Economic Data Lifts Global Stocks, Lowers Treasury Yields: Inflation Signals Rate Cut

Global stocks rose for the first time in four days on Friday after a sharp selloff, thanks to positive US economic data showing improved inflation, which also caused Treasury yields to fall.

Inflation Data

The Commerce Department reported that the personal consumption expenditures (PCE) price index, the Federal Reserve’s favorite inflation gauge, went up by 0.1% last month after staying the same in May. This matched the expectations of economists polled by Reuters.

Over the past 12 months, the PCE price index increased by 2.5%, slightly lower than the 2.6% rise in May.

Federal Reserve’s Rate Cut Expectations

This data likely sets the stage for the Federal Reserve to start cutting interest rates in September, which many in the market anticipate. Vail Hartman, an interest rate strategist at BMO Capital Markets in New York, stated, “This is just another month of good inflation data from the Fed’s preferred measure of inflation.” The Federal Reserve’s next policy meeting is at the end of July, with a less than 5% chance of a rate cut, but a September cut is expected.

Stock Market Performance

On Wall Street, US stocks saw significant gains, especially small-cap stocks, which were among the top performers. The Nasdaq also recovered, gaining about 1% after three days of losses.

• Dow Jones Industrial Average: Rose 654.27 points (1.64%) to 40,589.34.
• S&P 500: Gained 59.88 points (1.11%) to 5,459.10.
• Nasdaq Composite: Increased by 176.16 points (1.03%) to 17,357.88.

Despite these gains, the S&P 500 fell by 0.83% for the week. The Russell 2000, however, saw its best three-week performance since August 2022, surging by 11.51%.

European Stocks

European shares closed higher, driven by corporate earnings, but still ended the week with a decline.

• MSCI Global Stock Index: Rose 6.69 points (0.84%) to 803.47 but was on track for a second weekly fall.
• STOXX 600 Index: Closed up 0.83% but finished down 0.27% for the week.
• FTSEurofirst 300 Index: Ended 17.10 points (0.85%) higher.

Treasury Yields and Currency Movements

US Treasury yields dropped following the inflation data:

• 10-year note yield: Fell by 6.2 basis points to 4.194%.
• 2-year note yield: Decreased by 5.6 basis points to 4.3873%, marking its fourth weekly decline in five weeks.

The dollar index, which measures the US dollar against other currencies, slipped 0.03% to 104.30. The euro went up by 0.1% to $1.0855. The US dollar also weakened against the yen, falling by 0.1% to 153.78. The yen has strengthened due to expectations of a Fed rate cut and anticipated policy changes by the Bank of Japan.

Oil Prices

Oil prices fell due to concerns about declining demand in China and hopes for a ceasefire agreement in Gaza:

• US crude oil: Dropped by 1.43% to $77.16 a barrel.
• Brent crude: Fell by 1.51% to $81.13 per barrel.