Global stock index gains while Treasury yields, dollar dip after inflation data

MSCI’S global equities index rose on Friday while U.S. Treasury yields dipped with the dollar after encouraging inflation data from Europe and the United States boosted investor hopes that the Federal Reserve may be done with hiking interest rates.

Underlying U.S. inflation pressures moderated in August, with the annual rise in prices excluding food and energy falling below 4.0% for the first time in more than two years, welcome news for the Fed as it ponders the monetary policy outlook.

In a surprise bout of good news for hawkish central banks, data also showed headline inflation in the euro area rising slower than economist forecasts and at its lowest in two years.

“The big fear has been that we may not be at peak interest rates and that we may still be grappling with inflation. This is a report that suggests peak rates may already be here,” Brian Levitt, global market strategist at Invesco, said.

“The result is that interest rates are down across the U.S. Treasury yield curve. The dollar is weakening as we become less concerned about additional rate hikes. Growth stocks and other longer duration assets are outperforming.”

Traders were betting on an 82.7% probability that the Fed would keep rates steady at its next meeting in November compared with an 80.7% probability on Thursday, according to the latest data from CME Group’s Fedwatch tool.

The Dow Jones Industrial Average (.DJI) rose 78.76 points, or 0.23%, to 33,745.1, the S&P 500 (.SPX) gained 27.35 points, or 0.64%, to 4,327.05 and the Nasdaq Composite (.IXIC) added 152.39 points, or 1.15%, to 13,353.67.

The pan-European STOXX 600 index (.STOXX) rose 0.78% and MSCI’s gauge of stocks across the globe (.MIWD00000PUS) gained 0.66%.

In currencies, the dollar was still headed for its biggest quarterly gain in a year but it backed off 10-month highs giving the yen some breathing room as the Japanese currency remains under scrutiny for potential government intervention.

The yen strengthened 0.10% on Friday versus the greenback at 149.13 per dollar. The dollar index , which measures the greenback against a basket of major currencies, fell 0.16%, with the euro up 0.27% to $1.0587.

Sterling was last trading at $1.221, up 0.11% after data showed Britain’s economic performance since the start of the COVID-19 pandemic was stronger than previously thought.

U.S. Treasury yields slid after the inflation reading with benchmark 10-year notes down 7.1 basis points to 4.526%, from 4.597% late on Thursday. The 30-year bond was last down 6.6 basis points to yield 4.6626%, from 4.729%. The 2-year note was last was down 3.4 basis points to yield 5.0373%, from 5.071%.

In energy, oil prices turned lower after rising earlier in the day, driven by tight U.S. supply and expectations of strong fuel demand in China during the Golden Week holiday.

U.S. crude recently fell 1.07% to $90.73 per barrel and Brent was at $95.24, down 0.15% on the day.

In precious metals, spot gold dropped 0.2% to $1,861.79 an ounce. U.S. gold futures fell 0.06% to $1,859.30 an ounce. Earlier it had ticked higher with help from the retreating dollar and Treasury yields after the inflation data, but bullion was still on track for monthly and quarterly declines on prospects of higher U.S. interest rates.