Stocks edge lower as dollar, Treasury yields rise with rates in focus By Reuters

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© Reuters. FILE PHOTO: A man is reflected on an electric stock quotation board outside a brokerage in Tokyo, Japan April 18, 2023. REUTERS/Issei Kato/File Photo

By Sinéad Carew and Marc Jones

NEW YORK/LONDON (Reuters) -MSCI’S global stock index was barely higher on Thursday while the Dow rallied to its highest level since February 2022 and bond yields and the dollar rose after Federal Reserve officials took cautious tones about interest rate cuts.

The Commerce Department said consumer spending, which is more than two-thirds of U.S. economic activity, increased 0.2% last month in line with economists’ expectations. The annual inflation increase was the smallest in more than 2-1/2 years signaling cooling demand.

U.S. Treasury yields climbed even as some investors saw the data as evidence the Fed could cease interest rate hikes. But the benchmark was still poised for its biggest monthly drop since August 2011.

The dollar gained as investors took profits on bets it would weaken further and shrugged off economic data that suggested the Fed could be done raising interest rates.

“Just about all the data today was favorable for investors. Most importantly, we continue to see a deceleration in the Fed’s preferred measure of inflation, the core PCE price index,” said Russell Price, Chief Economist, Ameriprise Financial (NYSE:) Services Inc, in Troy, Michigan. It “should be a good thing for Fed decision-making in the next few meetings.”

But while the closely watched U.S. inflation data was in line with economist expectations, traders appeared to have priced in slower inflation, said John Augustine, chief investment officer at Huntington Private Bank.

“The market was anticipating that there would be a downside surprise, that inflation would come down faster and spending would fall faster than consensus,” said Augustine.

Also on Thursday, Fed policymakers offered mixed messages with pushbacks on investor bets for a quick pivot to rate cuts.

New York Fed Bank President John Williams said that if price pressures and imbalances persist “additional policy firming may be needed.” And San Francisco Fed President Mary Daly said she is thinking about whether policy is “sufficiently restrictive to restore price stability” rather than about rate cuts.

MSCI’s gauge of stocks across 47 countries around the world was up 0.03%. The index was on track for a monthly gain of 8.7%, after three straight months of declines, marking its biggest monthly percentage gain since 2020 when investors reacted to the first COVID-19 vaccine breakthroughs.

Earlier the pan-European index closed up 0.55%, confirming its biggest monthly percentage gain since January as weak economic data from Europe bolstered bets for rate cuts.

The rose 375.39 points, or 1.06%, to 35,805.81, the gained 0.74 points, or 0.02%, to 4,551.32 and the dropped 87.19 points, or 0.61%, to 14,171.30.

The Dow, which comprises of 30 blue-chip U.S. stocks, hit its highest intraday level so far in 2023 with its biggest boost from Salesforce (NYSE:) Inc after a strong quarterly report.

Yields in U.S. Treasuries and bonds of other major countries have tumbled in November from peaks of more than a decade in October. U.S. Treasury yields, which usually drive global borrowing costs, have fallen the most since 2008.

On Thursday, benchmark U.S. 10-year notes were up 7.1 basis points to 4.342%, from 4.271% late on Wednesday. The 30-year bond was last up 5.7 basis points to yield 4.5081% while the was last was up 5.3 basis points to yield 4.7009%.

In currencies, the rose 0.632%, with the euro down 0.7% to $1.0891.

The Japanese yen weakened 0.62% versus the greenback at 148.14 per dollar, while Sterling was last trading at $1.2623, down 0.56% on the day.

In energy, oil prices settled lower after OPEC+ producers agreed to oil output cuts for the first quarter of 2024 that fell short of market expectations.

settled down 2.44% at $75.96 per barrel and ended at $82.83, down 0.32% on the day.

Gold prices fell on Thursday but stayed on track for a second straight monthly gain as expectations the Fed could cut interest rates enhanced the appeal of non-yielding bullion.

dropped 0.4% to $2,036.61 an ounce. U.S. fell 0.48% to $2,037.20 an ounce.

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