Wall Street stocks recovered losses to finish higher on Thursday, but US government bond rates curbed gains as investors absorbed solid economic data and signs from the Federal Reserve of a cautious interest rate stance.
US unemployment claims declined, although Atlanta Fed President Raphael Bostic said he preferred “slow and steady” quarter-point rate rises to reduce economic risk.
This assisted Wall Street equities in recovering from an early dip. The Dow Jones Industrial Average (.DJI) gained over 1%, lifted by Salesforce Corp (CRM.N), whose shares soared around 11.5% after the cloud-based software company issued an optimistic full-year earnings outlook and quadrupled its share buyback
The S&P 500 (.SPX) and Nasdaq Composite (.IXIC) both climbed roughly 0.75%, despite Tesla Inc (TSLA.O) dropping over 6% after the firm failed to introduce a much-anticipated tiny, inexpensive electric car.
After initially drooping, European equities (.STOXX) climbed 0.5 percent, even as eurozone inflation data justified another 50 basis point boost in the European Central Bank’s already decade-high rates this month.
Consumer price inflation in the eurozone’s 20 member nations fell to 8.5% in February from 8.6% in January, slightly more than the 8.2% forecast by analysts surveyed by Reuters.
The MSCI World Index (.MIWD00000PUS) increased by 0.37%.
Kevin Gardiner, a global investment strategist at Rothschild & Co., says that the stock and bond markets have been affected by different things in the past few weeks.Stocks are concerned about the prospect of squeezed corporate profitability, while bonds are concerned about inflation and interest rate expectations.
“The economic effect of tightening is still a mystery. Profitability may not be so vulnerable, at least not yet,” he said.
Overnight, both benchmark government bonds and stocks took a hit as inflation readings from Germany and the United States reinforced predictions that interest rates would rise and remain there for a longer period of time.
The yield on Germany’s 2-year government bonds has risen to its highest level since October 2008.
Manufacturing production in the United States fell for the fourth consecutive month in February, but a measure of raw material costs rose last month, raising fears that inflation would continue to persist.
“Economic data has surprised to the upside,” said Steven Oh, PineBridge Investments’ global head of credit and fixed income. Any unexpected data result will prompt officials to be more proactive, he added, and this has changed market expectations.
PRESSURE POINTS
Government bond yields in the United States have risen. Benchmark 10-year Treasury rates were around a four-month high of 4.066%, while two-year yields were also near a new 16-year high of 4.889%.
Fed Funds futures linked to the Fed’s policy rate predict that the rate will be in the 5.5%-5.75% range by September, up from the current range of 4.5%-4.75%.
“We anticipate interest rates to remain higher for longer, and we expect stock market volatility to continue,” Wells Fargo Investment Institute analysts said on Thursday, adding that stronger-than-expected economic statistics this winter extended their recession forecast into the second half of 2023.
DOLLAR REBOUND CONTINUES
The US dollar has risen to $104.968 in currency markets. The index is presently up approximately 1.4% for the year, although it is still down from a peak of over $114 in September.
The euro fell 0.65% and the pound fell 0.67%, as higher-than-expected inflation data increased pressure on the ECB to boost interest rates.
Shares of Silvergate Capital (SI.N) dropped 57% after the cryptocurrency-focused bank said it was delaying its annual report and figuring out if it could continue to operate as a going concern.Bitcoin was last trading at $23,461, down approximately 0.5%.
Oil prices didn’t go up much, which was helped by signs of a strong economic recovery in China, which is the biggest oil importer, and by easing worries about fast US rate hikes.US crude increased 0.32% to $77.94 per barrel, while Brent was up 0.23% to $84.50.
The spot price of gold was $1,836 per ounce.