Stocks swing, bonds rally on geopolitical angst

Stocks swung between gains and losses, and Treasurys rose as geopolitical worries from Europe fueled a move away from risk assets.

The S&P 500 oscillated after wiping out a gain of more than 1% as a spokesman for Poland’s government said the nation’s national security had convened a meeting.

The spokesman did not give a reason for the meeting.

A report from the Associated Press said Russia missiles fired at Ukraine landed in Poland, citing a U.S. intelligence official. Treasury yields slipped.

Markets have turned risk-on in recent days, trading off a softer-than-expected U.S. consumer price index reading that many reckon will allow the Fed to raise rates in half-point increments.

That view was encouraged by Philadelphia Fed President Patrick Harker on Tuesday, who said he expects officials to slow their tempo.

Vice Chair Lael Brainard made similar remarks at a Bloomberg event on Monday, even though she emphasized the central bank has “additional work” to do to tame inflation.

While Atlanta Fed President Raphael Bostic also reiterated the central bank’s resolve to be persistent, Vice Chair for Supervision Michael Barr cautioned the economy could see “significant softening” because of the Fed’s actions.

On Tuesday, the producer price index for October came in at 8% year-on-year, undershooting the 8.3% estimate and easing inflation concerns.

“Taken alone, the data today supports the Goldilocks scenario, where growth is holding up very well – per the solid Empire Manufacturing report – but inflation pressures are rapidly easing - per the PPI print,” said Dan Suzuki, deputy chief investment officer at Richard Bernstein Advisors LLC.

“I think that supports the ongoing rally that you’ve seen over the past month, but I question where this narrative will hold up in the coming months.”

Some investors are not convinced the recent data will do much to move the Fed.

“The markets are looking for good news – investors seems like they want to find reasons to take more risk,” said Brian Nick, chief investment strategist at Nuveen. “But I wouldn’t be jumping on this equity rally at the moment.”

Meanwhile, Monday’s meeting between China’s Xi Jinping and President Joe Biden generated hopes of warmer ties between the two superpowers.

It came after Beijing had announced measures to support China’s beleaguered property sector, and to relax Covid curbs. Chinese stocks listed in the U.S. rallied for a fourth day.

Data showing Japan’s economy unexpectedly shrank in the third quarter, as well as softer-than-expected Chinese retail sales figures, highlighted risks for global growth.