By Sinéad Carew and Iain Withers
NEW YORK/LONDON (Reuters) – MSCI’s global equities index edged higher on Friday, after registering a record close in the prior session, while U.S. Treasury yields rebounded after sliding the day before when expectations climbed for U.S. rate cuts.
The University of Michigan’s Surveys of Consumers showed that U.S. consumer sentiment fell for a second straight month in September to its lowest point since May, as consumers saw rising risks to business conditions, the labor market and inflation.
Consumer inflation expectations for the next year stayed at 4.8% but inflation expectations for the next five years rose to 3.9% from last month’s 3.5%.
“The University of Michigan sentiment study came in worse than expected and more importantly inflation expectations remained pretty high. That’s sending yields a little higher,” said Jack Ablin, founding partner and chief investment strategist at Cresset Capital.
“Investors worry that expectations dictate reality and perhaps consumers will act accordingly if they expect inflation to be higher than usual … and just perpetuate the inflation hamster wheel.”
Wall Street was a mixed bag after all three of its main indexes registered record closing highs on Thursday, when investors reacted bullishly to weaker-than-expected jobs data by ramping up bets that the Federal Reserve would make three rate cuts in a row, including a cut on September 17 after its next meeting.
“The market feels a little stretched and toppy. And now investors in the market are going to focus on next Wednesday and exactly what Jay Powell says, how he says it. Does he sound more dovish? What lines did he delete? What lines did he add?,” said Kenny Polcari, partner and chief market strategist at SlateStone Wealth in Jupiter, Florida, referring to Fed Chair Jerome Powell’s press conference and the Fed’s written statement.
“Rates are going lower for sure but I do think the market has gotten ahead of itself in terms of valuation.”
Thursday’s U.S. consumer price report had been seen as the last major hurdle before the Fed meeting. But while prices showed a bigger-than-expected increase, market participants kept their focus on a separate report that showed a sharp rise in unemployment claims.
On Wall Street the Dow Jones Industrial Average fell 273.78 points, or 0.59%, to 45,834.22 and the S&P 500 fell 3.18 points, or 0.05%, to 6,584.29. The Nasdaq Composite rose 98.03 points, or 0.45%, to 22,141.10 for another record closing high.
For the week, the S&P 500 gained 1.59% while the Nasdaq rose 2.03% and the Dow climbed 0.95%.
MSCI’s gauge of stocks across the globe rose 0.70 points, or 0.07%, to 972.15 and the pan-European STOXX 600 index closed down 0.09%, after giving up earlier gains.
In currencies, the U.S. dollar rose on Friday, a day after falling on a surge in U.S. jobless claims and modest inflation, as investors prepared for interest rate cuts after a roughly nine-month hiatus.
The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, rose 0.05% to 97.60.
Against the Japanese yen, the dollar strengthened 0.26% to 147.58.
U.S. and Japanese finance ministers on Friday released a statement reaffirming that neither country would target currency levels in their policies.
The euro was up 0.02% at $1.1735. On Thursday the European Central Bank kept rates unchanged and signalled that it was in a “good place” on policy. After the meeting, ECB sources told Reuters the December meeting would be the most realistic time frame to debate whether another cut was needed to buffer the economy.
Britain’s economy recorded zero monthly growth in July, in line with forecasts but showing a sharp drop in factory output, weighing on sterling, which weakened 0.09% to $1.356.
In U.S. Treasuries, yields rose as investors looked ahead to the Fed’s policy meeting.
The yield on benchmark U.S. 10-year notes rose 5.1 basis points to 4.062%, from 4.011% late on Thursday, while the 30-year bond yield rose 2.7 basis points to 4.6776%.
The 2-year note yield, which typically moves in step with interest rate expectations for the Federal Reserve, rose 2.9 basis points to 3.558%.
In energy markets, oil prices settled higher after a Ukrainian drone attack suspended loadings from the largest port in western Russia, but gains were capped by concerns about U.S. demand.
U.S. crude settled up 0.51% or 32 cents at $62.69 a barrel and Brent ended at $66.99 per barrel, up 0.93%, or 62 cents, on the day.
In precious metals, gold was showing its fourth weekly gain in a row and trading near its Tuesday record high, as investors looked ahead to U.S. rate cuts. [GOL/]
Spot gold rose 0.3% to $3,644.67 an ounce. It hit a record high of $3,673.95 on Tuesday.
(Reporting by Sinéad Carew in New York, Iain Withers in London and Wayne Cole in Sydney; Editing by Gareth Jones, Emelia Sithole-Matarise, Nia Williams and Edmund Klamann)
