US inflation data boosts global stocks, lowers Treasury yields
Updated at 1:53 p.m. ET/1753 GMT
By Chuck Mikolajczak
NEW YORK, July 26 (Reuters) - A gauge of global stocks rose and was on track for its best daily performance in six weeks on Friday as equities steadied after a sharp selloff and U.S. economic data showed an improving inflation landscape, sending Treasury yields lower.
The Commerce Department said the personal consumption expenditures (PCE) price index, the Federal Reserve's preferred inflation gauge, edged 0.1% higher last month after being unchanged in May, matching estimates of economists polled by Reuters.
In the 12 months through June, the PCE price index climbed 2.5%, also in line with expectations, after rising 2.6% in May.
The data likely sets the stage for the Fed to begin cutting rates in September, as the market widely expects.
"Overall, it's been a good week for the Fed. The economy appears to be on solid ground, and PCE inflation essentially remained steady," said Chris Larkin, managing director, head of trading and investing at E*Trade from Morgan Stanley in New York.
"But a rate cut next week remains a long shot. And while there’s plenty of time for the economic picture to change before the September FOMC meeting, the numbers have been trending in the Fed’s direction."
The Fed is scheduled to hold its next policy meeting at the end of July. Markets see a less than 5% chance for a rate cut of at least 25 basis points (bps) at that meeting, but are fully pricing in a September cut, according to CME's FedWatch Tool .
On Wall Street, U.S.stocks jumped, with small cap .RUT stocks once again among the best performers as the market continues its recent rotation into undervalued names.
However, megacap names also showed signs of stabilizing, with the Nasdaq up more than 1% after three straight days of declines that sent the index down nearly 5%.
The Dow Jones Industrial Average .DJI rose 667.65 points, or 1.67%, to 40,602.72, the S&P 500 .SPX gained 64.72 points, or 1.20%, to 5,463.94 and the Nasdaq Composite .IXIC gained 182.87 points, or 1.05%, to 17,364.60.
The S&P 500 was still poised for a weekly decline, however, while the Russell 2000 was on track for a third straight week of gains, in which it has surged nearly 11%.
European sharesclosed higher, buoyed in part by corporate earnings after two consecutive sessions of declines, but still on track for a weekly decline.
MSCI's gauge of stocks across the globe .MIWD00000PUS rose 7.15 points, or 0.90%, to 803.93. The MSCI index was on track for its biggest daily percentage gain since June 12 but was on pace for its second straight weekly fall.
The STOXX 600 .STOXX index closed up 0.83% but finished down 0.27% on the week.Europe's broad FTSEurofirst 300 index .FTEU3 ended 17.10 points, or 0.85%, higher.
U.S. Treasury yields US10YT=RR were lower after theinflation data. The yield on benchmark U.S. 10-year notes US10YT=RR dropped 5.4 basis points to 4.202% from 4.256% and was poised for a second straight daily fall, putting it on pace to decline for the week.
The 2-year note US2YT=RR yield, which typically moves in step with interest rate expectations, fell 5.4 basis points to 4.3894% and was heading for its fourth weekly decline in the past five.
The dollar index =USD, which measures the greenback against a basket of currencies including the yen and the euro, slipped 0.05% at 104.28, with the euro EUR= up 0.14% at $1.0859.
The greenback also weakened 0.16% at 153.68against the yen after the inflation PCE data and was on track for its biggest weekly percentage drop against the Japanese currency since early May.
The yen has strengthened on expectations a cut from the Fed is on the horizonwhile the Bank of Japan is expected to begin tightening policy byraising rates and reducing itsbond purchases inthe coming months. In addition,suspected BOJ intervention earlier this month also supported the currency.
Sterling GBP= strengthened 0.16% at $1.2871. The Bank of England will also hold a policy meeting next week, althoughuncertainty surrounds what action the central bank may take with regard to rates.
U.S. crude CLc1 lost 1.43% to $77.16 a barrel and Brent LCOc1 fell to $81.12 per barrel, down 1.52% on the day on declining Chinese demand and hopes of a Gaza ceasefire agreement.
text_section_type="notes">To read Reuters Markets and Finance news, click on https://www.reuters.com/finance/markets For the state of play of Asian stock markets please click on: 0#.INDEXA
World FX rates YTD http://tmsnrt.rs/2egbfVh
The Magnificent Seven versus the market https://reut.rs/3A2wswA
US consumer sentiment https://reut.rs/4fhCRE9
Annual change in US Personal Consumption Expenditures Price Index https://reut.rs/3A0qdcz
Reporting by Chuck Mikolajczak; additional reporting by Sinéad Carew in New York, Johann M Cherian in Bengaluru; editing by Mark Heinrich
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