- Eurozone decline, US inflation data supports market sentiment
- Two-year Treasuries experience biggest monthly rally since 2008
- Euro up 3% this month, yen up 2.5%, gold up 8%
NEW YORK, March 31 (Reuters) – An indicator for global equities rose for a fifth straight day on Friday, with the two-year US Treasury yield likely to fall for the first time in nine quarters as US inflation data slammed US market hopes Federal government fed The reserve may be nearing the end of its rate hike cycle.
US consumer spending rose modestly in February, and while inflation moderated, it remained high enough to potentially allow the US Federal Reserve to raise interest rates again this year.
Additional data showed that US consumer sentiment fell in February for the first time in four months on concerns over an imminent recession, although the impact of the recent banking crisis was muted.
Expectations for a 25 basis point rate hike at their May meeting fell to around 50%, with no rate hike seen as likely.
Following the inflation data, Boston Federal Reserve Chair Susan Collins said it was “in the early stages” for the central bank to determine whether the Fed had raised interest rates enough to bring inflation down to its 2% target.
“We hang on to every Federal Reserve speech and comment because the Fed’s path is what really drives the market,” said Rob Haworth, senior investment strategist at US Bank Wealth Management in Seattle.
“We’ve got to get past the Fed somehow, and right now this morning’s data certainly told us something about what the Fed Response Function might be, but it hasn’t gotten us past the Fed yet.”
On Wall Street, US stocks were higher and the S&P 500 is expected to post its second straight quarterly gain, thanks in part to its third straight weekly gain this month. The Nasdaq Composite, which gained nearly 16% in the first quarter, was set to post a streak of four straight quarterly declines.
During the session, the Dow Jones Industrial Average (.DJI) was up 234.7 points, or 0.71%, to 33,093.73, and the S&P 500 (.SPX) was up 33.39 points, or 0.82%, to 4,084.22 and the Nasdaq Composite (.IXIC) added 129.32 points, or 1.08%, to 12,142.79.
European stocks were also higher after euro-zone inflation fell the most in March, although growth in core prices, which exclude food and energy, accelerated.
The pan-European STOXX 600 index (.STOXX) was up 0.66% and the MSCI indicator for global equities (.MIWD00000PUS) was up 0.75%.
Even with a slight decline for the month, the STOXX index is on track for a second straight quarterly gain. The MSCI index was poised for a fifth consecutive gaining session, its longest streak in two months.
Expectations that the Fed may be nearing the end of its rate-hiking cycle have helped push US Treasury yields lower of late. The two-year US Treasury yield, which normally moves in line with interest rate expectations, rose 0.7 basis points to 4.106% the day after hitting a low of 4.083%.
The two-year yield is likely to fall for the first time in nine quarters after falling nearly 70 basis points in March, the largest monthly decline since January 2008 during the financial crisis. 10-year yields are down more than 35 basis points to 3.519% this month, confusing those who expected the opposite after February’s sharp rises.
Benchmark 10-year bonds fell 3.3 basis points to 3.519% from 3.551% late Thursday.
The dollar pared some gains against the euro on the back of US inflation data as investors expect the Fed to end its rate-hiking cycle ahead of the European Central Bank.
The dollar index rose 0.117%, while the euro fell 0.25% to $1.0874. The dollar index is on the verge of its second straight quarterly decline.
The Japanese yen weakened 0.13% against the greenback to 132.80 per dollar, while sterling was last traded at $1.2375, down 0.06% on the day.
Oil prices were higher during the session but are likely to see their biggest monthly decline since November.
US crude was recently up 1.29% at $75.33 a barrel and Brent was at $79.62, up 0.44% on the day.
Reporting by Chuck Mikolajczak, editing by Angus MacSwan
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