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Wall Street stocks reverse, add to Wednesday's gains
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Europe ticks up despite sticky inflation numbers
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Treasury yields hit 16-week high, dollar gains
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U.S. jobless claims fall again
By Lawrence Delevingne and Marc Jones March 2 (Reuters) - Global stock markets gained on Thursday, reversing earlier losses, as investors weighed indicators of economic strength with rising bond market costs and expectations of more global interest rate hikes. After initially sagging, European shares rose 0.5%as euro zone inflation numbers justified what is widely expected to be another 50 basis-point hike in the European Central Bank's already decade-high rates this month. Consumer price inflation in the 20 countries sharing the euro currency eased to 8.5% in February from 8.6% in January on lower energy prices, a barely noticeable move and above the 8.2% economists polled by Reuters had expected. Wall Street stocks also powered higher after falling in morning trading, as U.S. jobless claims numbers fell again and a measure of the price of labor increased at a 3.2% annualized rate last quarter. The Dow Jones Industrial Average rose around 0.9%, boosted by Salesforce Inc , whose shares jumped about 12% after the cloud-based software provider gave an upbeat full-year profit forecast and doubled its share repurchase program. The S&P 500 gained nearly 0.5% and Nasdaq Composite rose about 0.4%, even as Tesla Inc fell around 6%. The company said it would cut vehicle assembly costs by half in future generations of cars, but Chief Executive Elon Musk did not unveil a much-awaited small, affordable electric vehicle. MSCI's broadest index of world shares gained 0.2%, just off seven-week lows.
Stock and bond markets in recent weeks have been driven by different factors, said Kevin Gardiner, global investment strategist at Rothschild & Co. The chief concern in stocks is the expectation of pressured corporate profits, while bonds are sensitive to inflation and rate expectations.
"The economic impact of tightening remains a puzzle. Profitability might not be that fragile, at least, not yet," he said. Overnight, both benchmark government bonds and shares had taken a blow, as inflation indicators from Germany and the United States reinforced expectations interest rates would go higher and stay there for longer. Germany's 2-year government bond yield rose to its highest level since October 2008.
In the United States, manufacturing activity contracted for a fourth straight month in February, but a gauge of prices for raw materials increased last month, stoking concerns that inflation would remain stubborn. "Economic data has surprised to the upside," said Steven Oh, global head of credit and fixed income at PineBridge Investments. Any unexpected result in the data would drive policymakers to be more aggressive, and that has reset market expectations, he said.
PRESSURE POINTS
Benchmark 10-year Treasury yields were near a
four-month high at 4.070%, while two-year yields also
advanced to 4.908%, around a fresh 16-year high.
Investors still mostly foresee the Fed raising rates by 25
basis points at its next meeting later this month, but
expectations of a larger 50 basis-point hike have increased. The
probability that the Fed's policy rate, currently set in the
4.5% to 4.75% range, could peak above 5.5% stood at 53%,
compared with 41.5% on Feb. 28, according to the CME Fedwatch
tool.
"We expect interest rates to stay higher for longer, and we
expect stock market volatility ahead," strategists at the
Wells Fargo Investment Institute wrote on Thursday, adding that
stronger-than-expected economic data this winter pushed their
recession outlook into the second half of 2023.
DOLLAR REBOUND CONTINUES
In currency markets, the U.S. dollar index, measuring
its value against a basket of major peers, gained about 0.5% to
$104.994. The index is now up about 1.4% for the year, but still
down from a September high around $114.
The euro lost 0.72% and the pound dropped
0.7%, with hotter-than-expected inflation numbers adding
pressure on the ECB to raise rates.
In the crypto world, shares of Silvergate Capital plunged 56% after the cryptocurrency-focused bank said it was delaying its annual report and was evaluating its ability to operate as a going concern. Bitcoin was last down about 0.65% at $23,405. Oil gained modestly as signs of a strong economic rebound in top crude importer China conflicted with fears over the impact of potential European interest rate hikes. U.S. crude rose 0.68% to $78.22 per barrel and Brent was at $84.70, up 0.46% on the day. Spot gold was slightly lower at $1,835 per ounce. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ World FX rates YTD ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (Reporting by Lawrence Delevingne in Boston and Nell Mackenzie and Marc Jones in London Editing by Richard Chang and Matthew Lewis)
