Bond prices and a global stock market gauge rose on Thursday after moderating producer prices and a jump in weekly jobless claims bolstered bets that the Federal Reserve may soon pause its hiking of interest rates to tame high inflation.
Gold zoomed to a 13-month high and the dollar weakened after the data lowered expectations that the Fed will again raise rates in May and brought relief to investors worried that tight monetary policy could provoke a U.S. recession.
The Labor Department's producer price index for final demand dropped 0.5% in March, the most since April 2020, after being unchanged in February, while the number of Americans filing new claims for unemployment benefits rose to a three-month high last week.
"We are having again a resumption of a trend where inflation is moderating and that clearly is seen in a supportive light by the market," said Andrzej Skiba, head of the BlueBay U.S. fixed income team at RBC Global Asset Management in New York.
"Now our expectation is this trend will continue, especially after the summer," Skiba said.
Futures projected a 61% chance the Fed will hike its lending rate by 25 basis points when policymakers conclude a two-day meeting on May 3, down from 70.4% on Tuesday, CME Group's FedWatch Tool showed.
Futures also showed expectations rose of the Fed cutting rates noticeably in September, and more deeper by December.
Bonds rallied. The yield on two-year Treasuries, which reflect interest rate expectations, fell 3.3 basis points to 3.939% and on 10-year notes slid 1.6 basis points to 3.406%. Yields move opposite their price.
"The way we've been trading over the last sessions indicates that the market is more positively positioned with regards to their exposure to Treasuries," Skiba said. "That's why we do not have those dramatic moves in U.S. Treasuries on the back of better-than-expected inflation data."
MSCI's gauge of stocks across the globe gained 0.64%, while on Wall Street the Dow Jones Industrial Average rose 0.3%, the S&P 500 gained 0.55% and the Nasdaq Composite added 1.22%.
In Europe, the pan STOXX 600 index rose 0.30%.
The euro hit a 12-month high at $1.1068. Investors are positive on Europe, with blue-chip stocks hitting a two-decade peak on Wednesday. They reckon Europe's central bankers will need to be more hawkish for longer than their U.S. counterparts to rein in rising prices.
The dollar index fell 0.48%, at its lowest in two months, while the yen strengthened 0.55% at 132.41 per dollar.
The focus now turns to Friday when earnings season for Wall Street begins in earnest, with Citi, Wells Fargo and JP Morgan Chase due to report.
"It is an 'if' monetary policy world, that is, wait and see about banking and financial conditions," said Sam Rines, managing director at research firm CORB? in Texas. "Banking sector issues are explicitly part of the reaction function now."
With investors placing a greater chance of the European Central Bank raising rates for longer, the gap between 10-year Treasury and 10-year Bund yields reached its narrowest in two years, reflecting the steeper rise in German yields.
Elsewhere, gold rose 1.38% to $2,042.50 an ounce. A weaker dollar and the prospect of a decline in rates means gold, which does not bear interest, can compete more effectively for investor money, especially if inflation is proving persistent, given its reputation as a hedge against rising price pressures.
The Aussie dollar rose 1.0% on the back of surprise surges in both Chinese exports, which rose 14.8% compared with last March, and domestic Australian jobs.
China's major stock indexes were slightly in the red, with analysts saying an unexpected rise in March exports was unlikely to be sustained given softening global demand.
Chinese tech stocks slid after the Financial Times reported SoftBank was selling down its Alibaba stake, on the heels of Netherlands investor Prosus flagging some selling of its Tencent stake on Wednesday. Alibaba shares fell by as much as 5% at one stage, but later pared losses to close 2% lower. In U.S. premarket trading they were up about 1.4%.
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