NEW YORK/LONDON: MSCI’s global equity gauge was lower on Friday while bond yields climbed as investors waited for clues about the future path for interest rates from next week’s US Federal Reserve (Fed) meeting.
In US treasuries, benchmark 10-year yields rose to a three-week high and were on track for their fifth-straight daily gain as investors bet that Fed chair Jerome Powell will signal a pause in policy easing after a widely expected 25 basis-point rate cut next Wednesday.
The US central bank is grappling with inflation staying stubbornly above its 2% annual target. Data released on Thursday showed higher-than-expected US producer prices in November.
Friday’s data showed US import prices barely rose in November as increases in food and fuel costs were partially offset by decreases elsewhere, thanks to a strong dollar.
“The market is assuming that Powell cuts next week and then pauses. I think that’s the right assumption because we’re seeing a tension between the inflationary data and the labour-market data,” said Matt Rowe, head of portfolio management and cross-asset strategies at Nomura Capital Management.
While bets on a December rate cut are almost unanimous, CME Group’s Fedwatch tool implies just two cuts in 2025.
“They have to take into account that in an economy where inflation is showing itself at this point to be sticky, and you’re very highly likely going to get further fiscal stimulus, deregulation, and some aspect of tariffs coming through, there’s just no way you can validate why you keep cutting in that instance,” said Tom Fitzpatrick, head of global market insights at RJ O’Brien in New York.
While a rally in chipmaker Broadcom boosted Wall Street, the indexes made no strong move in either direction.
At 2.59pm, the Dow Jones Industrial Average fell 61.58 points, or 0.14%, to 43,852.54, the S&P 500 fell 0.80 points, or 0.01%, to 6,050.55 and the Nasdaq Composite rose 19.33 points, or 0.10%, to 19,922.17.
MSCI’s gauge of stocks across the globe fell 2.30 points, or 0.26%, to 866.11. Europe’s STOXX 600 index closed down 0.53% earlier, breaking a three-week winning streak, as investors sought clarity on Europe’s rate policy amid concerns about economic growth and a potential trade war.
The yield on benchmark US 10-year notes rose 7.5 basis points to 4.399%, from 4.324% late on Thursday while the 30-year bond yield rose 6.7 basis points to 4.615%.
The two-year note yield, which typically moves with Fed-rate expectations, rose 5.5 basis points to 4.241%.
In currencies, the dollar eyed its biggest weekly gain in a month on the prospect of slower US rate cuts next year. Sterling fell after a surprise contraction in UK economic activity while the euro clawed back some recent losses in the wake of the European Central Bank’s rate cut on Thursday.
On the day, the dollar index, which measures the greenback against a basket of currencies, rose 0.04% to 107.00, with the euro up 0.26% at US$1.0494.
Against the Japanese yen, the dollar strengthened 0.69% to 153.68, having risen all week as traders scaled back bets on a Bank of Japan rate hike next week.
In energy markets, oil prices settled at a three-week high on expectations that more sanctions on Russia and Iran could tighten supplies and that lower US and European interest rates could boost fuel demand.
US crude settled up 1.8%, or US$1.27 at US$71.29 a barrel and Brent settled at US$74.49 per barrel, up 1.5% or US$1.08 on the day.
In precious metals, gold fell on the day but was set for a weekly gain. Spot gold 1.05% to US$2,653.17 an ounce. US gold futures fell 0.96% to US$2,661.70 an ounce.