Wall Street jumps with tech, energy; Target news weighs on retailers

NEW YORK, June 7 (Reuters) – US stocks rallied late on Tuesday to end higher for a second straight day as technology and energy shares gained, while Target Corp.’s warning about excess inventory weighed on retail stocks for much of the session.

Apple Inc. (AAPL) shares climbed 1.8% despite news earlier in the day that the company must change the connector on iPhones sold in Europe by 2024 after EU countries and lawmakers agreed to a single charging port for mobile phones, tablets and cameras.

The S&P 500 technology index rose 1% and gave the benchmark index its biggest boost. Microsoft Corp. (MSFT) shares added 1.4%.

The S&P 500 energy sector index jumped 3.1% to end at its highest level since 2014, with oil prices sharply higher.

At the same time, shares of Target Corp. (TGT) fell 2.3% after the retailer said it would have to offer deeper discounts and cut back on stocking discretionary items.

Equity trading was choppy, with indexes down early in the day, but the market has been recovering from recent steep losses.

Recently, “we’ve had a nice bounce … and in general investors are feeling better right now. But we are very much in a seesaw market as we’ve seen all year,” said Tim Ghriskey, senior portfolio strategist at Ingalls & Snyder in New York.

“At some point, we will put in a bottom, and the market will move higher. We have a hard time believing that’s any time soon, given a number of fundamental issues overhanging the market,” he said. “Certainly what we’ve seen today from Target isn’t good news in terms of the consumer.”

Long-dated US Treasury yields tumbled after the Target news, however, as it fueled some speculation that the worst of inflation may be in the past.

The Dow Jones Industrial Average rose 264.36 points, or 0.8%, to 33,180.14, the S&P 500 gained 39.25 points, or 0.95%, to 4,160.68 and the Nasdaq Composite added 113.86 points, or 0.94%, to 12,175.23.

Shares of Walmart (WMT) fell 1.2%, and the S&P retail index was down 1%.

Consumer price data on Friday is expected to show that inflation remained elevated in May, though core consumer prices, which exclude the volatile food and energy sectors, likely ticked down on an annual basis.

Not all retailers were in the red. Kohl’s Corp. (KSS) shares jumped 9.5% after news the department store chain entered exclusive talks with retail store operator Franchise Group Inc. (FRG) over a potential sale that would value it at nearly USD 8 billion.

Advancing issues outnumbered declining ones on the NYSE by a 2.36-to-1 ratio; on Nasdaq, a 1.69-to-1 ratio favored advancers.

The S&P 500 posted 3 new 52-week highs and 30 new lows; the Nasdaq Composite recorded 35 new highs and 121 new lows.

Volume on US exchanges was 10.38 billion shares, compared with the 12.50 billion average for the full session over the last 20 trading days.

(Reporting by Caroline Valetkevitch in New York; Additional reporting by Devik Jain, Susan Mathew, Mehnaz Yasmin in Bengaluru; Editing by Maju Samuel and Matthew Lewis)

Red-hot Asia diesel margins may peak in June as supplies rise, monsoon nears

SINGAPORE, June 7 (Reuters) – Asia’s refining margins for diesel hit a fresh record on Tuesday but may start cooling off as early as next month as refiners ramp up output and the upcoming monsoon season threatens demand, traders and analysts said.

Rising fuel prices worldwide have contributed to runaway inflation and generated big profits for refiners as economic growth and the recovery from the pandemic strain supplies. If diesel prices stabilise or fall, then inflationary pressures may ease.

Refining margins for 10 ppm gasoil in Singapore – a benchmark for diesel, jet and heating oil in Asia – ended Tuesday at a record of USD 56.75 a barrel over Dubai crude, having soared more than 60% in the last two weeks, according to Refinitiv data that goes back to 2014.

The remarkable rise in profits for diesel is encouraging refiners from South Korea to India to prioritize output of the industrial fuel and step up exports to Asia and also Europe, which is seeking to replace Russian supplies ahead of an European Union embargo to phase out Russian oil products in eight months, the sources said.

China’s demand is also set to rebound as Beijing relaxes strict COVID-19 lockdowns, they said.

