In a strong turnaround, global stocks markets surged on Friday, marking their best daily performance in six weeks. This recovery comes after a sharp selloff, buoyed by encouraging U.S. economic data that painted a positive inflation picture, leading to a drop in Treasury yields.
The Commerce Department reported that the Personal Consumption Expenditures (PCE) price index, a key inflation gauge preferred by the Federal Reserve, edged up by 0.1% in June following a flat reading in May. This increase was in line with economists’ expectations, based on a Reuters poll.
Over the 12 months leading up to June, the PCE price index rose by 2.5%, slightly down from the 2.6% increase observed in May. These figures suggest that inflation is stabilizing, potentially setting the stage for the Federal Reserve to consider interest rate cuts as early as September, aligning with market anticipations.
Chris Larkin, Managing Director and Head of Trading and Investing at E*Trade from Morgan Stanley in New York, commented, “It’s been a positive week for the Fed. The economy is showing resilience, and PCE inflation has remained steady. However, a rate cut next week seems unlikely. There is still ample time for the economic landscape to shift before the September Federal Open Market Committee (FOMC) meeting, but current trends are favorable for the Fed.”
The Federal Reserve is slated to hold its next policy meeting at the end of July. While the likelihood of a rate cut of at least 25 basis points at this meeting is under 5%, market participants are almost certain of a cut in September, according to CME’s FedWatch Tool.
On Wall Street, U.S. stocks experienced a significant boost, with small-cap stocks leading the charge as the market continues its rotation towards undervalued sectors. Major tech stocks also showed signs of recovery, with the Nasdaq rebounding by over 1% after three consecutive days of losses that saw the index drop nearly 5%.
The Dow Jones Industrial Average surged by 667.65 points, or 1.67%, to close at 40,602.72. The S&P 500 climbed by 64.72 points, or 1.20%, to 5,463.94, while the Nasdaq Composite added 182.87 points, or 1.05%, to reach 17,364.60. Despite this rebound, the S&P 500 remained on track for a weekly decline. Conversely, the Russell 2000 was set for its third consecutive week of gains, having surged nearly 11% during this period.
European markets also closed higher, driven by positive corporate earnings reports following two days of declines. Nevertheless, the weekly performance remained negative.
The MSCI’s global stocks gauge rose by 7.15 points, or 0.90%, to 803.93, marking its largest daily gain since June 12, though it was still on track for a second consecutive weekly decline. Europe’s STOXX 600 index ended the day up by 0.83% but closed the week down by 0.27%. The FTSEurofirst 300 index saw a rise of 17.10 points, or 0.85%.
In the bond market, U.S. Treasury yields fell following the inflation data release. The yield on the benchmark 10-year Treasury notes dropped by 5.4 basis points to 4.202%, setting it up for a weekly decline. The 2-year note yield, which is closely tied to interest rate expectations, also fell by 5.4 basis points to 4.3894%, marking its fourth weekly decline in the past five.
The U.S. dollar weakened slightly, with the dollar index, which measures the greenback against a basket of six major currencies, slipping by 0.05% to 104.28. The euro gained 0.14% to $1.0859. Against the Japanese yen, the dollar fell by 0.16% to 153.68, its biggest weekly percentage drop against the yen since early May. This decline is driven by expectations of a Fed rate cut and potential policy tightening by the Bank of Japan.
Sterling also strengthened, up by 0.16% to $1.2871. The Bank of England’s upcoming policy meeting adds an element of uncertainty, with market participants keenly watching for any rate adjustments.
In the commodities market, U.S. crude oil prices fell by 1.43% to $77.16 per barrel, while Brent crude dropped by 1.52% to $81.12 per barrel. This decline is attributed to decreasing Chinese demand and optimism regarding a potential ceasefire agreement in Gaza.
Overall, the positive inflation data has instilled a sense of optimism in global stocks markets, setting the stage for potentially favorable policy moves by central banks, while investors remain vigilant for further economic developments.
