Stocks climb and U.S. yields fall after inflation data
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[April 01, 2023] By
Chuck Mikolajczak
NEW YORK (Reuters) - A gauge of global stocks was on course for its
biggest weekly percentage gain in 4-1/2 months on Friday, with the
two-year U.S. Treasury yield set for its first quarterly decline in the
past nine, as U.S. inflation data fueled hopes the Federal Reserve may
be reaching the end of its rate hiking cycle.
U.S. consumer spending rose moderately in February, and while inflation
cooled, it remained elevated enough to possibly allow the Federal
Reserve to raise interest rates one more time this year.
Additional data showed U.S. consumer sentiment fell for the first time
in four months in February on concerns of an impending recession,
although the impact of the recent banking crisis was muted.
Expectations for a 25 basis point rate hike at its May meeting dipped to
about 50%, with no hike seen to be just as likely.
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However, Boston Federal Reserve President Susan Collins said the
inflation data doesn't alter the Fed's monetary policy path yet, while
New York Fed President John Williams said financial conditions will be a
key contributor to his thinking about what’s next for central bank
interest rate policy.
"Fed fund futures are basically pricing in a coin flip of a 25 (basis
point) hike in May, but calling that the end of it, if they even go
there, so anytime the data doesn’t give the Fed a reason to re-engage
hawkishly, the market is going to like it," said Ross Mayfield,
investment strategist at Baird in Louisville, Kentucky.
"It’s not like it was a soft print but it was below consensus on pretty
much every metric and the core data is creeping closer to where the Fed
wants it."
On Wall Street, U.S. stocks rose, with the S&P 500 set to notch its
second straight quarterly advance as it closed at its highest level
since February 15, after advancing for three straight weeks to close out
the month.
The Nasdaq Composite, up 16.8% in the first quarter, snapped a streak of
four straight quarterly declines.
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On the session, the Dow Jones Industrial Average .DJI rose 415.12
points, or 1.26%, to 33,274.15, the S&P 500 .SPX gained 58.48 points, or
1.44%, to 4,109.31 and the Nasdaq Composite .IXIC added 208.44 points,
or 1.74%, to 12,221.91.
European shares were also higher, after a reading of inflation in the
euro zone dropped by the most on record in March, although the core
price growth, which excludes food and energy, accelerated.
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The London Stock Exchange Group offices
are seen in the City of London, Britain, December 29, 2017.
REUTERS/Toby Melville/File Photo
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The pan-European STOXX 600 index .STOXX closed up 0.66% and MSCI's
gauge of stocks across the globe .MIWD00000PUS gained 1.04%, on
track for its biggest weekly gain since mid-November.
Even with a slight decline for the month, the STOXX index notched a
second straight quarterly gain. MSCI's index was poised for a fifth
straight session of gains, its longest streak in two months, and
recorded gains in back-to-back quarters.
Expectations the Fed may be nearing the end of its rate hiking cycle
have helped send U.S. Treasury yields lower recently. The two-year
US2YT=RR U.S. Treasury yield, which typically moves in step with
interest rate expectations, was down 4.7 basis points at 4.052% on
the day, after touching a low of 4.023%.
The two-year yield is set to decline for the first time in nine
quarters after a drop of about 75 basis points in March, the biggest
monthly drop since January 2008 during the financial crisis then.
Benchmark 10-year notes US10YT=RR were down 7 basis points to
3.481%, from 3.551% late on Thursday. The 10-year yield is down more
than 40 basis points for the month.
The dollar pared some gains against the euro in the wake of the U.S
inflation data, as investors see the Fed pausing its rate hiking
cycle before the European Central Bank.
The dollar index =USD rose 0.342%, with the euro EUR= down 0.53% to
$1.0843. The dollar index is on pace for its second straight
quarterly decline.
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The Japanese yen weakened 0.08% versus the greenback at 132.74 per
dollar, while Sterling GBP= was last trading at $1.2331, down 0.42%
on the day.
Oil prices were higher on the session to record their second
straight weekly advance.
U.S. crude CLc1 recently settled up 1.75% at $75.67 per barrel and
Brent LCOc1 settled at $79.77, up 0.63% on the day.
(Reporting by Chuck Mikolajczak, Editing by Angus MacSwan, Jonathan
Oatis and Deepa Babington)
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