“Eased restrictions in China will no doubt spur a demand recovery,” said Sandy Kwa, a senior analyst at the Boston Consulting Group.

“On the other hand, downside (for demand) is expected from the monsoon season happening in some countries, on top of high diesel prices denting consumption.”

Industrial activity and road travel typically slow down during the monsoon.

But export flows to the West, where diesel demand is strong and supplies tight, would prevent Asian prices from falling far, market watchers said.

There is strong competition between Asia and Europe for fuel exports from the Middle East and India, said Jane Xie, a senior oil analyst at analytics firm Kpler.

Kpler expects refining margins for gasoil to fall as output increases. Kpler forecasts the 10 ppm gasoil cracks to average around USD 24 to USD 26 a barrel in the third quarter, and slipping to about USD 20 to USD 21 a barrel in the fourth quarter.

“We are expecting Q3 to have more supplies in the East of Suez, and Asia in general,” a Singapore-based gasoil trader said.

“But we should see more workable arb (arbitrage) to the West during the third quarter,” he said, adding that barrels from the Middle East and west coast of India will make up most of the exports heading to Europe.

Asia’s diesel exports stood at 8.51 million tonnes in May, 1.2% higher from April, Refinitiv Oil Research assessments showed.

“With refiners in the West prioritizing gasoline over diesel to meet seasonal demand, diesel supplies are expected to remain tight at a time when refiners are already operating their refineries near capacity,” said Serena Huang, senior market analyst at oil analytics firm Vortexa.

“It’s not a question of whether the East-West arbitrage will remain open, but rather, how wide it is and how much flows will be heading to the West,” she added.

(Reporting by Koustav Samanta in Singapore; Editing by Florence Tan, Shailesh Kuber and Aditya Soni)

US bars investors from buying Russian debt, stocks on secondary market

WASHINGTON/LONDON, June 7 (Reuters) – The US Treasury Department has banned US money managers from buying any Russian debt or stocks in secondary markets, on top of its existing ban on new-issue purchases, in its latest sanctions on Moscow over its invasion of Ukraine.

Despite Washington’s sweeping sanctions in recent months, Americans were still allowed to trade hundreds of billions of dollars worth of assets already in circulation on secondary markets.

The Treasury said in guidance published on its website on Monday that the ban extends to all Russian debt and that all Russian firms’ shares are affected, not just those of ones specifically named in sanctions.

“Consistent with our goal to deny Russia the financial resources it needs to continue its brutal war against Ukraine, Treasury has made clear that US persons are prohibited from making new investments in the success of Russia, including through purchases on the secondary market,” a Treasury spokesperson said on Tuesday.

The rules do still allow US investors to sell or continue to hold Russian assets that they already own. Buying shares in US funds that contain Russian debt or equities will also still be possible.

Western funds have already dumped Russian assets en masse since the war in Ukraine started.

According to Morgan Stanley, Russian government and corporate debt on the international markets added up to just over USD 472 billion at the start of the year, making it one of the largest emerging market asset pools behind Mexico, Indonesia and Turkey.

The combined market cap of Moscow’s main stock exchange .IMOEX meanwhile, is currently around 35 trillion roubles (USD 588.24 billion) down from over 50 trillion in January.

The latest Treasury move surprised some analysts, especially because it was posted in the Frequently Asked Questions section of the department’s website, rather than announced with the most recent round of sanctions.

“The surprising new thing here is that trading of all existing debt has been now been prohibited, at least for the US citizens,” said Seaport Global emerging market credit analyst Himanshu Porwal.

“We have been trading some of the names like Lukoil very actively, but now the US accounts will be unwilling to transact.”

The United States and its allies have imposed several rounds of measures on Moscow since its Feb. 24 invasion of Ukraine.

Russia calls its assault a special operation to demilitarize Ukraine. Kyiv and its Western allies say it is a baseless pretext for an unprovoked war.

(Additional reporting by Rodrigo Campos in New York; Editing by David Gregorio and Cynthia Osterman)

Wall Street slips as growth shares weigh; Target’s margin warning hits retail sector

June 7 (Reuters) – US stock indexes fell on Tuesday as elevated Treasury yields hit rate-sensitive growth stocks, while Target Corp.’s gloomy margin forecast spooked the retail sector.

