NEW YORK April 12 ― A global equities index rose slightly yesterday after falling earlier in the day while Treasury yields rose as investors looked to the latest inflation data for clues on the potential for Federal Reserve interest rate cuts.
A day after March's hot Consumer Price Index (CPI) reading sent equity investors to the exits, yesterday's data showed US producer prices rose more slowly than expected last month with a cost of services increase blunted by falling goods prices. The producer price index (PPI) for final demand rose 0.2 per cent versus economist expectations for 0.3 per cent and a February increase of 0.6 per cent.
But New York's Fed President John Williams said yesterday that while the central bank has made considerable progress with inflation, it does not yet appear to need rate cuts. Richmond Fed President Thomas Barkin said the Fed is not yet where it wants to be to have confidence price pressure will keep easing.
“(Thursday) morning's PPI report came in softer than expected, lessening the blow of the disappointing CPI report (on Wednesday), which obviously shows that progress on disinflation is stalling,” said Emily Roland, co-chief investment strategist at John Hancock Investment.
But while the Fed will have two more months of data to look at before it makes a rate decision in June, Roland said “markets are getting the memo that the Fed is likely not going to be able to cut anytime soon” and that “it's tough to see the case to cut rates.”
On Thursday, traders were betting on a roughly 76 per cent chance that the Fed will keep rates unchanged in June, versus 83.5 per cent on Wednesday and an almost 51 per cent chance they will stay the same in July compared with 57.6 per cent on Wednesday, according to CME Group's FedWatch tool.
On Wall Street the Dow Jones Industrial Average fell 2.43 points, or 0.01 per cent, to 38,459.08, the S&P 500 gained 38.42 points, or 0.74 per cent, to 5,199.06 and the Nasdaq Composite gained 271.84 points, or 1.68 per cent, to 16,442.20.
MSCI's gauge of stocks across the globe rose 2.10 points, or 0.27 per cent, to 774.88 after falling earlier by 0.46 per cent. Europe's STOXX 600 index closed down 0.4 per cent earlier.
Yields on US Treasuries pushed higher with two-year yields breaching 5 per cent for the first time since November before edging down, as investors worried over rebounding inflation after Wednesday's data despite the softer-than-expected producer prices.
The yield on benchmark US 10-year notes rose 2.2 basis points to 4.582 per cent, from 4.56 per cent late on Wednesday while the 30-year bond yield rose 3.8 basis points to 4.6723 per cent from 4.634 per cent.
The 2-year note yield, which typically moves in step with interest rate expectations, fell 1.7 basis points to 4.9524 per cent after earlier hitting 5.012 per cent as investors continued to digest the data from Wednesday.
“Typically when you get a big shock like that markets take about three days to normalise. Day two, we're still squaring some positions, some late tap-on-the-shoulder sellers are out there,” said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott.
In currencies, trading was choppy with the dollar last up slightly as weaker-than-expected March US producer prices did not relieve concerns about persistent inflation which has fuelled fears that the Fed will take its time cutting rates this year.
The dollar index gained 0.07 per cent at 105.27, with the euro down 0.16 per cent at US$1.0725 (RM5.10). Against the Japanese yen, the dollar strengthened 0.05 per cent at 153.25.
The yen's recent slide against the dollar re-ignited intervention fears, as Japanese officials reiterated they would not rule out any steps to deal with excessive swings.
Oil prices settled lower as sticky inflation dampened hopes for near-term US interest rate cuts, but worries that Iran might attack Israeli interests kept crude near six-month highs.
US crude settled down 1.38 per cent at US$85.02 a barrel and Brent ended at US$89.74 per barrel, down 0.82 per cent on the day.
Gold prices firmed after the inflation data while persistent geopolitical concerns added to the metal's shine.
Spot gold added 1.84 per cent to US$2,375.67 an ounce. US gold futures gained 1.86 per cent to US$2,372.90 an ounce. ― Reuters
