NEW YORK, May 18 ― Global equity markets rallied and Treasury yields rose yesterday, as solid US retail sales in April suggested economic growth might strengthen, as did an easing of China's lockdowns to contain the Covid-19 pandemic.

US retail sales rose 0.9 per cent last month while data for March was revised higher to show sales advancing 1.4 per cent instead of 0.7 per cent as previously reported, the Commerce Department said.

The data show US consumers weathering inflationary headwinds as sales gained for the fourth consecutive month, said Jeffrey Roach, chief economist for LPL Financial. Sales are nominal, so much of the increase is from higher prices, he said.

“We expect a rebound in economic growth in Q2,” Roach said in an email, if prices moderate enough to relieve some of the pressure on consumers.

US and European stocks rallied following gains overnight in Asia. MSCI's gauge of stocks across the globe closed up 2.0 per cent. The pan-European STOXX 600 index rose 1.22 per cent.

On Wall Street, the Dow Jones Industrial Average rose 1.28 per cent, the S&P 500 gained 1.89 per cent and the Nasdaq Composite advanced 2.57 per cent. Growth stocks rose 2.48 per cent while value shares gained 1.60 per cent.

The gains were a rebound from overselling last week, said Anthony Saglimbene, global market strategist at Ameriprise Financial, citing the sixth straight weekly loss for the Nasdaq and S&P 500.

“There's this battle in the stock market between what breaks first: inflation or the consumer. The stock market is betting that the consumer is going to break and credit markets are betting that inflation is going to break first,” he said.

“The stock market is getting close to overcorrecting and pricing in the probability of a recession that I think is just too high,” Saglimbene said.

Data also showed industrial production rose 1.1 per cent in April, with the manufacturing capacity utilisation rate at its highest since 2007. The sector is running too hot and needs to slow for inflation to get under control, said Bill Adams, chief economist for Comerica Bank.

The Federal Reserve will raise the federal funds rate half a percentage point at each of its next two policy meetings to throw some sand in the economy's gears, Adams said in an email.

The US central bank will “keep pushing” to tighten US monetary policy until it is clear inflation is declining, Fed chair Jerome Powell said at a Wall Street Journal event.

“What we need to see is inflation coming down in a clear and convincing way,” he said. “If we don't see that, we will have to consider moving more aggressively” to tighten financial conditions.

The Fed is behind the curve and trying to play catch up, said Brian Ward, chief executive of Broadmark Realty Capital Inc.

“We are trying to address a very complex set of facts with a very blunt instrument via monetary policy and I think that it's not going to turn out well,” Ward said.

The yield on 10-year Treasury notes rose 10.7 basis points to 2.986 per cent.

The dollar eased for a third straight day, pulling back from a two-decade high against a basket of major peers, as an uptick in risk appetite cut the greenback's safe-haven appeal.

The dollar index fell 0.787 per cent, with the euro up 1.07 per cent to US$1.0543 (RM4.60). Japan's yen weakened 0.14 per cent to 129.36 per dollar.

Fears remain about the strength of the world's two largest economies after weak retail and factory figures in China and some disappointing US manufacturing data.

An index compiled by US bank Citi that monitors whether economic data comes in better or worse than economists had been expecting is back in negative territory.

Crude oil gave up gains on news Washington may ease restrictions on Venezuela's government, and prices fell further when Powell began to speak on concerns a Fed policy error could slam the economy and reduce energy demand.

US crude futures fell US$1.80 to settle at US$112.40 a barrel and Brent settled down US$2.31 at US$111.93 a barrel.

Gold fell as the robust US retail sales data and likelihood of aggressive Fed rate hikes outweighed support from a weaker dollar.

US gold futures settled up 0.3 per cent at US$1,818.9.

Hopes that China might ease lockdowns after Shanghai achieved the long-awaited milestone of three straight days with no new Covid-19 cases outside quarantine zones. Read full story

Mainland China's CSI300 Index gained 1.25 per cent while Hong Kong's Hang Seng Index rose 3.27 per cent, as tech firms listed in the city jumped nearly 6 per cent on hopes of Beijing's crackdown on the sector being relaxed. ― Reuters