Shares of Target (TGT) slid 4% as the big-box retailer said it would have to offer deeper discounts and cut back on stocking discretionary items.

The weak outlook weighed on other retail stocks, with main rival and Dow component Walmart Inc. (WMT) falling 2.3%. Dollar General (DG), Nordstrom Inc. (JWN), Macy’s Inc. (M), Costco (COST), Home Depot (HD) and Best Buy Co. Inc. (BBY) fell between 0.3% and 3.2%.

“When you get inflation elevated and demand cooling off, you do get margin pressure. This was already the case in first-quarter numbers and now we get more indications that it’s continued pressure, not just a one-off quarter thing,” said Andrea Cicione, head of strategy at TS Lombard.

“It’s not doom and gloom, but we think that the downside risk to growth is growing. This is still a market where you want to fade the rallies as opposed to buying the dip.”

Nine of the 11 major S&P sectors declined in morning trade, with consumer discretionary sector down 1.5%. Energy climbed 1.2%, while healthcare edged higher.

Interest-rate sensitive technology and growth stocks retreated, as benchmark US 10-year Treasury yields hovered below 3% ahead of inflation data on Friday.

Tesla Inc. (TSLA) and Amazon.com (AMZN) fell 1.1% and 1.9%, respectively, to weigh the most on the S&P 500 and the Nasdaq.

A hot reading on the consumer price index could bolster expectations that the Fed will continue to aggressively hike rates in the second half of the year, at a time when labor market is buoyant and consumers spending remains resilient.

Money markets are expecting a 50-basis points rate increase next week, followed by July and possibly in September.

“A 50 basis point rate hike is probably appropriate. It may not be keeping pace with inflation, but I think going too aggressive would scare the market and not do much good,” said Robert Pavlik, senior portfolio manager at Dakota Wealth.

At 9:52 a.m. ET, the Dow Jones Industrial Average was down 167.50 points, or 0.51%, at 32,748.28, the S&P 500 was down 16.01 points, or 0.39%, at 4,105.42, and the Nasdaq Composite was down 39.43 points, or 0.33%, at 12,021.94.

Global shares also fell as a surprise 50-basis-point rate increase in Australia raised concern over policy tightening, while oil prices hovered just below USD 120 a barrel.

Block Inc. (SQ) and Affirm Holdings Inc. (AFRM) shed 1.3% and 4.7%, respectively, after Apple launched its buy now, pay later service, called Apple Pay Later.

Kohl’s Corp. (KSS) jumped 9.8% as the department store chain entered exclusive talks with retail store operator Franchise Group Inc. (FRG) over a potential sale that would value it at nearly USD 8 billion.

The CBOE volatility index, Wall Street’s fear gauge, rose for a third straight day and was last up at 25.69 points.

Declining issues outnumbered advancers for a 2.16-to-1 ratio on the NYSE and for a 1.52-to-1 ratio on the Nasdaq.

The S&P index recorded one new 52-week highs and 30 new lows, while the Nasdaq recorded 10 new highs and 70 new lows.

(Reporting by Devik Jain, Susan Mathew and Mehnaz Yasmin in Bengaluru; Editing by Arun Koyyur and Anil D’Silva)

China’s economic headwinds chill its wary new homebuyers

HONG KONG/BEIJING, June 6 (Reuters) – After two years of hunting, Volar Yip has put his dream of buying a new home in China’s southeastern city of Foshan on ice, anxious about making a major financial commitment amid a significant slowdown in the world’s second-largest economy.

The 32-year-old owns a media studio and many of his clients, which include government departments, are now cutting advertising budgets.

“The more I read the news, the more concerned I got,” Yip told Reuters. “All this news about China — the economy, property market and pandemic. Not much was positive.”

His decision to hold back on a house purchase, which would have moved him closer to his daughter’s school, comes even as banks cut mortgage rates.

The growing caution among young buyers in China’s battered property market, which accounts for a quarter of gross domestic product, presents a major challenge for policymakers in Beijing now scrambling to revive housing activity.

