Wall Street got some encouragement to send stocks higher after a slowdown in inflation bolstered speculation the Federal Reserve will pause its tightening campaign this week.

That’s not to say investors are betting the Fed is done with its interest-rate hikes just yet. While swap traders are putting the odds of a June increase at only 10 per cent, they still see the potential for a July move. And to some of the world’s biggest money managers, the central bank will continue to sound hawkish even if it stays on hold Wednesday.

Tiffany Wilding at Pacific Investment Management Co. expects the Fed to signal the market should not interpret a potential pause as the end of hikes. For Alexandra Wilson-Elizondo at Goldman Sachs Asset Management, the central bank will deliver a “hawkish pause” as the rate of disinflation remains incompatible with the Fed’s 2 per cent target. Meantime, UBS Chief Investment Office bets officials will send a “clear message” that at least one more rate hike is likely at a later meeting.

“The Fed is comfortable pausing the hiking cycle in June, provided there is a strong statement of their intention to raise rates again should it be required,” said James Athey, investment director at Abrdn.

The S&P 500 rose for a fourth consecutive day and was on pace for its longest winning run since early April. Oracle Corp. jumped toward a record after saying the company’s cloud-computing business will continue its rapid growth. Treasuries fell, while the dollar halted a two-day advance.

‘DOP PLOT’

In addition to the Fed decision on rates, investors’ focus will be on the central bank’s quarterly so-called dot plot in its Summary of Economic Projections. 

“Raising the ‘dots’ for both 2023 and 2024 would signal an intention to leave rates higher for longer, while also giving the doves on the committee another few weeks to prove that inflationary pressures are waning,” the UBS Chief Investment Office added.

The consumer price index and the core CPI — which excludes food and energy — decelerated on an annual basis. However, a key gauge of prices closely watched by the Fed continued to rise at a concerning pace.

“Today’s U.S. CPI has likely sealed the deal for a ‘hawkish hold’ from the Fed on Wednesday,” said Matthew Weller at FOREX.com and City Index. “With no upside surprises to inflation, it looks likely that Jerome Powell and company will follow through on their recent comments favoring a ‘skip’ in the interest rate hiking cycle tomorrow, while leaving the door open for a potential resumption of rate increases next month if the data dictates.”

Bank of America Corp.’s latest global survey of fund managers showed investors are “exclusively long” tech stocks amid the buzz around artificial intelligence. Long Big Tech was the most-crowded trade, according to 55 per cent of the participants, the strongest conviction since 2020.

Still, fund managers remain broadly underweight on stocks as sentiment — measured by cash levels, economic growth expectations and asset allocation — remains “stubbornly low,” BofA strategist Michael Hartnett wrote in a note. Investors cut equity allocation to a five-month low.

Key events this week:

• Eurozone industrial production, Wednesday
• U.S. PPI, Wednesday
• Federal Reserve rate decision, updated economic forecasts, Jerome Powell’s press conference, Wednesday
• IEA oil market report, Wednesday
• China property prices, retail sales, industrial production, Thursday
• European Central Bank President Christine Lagarde holds press conference following the rate decision, Thursday
• U.S. initial jobless claims, retail sales, empire manufacturing, business inventories, industrial production, Thursday
• Bank of Japan rate decision, Friday
• U.S. University of Michigan consumer sentiment, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 rose 0.5 per cent as of 2:54 p.m. New York time
• The Nasdaq 100 rose 0.6 per cent
• The Dow Jones Industrial Average rose 0.3 per cent
• The MSCI World index rose 0.7 per cent

Currencies

• The Bloomberg Dollar Spot Index fell 0.2 per cent
• The euro rose 0.3 per cent to US$1.0787
• The British pound rose 0.7 per cent to US$1.2599
• The Japanese yen fell 0.5 per cent to 140.23 per dollar

Cryptocurrencies

• Bitcoin fell 0.1 per cent to US$25,867.5
• Ether was little changed at US$1,739.87

Bonds

• The yield on 10-year Treasuries advanced nine basis points to 3.83 per cent
• Germany’s 10-year yield advanced three basis points to 2.42 per cent
• Britain’s 10-year yield advanced 10 basis points to 4.43 per cent

Commodities

• West Texas Intermediate crude rose 2.9 per cent to US$69.10 a barrel
• Gold futures fell 0.7 per cent to US$1,955.10 an ounce