US Stocks Retain Gains on Fed Rate Hope and Good Economic News
After U.S. inflation statistics this week unleashed a wave of market confidence that the U.S. Federal Reserve was approaching the end of its rate-hiking cycle, Wall Street equities mainly held on to their prior gains on Friday, while the dollar lingered around 15-month lows.
According to data, U.S. consumer prices grew at their weakest rate in more than two years on Wednesday, while U.S. producer inflation increased at its smallest rate in nearly three years on Thursday. U.S. import prices fell 0.2% last month, according to government data released on Friday, while consumer confidence in the country reached its highest point in over two years.
On Friday, the MSCI World Equity index showed little movement, maintaining its year-high and best level since early 2022. Following consistent increases earlier in the week, Wall Street equities were restrained as mixed quarterly results from banks and other financial institutions offset advances in UnitedHealth Group and other health insurer companies.
The Nasdaq Composite fell 0.18% to 14,113, the S&P 500 lost 0.10% to 4,505, and the Dow Jones Industrial Average increased by 0.33% to 34,509. The STOXX and London’s FTSE 100 stock indices both had little declines of 0.11% and 0.08%, respectively, in Europe. The DAX in Germany was down 0.2%, reversing recent gains.
Senior equities strategist at Generali Investments in Rome, Michele Morganti, advised caution. He said that price-to-earnings ratios, particularly in the US, were “exuberant” when compared to actual rates and economic growth.
In an email, Morganti said that “we are still cautious on equities short term due to sticky core inflation, tightening credit conditions, and macro indicators pointing south.”
BOUNCE IN BOND YIELD
The rates on U.S. government bonds made a little recovery on Friday after a week of significant falls. The 10-year Treasury note rate increased 6.3 basis points to 3.822%. A classic indicator of interest rate expectations is the two-year U.S. Treasury yield, which increased by 15 basis points (bps) to reach 4.761%.
The rates on Euro zone government bonds hardly moved on Friday, holding onto their gains after a strong two-day surge sparked by weak U.S. inflation data.
The likelihood of a further rate increase this year has decreased, but money market traders still anticipate the Fed to hike rates by 25 basis points on July 26. The chief group strategist at UBP, Norman Villamin, said that although the September meeting was less likely, he anticipated another Fed rate rise in July.
He said, “We’re probably closer to the end of the cycle,” but noted that over the long run, above-target inflation was still anticipated to continue. “Getting the 3% (inflation reading) is one thing, but getting back to 2% is going to be a much harder task,” Villamin added. That establishes a ceiling on how low bond rates may ever again go.
CHEAPER DOLLAR HOLDS
After weakening U.S. inflation statistics, the dollar had its worst weekly fall since November on Friday, trading close to a 15-month low. The euro stayed stable at $1.1223 after reaching its highest level in more than 16 months earlier.
As the dollar rose and oil speculators took gains after a robust run, oil prices dropped by more than $1 per barrel on Friday. Crude benchmarks posted their third consecutive weekly increase.
The price of U.S. oil dropped by 2% to $75.33 a barrel, while the price of Brent went down by roughly 2% to $79.75. After indications of slowing U.S. inflation, gold prices dipped, down by roughly 0.3% on Friday, although they were still on course for their greatest weekly increase since April.