The weakness in the property sector, already buckling under huge debts, adds to the major disruptions caused by China’s zero-COVID policy, which have upended factory and retail activity this year and cast a cloud over the global economy with international businesses increasingly worried about the outlook.

Despite some recent policy relaxation in the property sector, sales plunged 47% in April from a year earlier, the biggest drop since August 2006.

For Yip, the mortgage rate cuts would save him around 400 yuan (USD 59.72) on each month’s instalment for a residential apartment worth 2 million yuan (USD 298,583) that he’s looking for.

“That’s not meaningful at all,” he said.

NO QUICK BOUNCE

Property developers, who had hoped for the market to bottom out in the second quarter, revised down investor expectations for full-year sales after the plunge in the first five months, with no demand rebound seen in the near future.

China’s strict COVID-19 curbs combined with worries about a deeper property correction and stalled construction now cloud Beijing’s 2022 economic growth target of 5.5%, adding to the risks hanging over the global economy from rising inflation and interest rates.

The national jobless rate climbed to 6.1% in April, the highest since February 2020 and well above the government’s 2022 target of below 5.5%. Even high-growth internet and tech companies are laying off staff.

In an effort to boost home purchases, China last month cut its benchmark rate for mortgages more than expected, one week after it lowered the mortgage rate floor for first-time home buyers.

A senior banker at a large Chinese bank, however, told Reuters a pickup in mortgage applications so far remains elusive.

BUYER SENTIMENT

With mortgage rates already at the low end of the range and fresh disruptions from coronavirus lockdowns, it will take time for favourable mortgage terms alone to prop up loan growth, Moody’s said in a report last week.

Household loans, including mortgages, contracted 217 billion yuan in April, versus an increase of 528.3 billion yuan in the same period last year, central bank data showed.

“The Omicron wave and draconian lockdowns in around 40 cities have significantly limited mobility, employment, income and the confidence of Chinese households,” said Nomura chief China economist Ting Lu.

“A majority of college graduates this year may not be able to find jobs due to the sharp economic slowdown.”

Official data showed the unemployment rate for 16-to-24-year-olds hit a record high at 18.2% in April.

Weaker home sales would mean reduced cashflow for developers, many of whom are struggling to pay suppliers and creditors, and would hurt local government revenues from land transactions.

A credit crunch in the property sector, triggered by tighter debt caps, has pushed some firms such as China Evergrande Group 3333.HK, the world’s most indebted developer with more than USD 300 billion in liabilities, into default.

Very few see any recovery in property developers’ financials any time soon.

Andy Lee, CEO at realtor Centaline China, said current buyer sentiment is worse now than the end of last year when credit conditions were even tighter.

“In some cities, the streets are basically empty, some shops famous on the internet lost 80-90% of their business – how do you ask them to buy a property?” Lee said.

A senior executive at a Shanghai-based developer said after many years of growth in the property market, Chinese investors were now choosing to wait out the macro uncertainty.

One 30-year-old who was looking to purchase a home in the eastern city of Hangzhou said she would wait for the economy to improve, even if it means she misses the dip in prices.

Her job prospects are her biggest worry.

“Even famous corporates like Alibaba are laying off people,” she told Reuters on the condition of anonymity. “I’m worried I will not be able to make enough money to pay my mortgage.”

(Reporting by Clare Jim and Xie Yu in Hong Kong, Liangping Gao in Beijing; Editing by Sumeet Chatterjee and Sam Holmes)

Dollar gains as risk appetite fades, inflation data eyed

NEW YORK, June 6 (Reuters) – The dollar gained against a basket of major currencies on Monday as risk appetite waned from earlier levels, with US stocks well off their earlier highs to increase the appeal of the safe haven ahead of a key reading on inflation later in the week.

After touching a near 20-year high of 105.01 on May 13, the US dollar index has eased back to around the 102 level, although Friday’s strong payrolls report helped the dollar notch its first weekly gain in three.

Ahead of the Federal Reserve’s policy announcement on June 15, in which the central bank is widely expected to raise rates by 50 basis points, investors will look to Friday’s reading on consumer prices for signs of how long the Fed may continue its rate hike path.

