U.S. bank profits sent global markets higher on Friday, putting them on pace for a weekly gain. Meanwhile, U.S. Treasury costs mainly decreased as readings on consumer confidence and inflation reinforced predictions over the trajectory of rate cuts by the Federal Reserve.
September’s U.S. producer price index for final demand was steady, slightly less than the 0.1% advance predicted by Reuters’ panel of economists. It came after an unrevised 0.2% increase in August, suggesting that inflation is still declining and allowing the Fed more room to lower interest rates.
The PPI grew 1.8% in the year ending in September as opposed to the 1.6% forecast.
The rising cost of products led to a somewhat higher-than-expected consumer price index on Thursday.
The preliminary reading for the overall index of consumer sentiment from the University of Michigan this month was 68.9, which is lower than the 70.8 estimate and lower than the final reading of 70.1 in September due to high costs discouraging shopping.
As the start of the quarterly earnings season brought bank shares plunging 4.21%, the largest daily percentage gain since May 2023, U.S. stocks surged on Wall Street, with the Dow and S&P 500 ending at record highs. Wells Fargo surged by 5.61%, while JP Morgan increased by 4.44%.
Based on LSEG statistics, the predicted rise in S&P 500 earnings is 4.9%, which is a modest decrease from the 5.2% growth observed at the beginning of October.
The S&P 500 increased 34.98 points, or 0.61%, to 5,815.03, the Nasdaq Composite increased 60.89 points, or 0.33%, to 18,342.94, and the Dow Jones Industrial Average (.DJI) increased 409.74 points, or 0.97%, to 42,863.86.
However, gains were curtailed by an 8.78% decline in Tesla shares, as the maker of electric vehicles made grand promises at its robotaxi presentation but provided little concrete information.
MSCI’s global stock index increased 4.56 points, or 0.54%, to 852.75, putting it on pace for its fourth weekly gain in the previous five weeks. As investors turned their attention to China’s fiscal stimulus, corporate earnings seasons, and the European Central Bank’s (ECB) anticipated rate cut next week, the STOXX 600 index closed higher in Europe by 0.55%.
According to CME’s FedWatch Tool, markets are pricing in an 11.6% risk of no change in rates. Bets that the Fed would lower rates by 25 basis points at its meeting in November have been erratic in recent sessions and currently stand at 88.4%.
Before this week’s robust U.S. payrolls report caused investors to lower their expectations, the markets had been completely pricing in a cut of at least 25 basis points, with the possibility of another disproportionate 50 bps cut.
Remarks from central bank officials, including Fed Chair Jerome Powell, have indicated a shift in emphasis from containing excessive inflation to maintaining the stability of the labour market.
While several officials stated on Thursday that the data allows the Fed to keep lowering interest rates, Raphael Bostic, the president of the Atlanta Federal Reserve Bank, told the Wall Street Journal that he would not rule out skipping a rate decrease.
As investors assessed the Fed’s rate path, U.S. rates fluctuated before declining in response to the data. While the 2-year note yield, which usually moves in lockstep with interest rate predictions, fell 5 basis points to 3.949%, the benchmark U.S. 10-year note yield fell 0.5 basis points to 4.089%.
Currently up roughly 11 basis points for the week, the 10-year yield is expected to rise for the fourth consecutive week. With the 2-year yield close to 7 basis points this week, a second consecutive weekly increase appears likely.
In currency markets, the euro fell 0.03% to $1.0932 while the dollar index, which compares the US dollar to a basket of currencies, increased 0.05% to 102.94.
After declining for four straight weeks, the dollar is up 0.44% for the week and is expected to gain for a second straight week.
The dollar gained 0.4% against the Japanese yen to 149.15. The British pound gained 0.05% to $1.3065, although it was still close to a one-month low after data revealed that the country’s economy expanded in August following two months of contraction.
While investors assessed the effect of storm damage on U.S. demand against any widespread supply interruption if Israel hits Iranian oil sites, crude prices decreased but managed to secure a second consecutive weekly rise.
U.S. crude ended the day down 0.38% at $75.56 per barrel, while Brent finished the day down 0.45% at $79.04 per barrel.
