[1/2]Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., July 12, 2023. Portal/Brendan McDermid
July 14 (Portal) – Global stock markets extended gains on Friday, while the dollar remained near a 15-month low after US inflation data this week sparked a wave of investor optimism that the US Federal Reserve is easing nearing the end of its rate hike cycle.
Data showed on Wednesday that US consumer prices rose at the slowest pace in more than two years, and on Thursday, US producer inflation rose at the slowest rate in almost three years. On Friday, the government reported that US import prices fell 0.2% last month and US consumer sentiment rose to the highest level in almost two years.
As investors bet on a milder inflation outlook, the MSCI World Equity Index (.MIWD00000PUS) surged to its highest level so far this year. It was up 0.1% on the day on Friday after a week of gains put it on track for its biggest weekly gain since November 2022 and highest levels since early 2022.
Wall Street rose for a fifth straight day on Friday after some of the nation’s largest lenders, including JPMorgan Chase (JPM.N) and insurer UnitedHealth Group (UNH.N), kicked off their second-quarter earnings season with strong gains .
The Dow Jones Industrial Average (.DJI) was up 0.45% to 34,549.15, the S&P 500 (.SPX) was up 0.10% to 4,514.5 and the Nasdaq Composite (.IXIC) was up 0. 12% to 14,155.78.
European equity indices were little changed, with the STOXX (.STOXX) down 0.11% and London’s FTSE 100 down 0.08% (.FTSE). Germany’s DAX lost 0.2%, retracing recent gains (.GDAXI).
Michele Morganti, chief equity strategist at Generali Investments in Rome, urged caution.
He said the price-to-earnings ratio was “stunning” relative to real interest rates and economic growth, particularly in the US
“We remain cautious on equities near-term as core inflation is persistent, credit conditions are tightening and macro indicators are pointing down,” Morganti said in an email.
BOND YIELD MIRRORS
US Treasury yields recovered slightly on Friday after falling sharply earlier in the week. The 10-year Treasury note yield rose 5.7 basis points to 3.817%.
The US 2-year Treasury yield, which normally moves in line with interest rate expectations, rose 14 basis points to 4.751%.
Euro-zone government bond yields were little changed on Friday, with bonds holding onto gains after a strong two-day rally sparked by weak US inflation numbers.
Money market traders still expect the Fed to hike rates by 25 basis points on July 26, but have reduced the likelihood of another rate hike this year.
Norman Villamin, chief group strategist at UBP, said he expected the Fed to hike another rate in July but said the September meeting was more uncertain.
“We’re probably closer to the end of the cycle,” he said, but added that longer-term, above-target inflation is still likely to persist.
“Getting to 3% (inflation readings) is one thing, getting back to 2% will be a much more difficult task,” Villamin said. “That puts a limit on how low bond yields can go again.”
LOWER DOLLAR
The dollar hovered near a 15-month low on Friday, facing its biggest weekly decline since November after weaker US inflation data.
The euro held steady at $1.1232, having previously hit its highest level in more than 16 months.
In oil markets, global benchmark crude Brent settled around $80 a barrel on Friday, with optimistic sentiment on US demand being bolstered by supply disruptions in Libya and Nigeria.
Brent was at $79.87, down 1.83% on the day; US crude fell 1.91% to $75.42 a barrel.
Gold prices eased slightly on Friday after gaining in the previous five trading days, as growing expectations of a pause in US interest rate hikes put gold prices on track for their biggest weekly gain since April. Spot Gold % at $1,960.24 per ounce.
Reporting by Lawrence Delevingne in Boston and Elizabeth Howcroft in London; Edited by Jan Harvey, Nick Macfie and Alex Richardson
Our standards: The Trust Principles.