Stocks finished firmly higher Tuesday, while the dollar retreated from its recent ten-day highs and Treasury bond yields retreated, as investors crept back into risk markets amid some dovish commentary on rates from Federal Reserve officials that offset concerns over China's deepening Covid crisis.
Cleveland Fed President Loretta Mester said Monday during an interview with CNBC that she favors a smaller 50 basis point rate hike for the central bank's next meeting in December, but noted that "I do think we're going to have to let the economy tell us going forward" about the pace of future increases.
San Francisco President Mary Daly, meanwhile, said there were signs of cooling inflation in the world's biggest economy even as she cautioned that it was premature to "taking anything off the table" in terms of a December hike.
The CME Group's FedWatch pegs the chances of a 50 basis point move next month at 75.8%, down from 85.4% last week, while the U.S. dollar index fell 0.35% against a basket of its global peers to trade at 107.466 in overnight dealing.
Benchmark 2-year note yields were pegged at 4.537% following a stronger-than-expected auction of $42 billion in new paper yesterday, while 10-year notes backed up to 3.767.%.
The gap between 2-year and 10-year notes still signals recession, however, while yields on one-month Treasury bills again topped those for 30-year bonds -- by around 1 basis point -- for only the second time since late 2019. Each of the two times this has happened -- the other was in 2007 -- the U.S. fell into recession within six months.
China's Covid challenges continue to test the market's nascent risk appetite in the holiday-shortened week, as well, with infections rising to just over 28,200 -- the highest since April -- and the capital city of Beijing instituting stricter measures on testing, travel, schools and businesses.
The S&P 500 ended 1.36% higher, closing above 4,000. The Dow Jones Industrial Average gained 397 points, or 1.18%, to 34,098.. The tech-heavy Nasdaq finished up 1.36%.
In terms of individual stocks, Zoom Video Communications (ZM) shares slumped 3.9% after the video conferencing specialists forecast softer-than-expected near-term revenues that clouded a solid third quarter earnings report.
Best Buy Co. (BBY) jumped 12.8% on better-than-expected third quarter earnings as the electronics retailer expects a near-term boost from Black Friday and Cyber Monday and a stronger holiday shopping season.
Dell Technologies (DELL) shares rose 6.8% after the PC and laptop maker posted stronger-than-expected third quarter earnings but noted that weakening demand and strong U.S dollar would linger as headwinds into the final three months of the year and beyond.
Global oil prices moved higher in early trading, following a whipsaw session on Monday that saw prices tumble to the lowest level in more than ten months on reports of a production boost from OPEC, only to come roaring back by the end of the session following denial of the plan by Saudi Arabia's Energy Minister.
China's Covid crisis is keeping a lid on demand in the world's biggest energy market, but conflicting reports of OPEC's production plans heading into next month's regular meeting in Vienna, as well as a looming price cap on Russian crude that forms part of sanctions agreed by G7 member states are adding to the market's recent volatility.
"It would be an odd move from OPEC+ to increase supply when there is still so much demand uncertainty, and while there is still so little clarity on what the full impact of the EU ban on Russian oil will be," said ING analysts.
WTI crude futures for January delivery, which are tightly linked to U.S. gasoline prices, were marked $1.14 higher Tuesday at $81.18 per barrel. Brent crude contracts for the same month, the global benchmark, were up $1.05 at $88.50 per barrel.
Overnight in Asia, stocks in China mere mixed amid the newly-unveiled Covid restrictions in China, while the MSCI ex-Japan index slipped 0.07% into the close of trading. Japan's Nikkei 225 closed 0.61% higher in Tokyo.
In Europe the region-wide Stoxx 600 was marked 0.80% higher in mid-day trading in Frankfurt, touching a three-month higher, with London's FTSE 100 up 0.97% in London.
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