Global equity prices yesterday gained after a mixed bag of US economic data dimmed chances the Federal Reserve will raise interest rates next week.
The US Treasury yield curve steepened to the most in two-and-a-half months as longer-dated debt fell, highlighting expectations that the Fed could wait longer to raise benchmark rates.
Oil prices edged up as short-covering stemmed a two-day rout, but a stronger dollar stemmed gains.
August US retail sales fell more than expected, pointing to cooling domestic demand that further diminishes expectations for a Federal Reserve interest rate increase next week.
“The data was weaker than expected, especially retail sales, which I think the market was focusing on,” said Gary Pollack, head of fixed-income trading at Deutsche Bank Private Wealth Management in New York.
Also yesterday, US weekly jobless claims data showed a tightening labour market with subdued layoffs last week, while underlying producer price inflation crept up in August.
The gap between five-year note yields and 30-year bonds yields widened to 128 basis points, the steepest since July 1.
Expectations that the Fed will wait longer to raise rates is causing the long bond to underperform as lower rates are likely to increase inflation longer-term, which erodes the value of the debt. Futures traders are now pricing in a 12 per cent chance of a rate increase this month, down from 15 per cent on Wednesday, according to the CME Group’s FedWatch tool.
On Wall Street, stocks rose and provided some support to MSCI’s world stocks index, which tracks shares in 45 nations. The index of global stocks was up 0.58 per cent.
“We’re right now in a Goldilocks economy. It’s not too hot, it’s not too cold. It’s just right to keep the Fed on the sidelines and keep interest rates right where they are,” said Paul Nolte, portfolio manager at Kingsview Asset Management in Chicago.
The Dow Jones industrial average rose 141.62 points, or 0.79 per cent, to 18,176.39, the S&P 500 gained 16.8 points, or 0.79 per cent, to 2,142.57 and the Nasdaq Composite added 56.39 points, or 1.09 per cent, to 5,230.16.
European shares hovered near one-month lows, as concerns over a weak economic backdrop and recent heavy selling in the bond market pegged back equities. Europe’s broad FTSEurofirst 300 index rose 0.57 per cent at 1,339.35.
Stocks in Tokyo closed at a three-week low amid uncertainty over interest rate policy.
In currency markets, the US dollar held firm against a basket of major currencies after traders looked ahead to a potential rate increase from the Fed in December and sold yen on anticipation the Bank of Japan could ramp up stimulus next week.
The dollar index was up 0.03 per cent at 95.359.