January, amid a rally in financial shares and food retailers. Assets seen as safe havens gained as last week’s surge in volatility continued to weigh on traders, with the yen set for the strongest close since November 2016 and the Swiss franc up with gold. The dollar’s three-day loss left it at the lowest in more than a week.
Volatility levels remained elevated even after stocks’ modest recovery of the past few days, showing continued unease after the rout that wiped $2 trillion from U.S. shares last week. Consumer-price data due Wednesday could give some clues on where markets are heading, given that pressure on equities has been emanating from the outlook for inflation.
“As we move through the rest of this economic cycle and market cycle, higher volatility is going to be normal,” said Jeffrey Schulze, the chief investment strategist at Clearbridge Investments. “And a lot of that has to do with the normalization of interest rates.”
Hedge funds and other large speculators have boosted bets on Treasury futures to a record, indicating they expect the 2018 bond-market rout will resume in the days ahead. An investor at Goldman Sachs Asset Management warned 10-year yields could rise to as high as 3.5 percent in the next six months as the market prices in a steeper pace of Federal Reserve tightening.
Elsewhere, European shares dropped following a late downswing in Asia. South Africa’s rand fluctuated as President Jacob Zuma refused to obey his ruling African National Congress’s order for him to resign voluntarily.
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— With assistance by Andreea Papuc, Adam Haigh, Aleksandra Gjorgievska, Chris Anstey, Andrew Cinko, Eddie Van Der Walt, and Natasha Doff