By Sinéad Carew and Jaspreet Kalra
NEW YORK/MUMBAI (Reuters) – Global shares edged higher on Wednesday while the dollar dipped slightly and Treasury yields fell after softer-than-expected U.S. inflation data, which boosted the outlook for Federal Reserve rate cuts.
Meanwhile geopolitical uncertainty boosted oil prices and kept gold near record highs following Israel’s attack on Hamas leadership in Qatar on Tuesday, while Poland scrambled its own and NATO air defences to shoot down drones following a Russian air attack on western Ukraine.
On the data front, the U.S. Labor Department’s Bureau of Labor Statistics said that the Producer Price Index (PPI) for final demand dipped 0.1% after a downwardly revised 0.7% jump in July.
In comparison, economists polled by Reuters had forecast a 0.3% PPI advance after a previously reported 0.9% surge in July. Services prices fell 0.2% while goods prices edged up 0.1% after increasing 0.6% in the prior month.
“Stocks and bonds clearly liked the PPI report. Inflation came in a bit tamer than many had expected,” said Carol Schleif, Chief market strategist, BMO Private Wealth in Minneapolis. “This lends credence to the theme that the Fed should not only cut once next week. This increases the likelihood Fed should be able to cut more than once before year-end.”
Traders see a 25 basis point in interest rate cut by the Fed next Wednesday as a sure thing, and even lay 12% odds on a super-sized half percentage-point reduction, according to the CME Group’s FedWatch Tool, which also shows bets for further cuts at both the October and December meetings.
The final potential hurdle to those expectations – consumer inflation data – comes out early on Thursday.
Schleif noted that markets could lose some steam towards the end of the day as investors wait for the August Consumer Price Index reading.
Investors worried about the central bank’s long-held independence were likely encouraged that a court ruling temporarily blocked President Donald Trump from removing Federal Reserve Governor Lisa Cook, a case which is likely to end up before the Supreme Court.
Stephen Miran, a top White House economic advisor, cleared a U.S. Senate hurdle on Wednesday, advancing his nomination as Federal Reserve governor.
On Wall Street, the S&P 500 and Nasdaq hit record highs after the PPI data. At 10:49 a.m. the Dow Jones Industrial Average fell 185.96 points, or 0.41%, to 45,524.82, the S&P 500 rose 34.68 points, or 0.53%, to 6,547.29 and the Nasdaq Composite rose 113.06 points, or 0.52%, to 21,992.55.
MSCI’s gauge of stocks across the globe rose 4.83 points, or 0.50%, to 966.53.
The pan-European STOXX 600 index rose 0.01%, while Poland’s blue-chip index fell about 1%, one of the few regional indexes in the red in Europe.
In currencies, the U.S. dollar was marginally down against the yen and euro after the producer prices data cemented expectations for Fed rate cuts.
The dollar index, which measures the currency against a basket of currencies, including the yen and the euro, fell 0.2% to 97.61, with the euro up 0.17% at $1.1728.
Against the Japanese yen, the dollar weakened 0.06% to 147.32. In cryptocurrencies, bitcoin gained 2.23% to $113,983.39.
Key U.S. Treasury yields eased back after the data, with the yield on benchmark U.S. 10-year notes falling 2.1 basis points to 4.053%, from 4.074% late on Tuesday while the 30-year bond yield fell 0.8 basis points to 4.7087%.
The 2-year note yield, which typically moves in step with interest rate expectations for the Federal Reserve, fell 1.3 basis points to 3.529%, from 3.542% late on Tuesday.
In energy markets, oil prices rose after Israel’s Qatar attack on Hamas leadership, while the U.S. made a push for new sanctions on buyers of Russian oil, but concerns over crude oversupply capped further gains.
U.S. crude rose 0.73% to $63.09 a barrel and Brent rose to $66.86 per barrel, up 0.71% on the day.
Gold was higher, and advanced towards its record high hit in the previous session supported by expectations for rate cuts following the softer-than-expected U.S. inflation data.
Spot gold rose 0.57% to $3,646.75 an ounce. U.S. gold futures rose 0.29% to $3,653.90 an ounce.
(Reporting by Sinéad Carew, Jaspreet Kalra and Kevin Buckland; Editing by Kim Coghill, Ros Russell, Kirsten Donovan and Jane Merriman)
