The US producer price index for final demand was unchanged in September, slightly below the forecast of economists polled by Reuters for a gain of 0.1%. It followed an unrevised 0.2% increase in August, indicating inflation continues to cool and giving the Fed leeway to continue cutting interest rates.
In the 12 months through September, the PPI increased 1.8% versus the 1.6% estimate.
On Thursday, the consumer price index turned out to be slightly higher than expected as goods costs increased.
The University of Michigan’s preliminary reading on the overall index of consumer sentiment came in at 68.9 this month, compared with a final reading of 70.1 in September and below the 70.8 estimate as high prices discouraged shopping.
On Wall Street, U.S. stocks advanced, with the Dow and S&P 500 hitting record highs, as bank shares jumped nearly 5% at the start of the quarterly earnings season. JP Morgan rose 5.3% and Wells Fargo shot up 6.3%.
“As we get to the latter part of this year and into next year, you’re going to see earnings growth in the broader market and not just a small group of stocks and what the banks are telling us today is that’s happening,” said Craig Sterling, head of US equity research at Amundi US in Boston.
“Banks have been as big a question mark as anybody – the level of rates, the yield curve, capital markets activity, et cetera – and two of our biggest banks today are saying well everything’s going to be pretty good.”
S&P 500 earnings growth is expected to be 4.9%, LSEG data showed, down slightly from 5.2% at the start of October.
The Dow Jones Industrial Average rose 371.94 points, or 0.88%, to 42,826.06, the S&P 500 advanced 34.36 points, or 0.59%, to 5,814.41 and the Nasdaq Composite climbed 63.04 points, or 0.34%, to 18,345.09.
Gains were capped, however, by an 8.2% drop in Tesla shares as the electric vehicle maker promised much at its robotaxi event with few practical details.
MSCI’s gauge of stocks across the globe rose 0.55%, to 852.84 and was on track for its fourth weekly gain in five weeks. In Europe, the STOXX 600 index closed up 0.55% as investors shifted their focus to China’s fiscal stimulus, corporate earnings seasons and the European Central Bank’s (ECB) expected rate cut next week.
Bets that the Fed will cut rates by 25 basis points (bp) at its November meeting have been choppy in recent sessions, and currently stand at 89.2%, with markets pricing in a 10.8% chance of no change in rates, CME’s FedWatch Toolshowed.
Markets had been fully pricing in a cut of at least 25bp, with a chance for another outsized 50bp last week, until a strong US payrolls report prompted investors to dial back expectations.
Comments from Fed Chair Jerome Powell and other central bank officials have signalled a shift in focus from combating high inflation to labour market stability.
On Thursday, several policymakers said the data gives the Fed room to continue cutting rates, but Atlanta Federal Reserve Bank president Raphael Bostic told the Wall Street Journal he was open to skipping a rate cut.
US yields were choppy around the data as investors gauged the Fed’s rate path before heading lower. The benchmark US 10-year note yield fell 1.7bp to 4.077% while the two-year note yield, which typically moves in step with interest rate expectations, declined 5.8bp to 3.941%.
The 10-year yield is up about 11bp for the week, on pace for its fourth straight weekly advance. The two-year yield is nearly 7bp on the week, on track for a second straight weekly climb.
In currency markets, the dollar index, which measures the greenback against a basket of currencies, shed 0.03% to 102.86, with the euro up 0.06% at US$1.0942. The greenback is up 0.4% on the week, on track for a second straight weekly gain after four straight weeks of declines.
Against the yen, the dollar strengthened 0.34% to 149.06. Sterling strengthened 0.13% to US$1.3075 but remained near a one-month low after data showed the UK economy grew in August after two consecutive months of stagnation.
Crude prices slipped, but were set for a second straight weekly climb, as investors weighed the impact of hurricane damage on US demand against any broad supply disruption if Israel attacks Iranian oil sites.
US crude fell 0.36% to US$75.58 a barrel and Brent fell to US$79.18 per barrel, down 0.28% on the day.