US stocks were higher but well off their earlier levels that saw each of the three major Wall Street indexes showing gains of more than 1% as inflation worries persisted.

“For one, risk appetite is setting the market tone ahead of this week’s big events, and the big events on the docket this week are really going to shape expectations for central bank policy through the end of the year,” said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.

“The Fed means business in terms of bringing down inflation, and until they see a meaningful move toward their goal it looks like these aggressive rate hikes remain on the table,” Manimbo added.

The dollar index rose 0.333% at 102.430, with the euro EUR= down 0.32% to USD 1.0685 ahead of a European Central Bank (ECB) policy meeting later this week.

BofA Securities now expects the ECB to raise interest rates by 150 basis points this year including 50-bps moves in July and September, it said in a note on Monday, along with a more hawkish view of the central bank’s rate hike path by Barclays.

The Japanese yen weakened 0.77% versus the greenback at 131.90 per dollar, while sterling GBP= was last trading at USD 1.2531, up 0.34% on the day.

Sterling gained ground ahead of a confidence vote on Monday after a growing number of lawmakers in Boris Johnson’s Conservative Party questioned the British leader’s authority over the “partygate” scandal.

A majority of the 359 Conservative lawmakers – at least 180 – would have to vote against Johnson for him to be removed, a level some Conservatives have said might be difficult to reach given the lack of an obvious successor. A Reuters count showed at least 169 British lawmakers from Johnson’s Conservative Party had publicly indicated support for him ahead of the vote.

Bank of Japan Governor Haruhiko Kuroda said on Monday the central bank’s top priority was to support the economy, stressing an unwavering commitment to maintaining “powerful” monetary stimulus.

The Australian dollar fell 0.21% versus the greenback at USD 0.719 ahead of a policy meeting by the Reserve Bank of Australia on Tuesday.

In cryptocurrencies, bitcoin last rose 5.57% to USD 31,287.90.

(Reporting by Chuck Mikolajczak; Editing by Will Dunham and Lisa Shumaker)

US SEC gets ready to propose changes to stock market operations – WSJ

June 6 (Reuters) – The US Securities and Exchange Commission (SEC) is preparing to propose big changes to the stock market that could reshape how it operates, the Wall Street Journal reported on Monday, citing people familiar with the matter.

Staffers at the SEC have begun floating plans with market participants in recent weeks, with Chairman Gary Gensler planning to detail a few of the potential changes in a speech on Wednesday, the report said.

The SEC did not immediately respond to a request for comment from Reuters.

One suggestion by the SEC staff that has gained traction is to require brokerage firms to have majority of individual investors’ orders routed into auctions where trading companies compete to execute them, the WSJ said.

SEC officials are also aiming to reduce the maximum fee that exchanges can charge brokers to access their quotes, the report added.

(Reporting by Praveen Paramasivam in Bengaluru; Editing by Shinjini Ganguli)

Ousted board of Philippine casino sues Japanese tycoon Okada after resort seized

By Neil Jerome Morales

MANILA, June 6 (Reuters) – The ousted board of the Philippines’ biggest casino said on Monday it is suing Japanese tycoon Kazuo Okada and his partners, accusing them of coercion and other misconduct in what it said was a “violent and illegal” seizure of the gambling resort last week.

In a dramatic turn of events in a long-running dispute over control of Tiger Resort, Leisure & Entertainment which is owned by Japan’s Universal Entertainment Corp 6425.T, Okada’s camp took physical control of the $3.3 billion casino known as Okada Manila on May 31 with the help of private security guards and local police.

The move came after the Philippines’ Supreme Court in April issued a ‘status quo ante order’, reinstating Okada, who had been ousted in 2017, as CEO of the casino. That followed a decision by the country’s Court of Appeals in January to dismiss an embezzlement charge against Okada and an associate.

The deposed board of Tiger Resorts appealed the Supreme Court’s decision in April and its legal counsel said on Monday that there was nothing in the court’s decision that authorised Okada’s camp to seize physical control or to create a new board. It is also seeking clarification from the Supreme Court about its order.

