Stocks advance, US yields retreat on heightened Fed cut expectations
NEW YORK :Global stocks climbed on Tuesday and were set for a third straight session of gains, as investors remained optimistic the Federal Reserve would cut U.S. interest rates at its December meeting, while U.S. Treasury yields declined.
On Wall Street, U.S. stocks closed higher, boosted by gains in Alphabet and Meta Platforms. The Google parent ended up 1.53 per cent at a record close of $323.44 as it neared $4 trillion in market capitalization, which would make it only the fourth company to reach that mark.
The Information reported that Meta Platforms, which advanced 3.78 per cent as the biggest lift to the S&P 500, was in talks with Google to spend billions of dollars on the Alphabet unit's chips for use in its data centers starting in 2027.
Investors also parsed a flurry of economic data, some of which was delayed due to the 43-day U.S. government shutdown.
Retail sales rose 0.2 per cent in September after an unrevised 0.6 per cent gain in August, the Commerce Department said, short of the 0.4 per cent rise expected by economists polled by Reuters.
The Labor Department reported that the Producer Price Index for final demand increased 0.3 per cent after an unrevised 0.1 per cent drop in August, which matched expectations, as the cost of energy goods surged and producers passed on some tariff costs.
More recent data on Tuesday from ADP said U.S. private employers shed an average of 13,500 jobs during the four weeks ending Nov. 8.
The Dow Jones Industrial Average rose 664.18 points, or 1.43 per cent, to 47,112.45, the S&P 500 advanced 60.76 points, or 0.91 per cent, to 6,765.88 and the Nasdaq Composite climbed 153.59 points, or 0.67 per cent, to 23,025.59.
Equities have been rallying since Friday after New York Fed President John Williams said interest rates can fall in the near term even as other policymakers insisted borrowing costs should remain steady for now, which boosted market bets on a rate cut. Those expectations were further juiced on Monday after comments by San Francisco Federal Reserve Bank President Mary Daly and Fed Governor Christopher Waller in support of a December cut.
"We've had more coalescing just in the last couple of days around rate cut odds, that's fluctuated dramatically in the last week," said Bill Merz, head of capital market research at U.S. Bank Wealth Management in Minneapolis.
"And we have data this morning, again, with slightly softer labor markets, that should be a key consideration for Fed voting members, and I think it is. So those slightly soft labor markets corroborate that it wasn't just a blip, but that's persisting."
The increased rate-cut expectations also boosted small-cap stocks, with the Russell 2000 closing up 2.14 per cent, its third straight session of gains.
Trading volume is likely to shrink as the U.S. Thanksgiving holiday approaches on Thursday, when markets will be closed, followed by an abbreviated session on Friday.
MSCI's gauge of stocks across the globe rose 9 points, or 0.92 per cent, to 991.31 and was on track for its biggest three-day percentage gain in more than six months. The pan-European STOXX 600 index closed up 0.91 per cent, lifted by the prospect of a Fed rate cut and optimism over a potential ceasefire in Ukraine.
U.S. yields fell after the glut of data. The benchmark U.S. 10-year note yield was down 3.4 basis points at 4.002 per cent after dropping to 3.988 per cent, its first break below 4 per cent since October 29.
Markets are pricing in an 82.7 per cent chance for a 25 basis-point cut from the Fed at its December meeting, well above the 50.1 per cent from a week ago, according to CME's FedWatch Tool.
Fed Governor Stephen Miran said in a television interview that the job market was deteriorating because of where the central bank has set its short-term interest rate target.
The dollar index, which measures the greenback against a basket of currencies, declined 0.37 per cent to 99.83, with the euro up 0.4 per cent at $1.15667.
Sterling strengthened 0.47 per cent to $1.3164 ahead of Britain's upcoming budget announcement on Wednesday, while traders piled into the options market seeking protection against heightened volatility.
Traders have been closely watching for signs of possible Japanese intervention in the yen, which strengthened 0.53 per cent against the greenback to 156.09 per dollar but is down 1.3 per cent for the month.
U.S. crude settled down 1.11 per cent to $57.95 a barrel and Brent settled at $62.48 per barrel, down 1.4 per cent after Ukraine signaled support for a U.S.-backed framework for ending the war with Russia.
