World stocks rose on Thursday and Treasury yields spiked after surprisingly strong U.S. retail sales data soothed fears about slowing economic growth, leading investors to back away from bets of imminent aggressive interest rate cuts.
Retail sales increased 1.0% last month, well above market forecasts for a 0.3% gain, the Commerce Department’s Census Bureau said on Thursday, suggesting that consumers have maintained spending by bargain hunting.
Some investors said the robust data did not alter bets that the Federal Reserve could begin lowering rates in September, but dimmed the chance that the central bank will start easing policy with a hefty 50 basis-point rate cut.
“This diminishes fears of a recession any time soon and it is good news in terms of stocks, but may not be good news for the bond market,” said Peter Cardillo, chief economist at Spartan Capital Securities in New York.
“With this report, we’re back to square one, with the Fed probably cutting rates by 25 basis points in September. Chances are diminishing for a more robust 50 basis-point cut.”
Equity markets welcomed the latest sign of economic resilience. By 1439 GMT, the S&P 500 jumped 1.2%, the Dow Jones Industrial Average added 0.9%, and the Nasdaq Composite leapt 1.9%.
MSCI’s world share index, which has moved in excess of 1% on more than half of the trading days in August so far, rose 0.9%.
Pressured by speculation that the Fed is likely to reduce rates at a more moderate pace, the benchmark 10-year Treasury yield jumped to 3.9245%, while the two-year Treasury yield climbed to 4.0762%.
The jump in Treasury yields offered some respite to the dollar, which gained 0.4% against other major currencies, halting a stretch of losses that took it to its lowest per euro on Wednesday since late 2023. The dollar is also down almost 15% against Japan’s yen since early July.
A firmer dollar weighed on the euro on Thursday, with the common currency down 0.35% at $1.09728. The dollar also strengthened against the yen to 148.9 yen.
Risk appetite
In Europe, the pan-European STOXX 600 index was up 1.1%, although some analysts cautioned investors against complacency.
Nordea chief market analyst Jan von Gerich said the speed of the Wall Street bounce-back was a reason to be wary of further volatility ahead.
“The tentative rebound in risk appetite has happened surprisingly fast, so I would be cautious,” he said.
Wall Street’s fear barometer, the VIX volatility gauge, eased to its lowest point of the month, having soared to a four-year high on Aug. 5.
The Federal Reserve has held its main funds rate at 5.25%-5.5% for more than a year, helping to quell consumer price rises but also exacerbating some market imbalances that erupted into chaos this summer.
A sustained period of high U.S. rates driving the dollar higher against Japan’s yen screeched to a halt in July, creating a wrecking-ball effect on a popular speculative trade that involved borrowing the Japanese currency to buy U.S. stocks.
A vicious unwinding of this so-called carry trade sparked a market rout last week, although many investors believe the currency-related disruption is almost over.
“I don’t this (has been) a long-term wider market correction,” said James Henderson, equity fund manager at Janus Henderson.
Elsewhere in markets, sterling rose 0.15% to $1.2847 after data showed Britain’s economy grew 0.6% in the second quarter of 2024, which was in line with economists’ expectations.
Spot gold price rose 0.3% to $2,454.21 per ounce, close to its July 17 record high, as market speculation that U.S. rates might soon be lowered lifted the non-yielding metal.
Oil markets were also strong on Thursday, with Brent crude, the international benchmark, 1.2% higher at $80.74 a barrel as the U.S. retail report brightened the outlook for global demand.