By Sinéad Carew and Jaspreet Kalra
NEW YORK (Reuters) – MSCI’s global stock index advanced on Wednesday, hitting a record high, while Treasury yields touched their lowest level since April after softer-than-expected U.S. inflation data boosted hopes for Federal Reserve interest rate cuts.
Geopolitical uncertainty boosted oil prices and kept gold near a record high 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.
The U.S. Labor Department’s Bureau of Labor Statistics said the Producer Price Index 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 at 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 interest rate cut by the Fed next Wednesday as a sure thing, and lay roughly 10% 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.
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 that is likely to end up before the Supreme Court.
Stephen Miran, a top White House economic adviser, 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 intraday and closing records after the PPI data. The S&P 500 rose 19.43 points, or 0.30%, to 6,532.04, and the Nasdaq Composite gained 6.57 points, or 0.03%, to 21,886.06. The Dow Jones Industrial Average fell 220.42 points, or 0.48%, to 45,490.92.
MSCI’s gauge of stocks across the globe rose 2.65 points, or 0.28%, to 964.35 after hitting a record high.
Earlier, the pan-European STOXX 600 index closed down 0.02% while Poland’s blue-chip index fell about 0.9%, underperforming other regional European markets.
In currencies, the U.S. dollar struggled for direction after the soft inflation data.
The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, rose 0.02% to 97.83. The euro was down 0.09% at $1.1696, while against the Japanese yen, the dollar weakened 0.01% to 147.4.
“The economy has slowed, but isn’t showing signs of crashing, and may even accelerate in the months ahead,” said Karl Schamotta, chief market strategist at Corpay in Toronto. “Inflation pressures seem subdued, but risks are tilted to the upside. For most market participants, a quarter-point (Fed) move remains the most plausible base case.”
In cryptocurrencies, bitcoin gained 2.01% to $113,742.49.
In U.S. Treasuries, yields fell after the drop in August producer prices, while a solid 10-year note auction lowered the benchmark yield further in the afternoon.
The yield on benchmark U.S. 10-year notes fell 2.9 basis points to 4.045%, from 4.074% late on Tuesday, while the 30-year bond yield fell 2.4 basis points to 4.6931%.
The 2-year note yield, which typically moves in step with interest rate expectations for the Federal Reserve, rose 0.2 basis points to 3.544%, from 3.542%.
In energy markets, oil prices settled up by more than $1 a barrel as investors worried about possible supply disruptions after Poland downed drones in its airspace and the U.S. pushed for new sanctions on buyers of Russian oil. Swelling U.S. supplies capped gains.
U.S. crude settled up 1.66%, or $1.04 at $63.67 a barrel, and Brent ended at $67.49 per barrel, up 1.66%, or $1.10.
Gold kept close to its record high hit during the previous session, supported by expectations for rate cuts following the softer-than-expected U.S. inflation data.
Spot gold rose 0.4% to $3,640.78 an ounce. U.S. gold futures fell 0.03% to $3,642.20 an ounce.
(Reporting by Sinéad Carew, Gertrude Chavez-Dreyfuss, Jaspreet Kalra and Kevin Buckland; Editing by Jane Merriman and Nick Zieminski)