Okada’s group used “brute force and intimidation” in taking over the property on May 31, Michiaki Satate, co-vice chairman of the ousted Tiger Resort board, told a news conference.

“At this moment, it is an illegitimate board and set of officers who are running the business,” Satate said, adding that the casino operator’s parent company would not honour any business dealings conducted by the new board.

Universal has also called the seizure of the casino an “illegal occupation.”

The lawsuit names as defendants Okada, who was not physically present during the takeover, as well his partners Antonio Cojuangco and Dindo Espeleta and the private security guard company they employed.

They are accused of forcibly removing Universal director Hajime Tokuda from the casino premises and taking him to an area near his home in what the ousted board has called a kidnapping. They are also accused of harming other company officers in grievances that range from “grave coercion” and “unjust vexation”.

Vincent Lim, spokesman for Okada Manila’s current management, said on Monday: “No violent incident occurred” during the takeover. Lim did not respond to a request for comment on the lawsuit.

Officials from the Philippine gaming regulator, the Philippine Amusement and Gaming Corp (PAGCOR), were present at the takeover to monitor the event. PAGCOR said, however, it wanted to emphasise its neutrality in the dispute as the matter is still before the court.

Okada is currently in Japan. He was also ousted from Universal’s board in 2017, with directors accusing him of misappropriating $20 million in funds, which he has denied.

The 44-hectare (108 acres) Okada Manila, located beside the Manila Bay, features 993 suites and villas, 500 table games and 3,000 electronic gaming machines. It is the biggest of four multi-billion dollar casino-resorts operating in country, which has one of Asia’s most freewheeling gaming industries.

(Reporting by Neil Jerome Morales; Editing by Edwina Gibbs)

((neiljerome.morales@thomsonreuters.com; +632 8841 8914;))

Dollar advances as US job growth tops expectations

NEW YORK, June 3 (Reuters) – The US dollar rose against a basket of currencies on Friday after a better-than-expected US employment report pointed to a tight labor market that could keep the Federal Reserve on an aggressive path of interest rate hikes.

Nonfarm payrolls increased by 390,000 jobs last month, the Labor Department said in its closely watched employment report on Friday. Economists polled by Reuters had forecast payrolls increasing by 325,000 jobs in May.

The US Dollar Currency Index, which tracks the greenback against six other major currencies, was 0.4% higher at 102.16 after rising as high as 102.22 following the jobs report. For the week, the index was up about 0.5%.

“We had a pretty solid nonfarm payrolls number,” said Minh Trang, senior currency trader at Silicon Valley Bank in Santa Clara, California.

“The strong jobs data is supportive of the expectations of additional rate hikes going into the second half of the year,” Trang added.

The Fed has raised interest rates by three quarters of a percentage point this year, and most Fed policymakers back raising interest rates another half of a percentage point at each of their next two meetings.

Cleveland Federal Reserve Bank President Loretta Mester said on Friday she is looking for “compelling” evidence that inflation has peaked before reducing the pace of the Fed’s interest rate hikes from what policymakers say are likely to be half-point increments in both June and July.

Investors have mixed views on the greenback, which is still close to two-decade highs against a basket of peers.

George Saravelos, global head of forex research at Deutsche Bank, said the dollar is “pricing a safe-haven risk premium that is so extreme it rarely has persisted over time and is now in the process of unwinding.”

Bullish analysts argue that the Fed’s tightening cycle is based on a sturdier growth story than Europe’s, especially after the Russian oil embargo, which might hurt the euro zone economy.

The dollar rose 0.8% to a more than three-week high of 130.85 yen, with the Japanese currency not far from the two-decade low touched in May as the Bank of Japan (BoJ) stuck to its super-low interest rate policy stance.

BoJ Governor Haruhiko Kuroda – who has said the bank will not roll back its massive monetary stimulus as the recent rise in inflation was driven mostly by raw commodity costs and likely temporary – said on Friday it was undesirable for prices to rise too much when household income growth remains weak.

“Everybody, including the ECB, talks about higher rates and so forth, but we are not seeing that sort of chatter when talking about the BOJ,” Silicon Valley Bank’s Trang said.

