Treasuries Trim Rally as Rate-Cut Bets Stay Intact: Markets Wrap

(Bloomberg) — Treasuries pared their rally — while US stocks clung onto modest gains — as latest inflation data did little to alter expectations on the Federal Reserve’s path.

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The S&P 500 fluctuated and the Nasdaq 100 fell slightly. Yields remained lower across the curve, with the 10-year rate now hovering around 3.77%. The dollar declined.

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The Fed’s preferred gauge of underlying US inflation rose mildly in August, as did inflation-adjusted consumer spending. Those figures highlighted a cooling economy, reinforcing bets that the US central bank will continue to cut rates.

Traders also got a read on US consumer sentiment on Friday, with the indicator reaching a five-month high in the wake of the Fed lowering borrowing costs.

After the data, the market is still pricing in a split chance between a quarter point and half point cut at the Fed’s next meeting. Economists now see inflation reaching the US central bank’s 2% target next year.

“Add today’s PCE price index to the list of economic data landing in a sweet spot,” said Chris Larkin, managing director, trading and investing at E*Trade. “Inflation continues to keep its head down, and while economic growth may be slowing, there’s no indication it’s falling off a cliff.”

Damian McIntyre, a portfolio manager at Federated Hermes, said while a soft landing for the economy is never guaranteed, investors should find solace in the strength of recent economic data.

“Today’s inflation print confirms what Jerome Powell told us last week: inflation is falling, the consumer is strong, and the labor market remains resilient,” he said.

China’s daily stimulus announcements have also stoked risk appetite across markets this week.

“The data’s saying soft landing — you have to respect the data — but the forward-looking indicators are flagging warning signs,” said Andrew Pease, global head of investment strategy at Russell Investments Ltd. “The descent into a soft landing will always look the same as the start of a recession. And you won’t know till after you’ve got there.”

Japan’s yen rebounded as Shigeru Ishiba won the vote for leadership of the nation’s ruling party. Ishiba, a party veteran who has served in several senior roles including defense minister, is seen as supportive of the Bank of Japan’s plan to gradually hike rates.

In China, the CSI 300 Index concluded its best week since 2008. The People’s Bank of China unleashed one of the country’s most daring policy campaigns in decades, with Beijing rolling out a strong stimulus package in a push to shore up the slowing economy and investor confidence.

Some of the main moves in markets:

Stocks

The S&P 500 rose 0.2% as of 11:15 a.m. New York time
The Nasdaq 100 fell 0.3%
The Dow Jones Industrial Average rose 1%
The Stoxx Europe 600 rose 0.5%
The MSCI World Index rose 0.4%

Currencies

The Bloomberg Dollar Spot Index fell 0.2%
The euro was little changed at $1.1170
The British pound was little changed at $1.3402
The Japanese yen rose 1.2% to 143.00 per dollar

Cryptocurrencies

Bitcoin rose 2.6% to $66,362.13
Ether rose 2.2% to $2,690.95

Bonds

The yield on 10-year Treasuries declined two basis points to 3.77%
Germany’s 10-year yield declined four basis points to 2.14%
Britain’s 10-year yield declined two basis points to 3.99%

Commodities

West Texas Intermediate crude rose 0.3% to $67.90 a barrel
Spot gold fell 0.8% to $2,650.19 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Winnie Hsu, Divya Patil, Alex Nicholson, Sujata Rao, Margaryta Kirakosian and Edward Bolingbroke.