NEW YORK, Feb 16 — Global stock indexes advanced, Treasury yields declined and the dollar weakened against the Japanese yen yesterday after a larger-than-expected drop in US retail sales in January prompted a slight repositioning of expectations for interest rate cuts.

The US Commerce Department report showed retail sales dropped 0.8 per cent last month, the biggest fall since February 2023. Economists polled by Reuters had forecast retail sales dipping 0.1 per cent.

However, winter storms were seen as possible factors affecting the data, with economists noting that a fairly healthy labour market remains supportive for consumer spending.

A separate report showed initial jobless claims fell 8,000 to a seasonally adjusted 212,000 for the week ended February 10, slightly below the 220,000 estimate.

Investors are closely watching economic data for clues on when the Federal Reserve might begin cutting rates.

Bets for an at least 25-basis-point rate cut in May edged up to 40.6 per cent, while odds for June stood at 82 per cent, according to the CME Group’s FedWatch Tool.

A warmer reading of US consumer prices earlier this week prompted traders to cut the chances of a prompt rate cut from the Fed, which lifted the dollar and sparked a sell-off in the fixed income market.

Traders also are once again watching the dollar/yen rate as it topped 150 in the last few days, a critical level that puts the market on alert for possible Japanese intervention to weaken its currency.

The yen strengthened despite unexpectedly weak Japanese gross domestic product figures for the fourth quarter of 2023, which saw the country overtaken by Germany as the world’s third-largest economy.

Against the Japanese yen, the dollar was down 0.41 per cent at 149.94. The dollar index fell 0.38 per cent at 104.28, with the euro up 0.4 per cent at 1.0768.

The yield on the benchmark US 10-year Treasury note fell 3 basis points to 4.234 per cent and was on track for a second straight decline following a jump on Tuesday after the consumer prices reading.

"Clearly the retail sales came in somewhat below expectations and fits with our narrative that this is going to be a slower growth environment as we traverse 2024, but one where we still expect that there will be persistent economic growth, meaning that our base case is avoiding a recession in mid-2024,” said Bill Northey, senior investment director at US Bank Wealth Management in Billings, Montana.

The Dow Jones Industrial Average rose 348.85 points, or 0.91 per cent, to 38,773.12, the S&P 500 gained 29.11 points, or 0.58 per cent, to 5,029.73 and the Nasdaq Composite gained 47.03 points, or 0.30 per cent, to 15,906.17.

MSCI’s gauge of stocks across the globe rose 5.85 points, or 0.79 per cent, to 750.80. The STOXX 600 index gained 0.68 per cent.

Earlier yesterday, Japan’s Nikkei rallied to its highest level in 34 years, and the stock index now sits just 800 points below its all-time high in 1989 that marked the peak of Japan’s so called "bubble economy.”

Oil prices rose as the US retail data prompted a sell-off in the dollar. US crude gained US$1.39 to settle at US$78.03 a barrel and Brent rose US$1.26 to settle at US$82.86. Spot gold was up 0.6 per cent at US$2,004.05 per ounce. — Reuters