Wall Street stocks ease, US yields rise after hot inflation data shakes confidence in Fed rate cut
edged lower on Thursday, with equities on
Wall Street
ending flat, while U.S. Treasury yields rose after market expectations for Federal Reserve interest rate cuts were shaken by surprisingly strong inflation data.
The benchmark S&P 500 eked out a fresh closing high for the third straight session, while the Dow and the Nasdaq finished little changed. The Dow Jones Industrial Average eased 0.02%, the S&P 500 rose 0.03% and the Nasdaq Composite dipped 0.01%.
"We've had a good ride for the last few trading days," said Genter Capital Management CEO Dan Genter. "The PPI (Producer Price Index) number was not something that was going to rally the market further, but it also wasn't something that was going to particularly scare the market." U.S. producer prices rose 0.9% in July, the Labor Department reported, surpassing consensus forecasts for a 0.2% gain. Investors have been watching for signs of inflation pressures from U.S. President Donald Trump's tariffs.
European stocks held gains from earlier in the day and were last 0.55% higher. MSCI's gauge of stocks across the globe fell 0.12% to 951.91, taking a breather a day after hitting an all-time high.
"I think the market is falling into an acceptance that the overall economy is slowing ... and having some confirmation with the inflation numbers puts us in a good place for at least two 25-basis-point cuts that this market is going to need for support," Genter added.
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U.S. Treasury yields leaped after the inflation data as expectations for jumbo Fed rate cuts faded. The two-year note yield was last up 4.5 basis points at 3.732%. The benchmark U.S. 10-year note yield rose 4.9 basis points to 4.289%.
Money markets showed traders still almost unanimously expect the Fed to cut borrowing costs next month, although some traders have lowered their bets. Markets are predicting a 92.5% chance that the Fed will cut rates by 25 basis points in September, down slightly from 94.3% on Wednesday but up from nearly 59% a month ago, according to the CME FedWatch tool.
"We have been too anxious to draw a conclusion that the economy is fine; it's not overheated," said Peter Andersen, founder of Andersen Capital Management in Boston. "But this wholesale data does show that perhaps there is some inflation working, and we shouldn't be so quick to conclude we need to cut interest rates."
"It reinforces the case that the Fed might say we still don't have a clear picture yet, based on the tariffs in the employment picture to take any action, and I would expect that they would tend to be neutral and make no change in September as opposed to the majority of opinions out there," Andersen said.
About 70% of global investors expect U.S. stagflation, with growth slowing as consumer price rises accelerate, to become the dominant market narrative within three months, a Bank of America survey found this week.
The dollar rose against major peers after falling in the prior session. It strengthened 0.25% to 147.75 against the Japanese yen and was up 0.39% at 0.808 against the Swiss franc .
The euro fell 0.49% to $1.1647. The dollar index tracking the greenback against peers, including the euro and Japan's yen edged 0.5% higher. Trump on Wednesday threatened "severe consequences" if Russian leader Vladimir Putin did not agree to peace in Ukraine at a Friday meeting and has also floated the idea of a second summit that would include Ukrainian President Volodymyr Zelenskiy.
Brent crude, the global oil benchmark, rose from almost a two-month low to settle up 1.84% to $66.84 a barrel and U.S. crude added 2.09% to settle at $63.96.
Spot gold fell 0.57% to $3,335.34 an ounce. U.S. gold futures for December delivery settled 0.7% lower at $3,383.20.
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