Wall Street gave back earlier gains on Tuesday after stock markets elsewhere rose as investors wondered when and by how much the Federal Reserve will cut rates this year, while a rebounding dollar further weakened the yen.
MSCI’s gauge of global stock performance closed 0.30% higher and European shares ended at record highs.
Benchmark Treasury yields softened, but the dollar rose on the prospect of stronger U.S. growth and potentially higher rates than other developed economies.
“It’s a quiet day, the major averages are flat and there is some profit taking,” said Tim Ghriskey, senior portfolio strategist at Ingalls & Snyder in New York. “The focus remains on the Fed, but the Fed is quite clear that little is going to happen in the near term.”
A weaker-than-expected U.S. jobs report on Friday after the previous week’s GDP reading, which showed the slowest growth in almost two years, caused a dovish pivot among investors on how quickly and by how much the Fed will cut rates.
Traders are now anticipating 44 basis points of Fed rate cuts by the end of 2024, with a first cut possible in September, according to LSEG’s rate probability app. Traders had recently priced in just one rate cut due to persistent inflation numbers.
But potentially stagnant progress on inflation means monetary policy may be less restrictive than officials think, Minneapolis Fed Chairman Neel Kashkari said in an essay that raises the possibility of prices “settling” at levels above the Fed target of 2%.
“It’s not that we don’t think inflation will come down. We just don’t think that, after three top-side prints on inflation, we will get comfort on inflation so quickly,” said Thierry Wizman, global FX and interest rates strategist at Macquarie in New York.
“It will take more than one print, maybe even more than two prints, of low inflation before the Fed gets comfortable, and that just means there may not be enough time this year to make two rate cuts.”
On Wall Street, the Dow Jones Industrial Average rose 0.08%, the S&P 500 rose 0.13% and the Nasdaq Composite fell 0.1%.
Positive gains from the financial sector and optimism that the European Central Bank will cut interest rates as soon as next month lifted stocks in Europe. The pan-regional STOXX 600 index closed 1.14% higher. The German DAX rose 1.4%.
Emerging market stocks rose 0.14%. MSCI’s broadest index of Asia-Pacific shares outside Japan closed 0.26% higher, while Japan’s Nikkei rose 1.57%.
The dollar reversed an early decline and has been higher against a basket of world currencies lately, with the greenback strengthening against the yen even after fresh warnings from Japanese officials about their willingness to prop up their currency.
The dollar index rose 0.3%, while the euro fell 0.14% to $1.0753.
The Japanese yen weakened 0.49% against the greenback at 154.68 per dollar, while the British pound last traded at $1.2508, down 0.42% on the day.
Long-term Treasury yields fell as traders focused on absorbing $125 billion in new supply this week, while a parade of Fed officials line up to discuss the prospects for a policy pivot in 2024.
The yield on the benchmark 10-year note fell 3 basis points to 4.459%, while the yield on the 2-year note, which reflects interest rate expectations, rose 0.6 basis points to 4.828%.
Oil prices closed slightly lower on signs that supply concerns are easing. US crude fell 0.13% to close at $78.38 per barrel, while Brent fell to $83.16 per barrel.
Gold fell, giving up gains from the previous session as traders remained focused on the prospect of Fed rate cuts.
US gold futures settled 0.3% lower at $2,324.20 an ounce.
Tags: Wall Street loses steam dollar gains investors ponder timing interest rate cuts
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