“I think that’s why you have seen such an exaggerated move to the downside for the yen,” Trang added.

In cryptocurrencies, bitcoin slipped 3.0% to USD 29,513.95, as the world’s largest digital currency by market value continued to struggle to overcome a bout of selling pressure that has taken it below the USD 30,000 level.

(Reporting by Saqib Iqbal Ahmed; editing by Jonathan Oatis and Will Dunham)

US stock market rebound faces key inflation test

NEW YORK, June 3 (Reuters) – A rally that lifted US stocks from the brink of a bear market faces an important test next week, when consumer price data offers insight on how much more the Federal Reserve will need to do in its battle against the worst inflation in decades.

Despite a rocky week, the S&P 500 is still up over 5% from last month’s lows, which saw the benchmark index extend its decline to nearly 20% from its all-time high. The index was recently down about 14% from its Jan. 3 record after losing 1% in the past week.

More upside could depend on whether investors believe policymakers are making progress against surging prices. Signs that inflation remains strong may bolster the case for even more aggressive monetary tightening, potentially spooking a market already battered by worries that a hawkish Fed could deal a serious blow to US growth.

“This market is likely to remain range-bound until we get a meaningful move lower in inflation,” said Mona Mahajan, senior investment strategist at Edward Jones, which currently favors large-cap stocks over small-cap, given the ability for larger companies to absorb higher input and wage costs. “Clearly, the print next week is going to be key.”

The consumer price index (CPI) for the 12 months through April rose 8.3%, down from an 8.5% annual rate reported in the prior month, which was the largest year-on-year gain in 40 years. Friday’s inflation report for May is one of the last key pieces of data before the Fed’s June 14-15 meeting, at which the central bank is widely expected to raise rates by another 50 basis points.

If inflation is “continuing to be a problem, the Fed may not have the option of coasting later this year,” said Paul Nolte, portfolio manager at Kingsview Investment Management, adding, “The higher the interest rates, the more the struggle for the market.”

Nolte has lightened positions in equities broadly in the portfolios he manages, especially in growth stocks, and raised cash levels, pointing to factors such as still-lofty stock valuations.

INVESTORS WEIGH DATA

The CPI report comes as investors gauge how the 75 basis points of monetary tightening already delivered by the Fed this year is affecting growth. Employment data released Friday showed that US employers hired more workers than expected in May and maintained a strong pace of wage increases, signs of strength that could keep the Fed on an aggressive monetary policy tightening path. nL1N2XP2AO

Meanwhile, gloomy views from several top business leaders, including JPMorgan Chase’s JPM.N Jamie Dimon and Tesla’s TSLA.O Elon Musk, have weighed on hopes that the central bank can cool inflation without hurting the economy. Musk said in an email to executives that he has a “super bad feeling” about the economy and needs to cut about 10% of jobs at the electric carmaker, Reuters reported Friday.

Investors’ view of inflation is critical to how they value equities, as higher prices have typically spurred the Fed to raise interest rates, with higher bond yields in turn reducing the value of future corporate profits. Rising prices also raise costs for businesses and consumers.

The S&P 500 trades at around 18.7 times its trailing 12 month earnings, a rich valuation compared to other inflationary periods that suggests investors believe the current level of price increases may not last, according to Jeff Buchbinder, equity strategist at LPL Financial.

LPL believes inflation will eventually fall this year and that companies have solid earnings momentum. The firm’s year-end target on the S&P 500 is between 4,800-4,900, which at the low end stood about 16% above the index’s level as of Friday afternoon.

Others have been less optimistic. Morgan Stanley strategists earlier this week called the latest rebound just a “bear market rally,” and, citing negative trends for earnings and economic indicators, projected the S&P 500 would drop to around 3,400 by mid-August.

“There is consensus agreement that we have likely seen the high prints or the peak inflation numbers in the rear-view mirror,” said Art Hogan, chief market strategist at National Securities. “If that proves to not be true … that is going to tip over the apple cart for markets.”

(Reporting by Lewis Krauskopf; Editing by Ira Iosebashvili and Aurora Ellis)

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