© Reuters. Pristine blank prices are displayed on the stock quotation boards of the Tokyo Stock Exchange (TSE) after the TSE temporarily suspended all trading due to system problems in Tokyo, Japan, October 1, 2020. REUTERS/Issei Kato/Files
By Herbert Lash
NEW YORK (Reuters) – Global stock markets rallied and Treasury yields rose on Tuesday as strong U.S. retail sales in April suggested economic growth could strengthen, as could an easing of lockdowns in China for contain the COVID-19 pandemic.
U.S. retail sales rose 0.9% last month, while March data was revised up to show sales rose 1.4% instead of 0.7% as previously reported, the Commerce Department said.
Data shows U.S. consumers are weathering inflationary headwinds as sales rose for the fourth consecutive month, said Jeffrey Roach, chief economist for LPL Financial (NASDAQ:). Sales are nominal, much of the increase coming from higher prices, he said.
“We expect economic growth to rebound in the second quarter,” Roach said in an email, if prices moderate enough to relieve some of the pressure on consumers.
US and European stocks rallied after overnight gains in Asia. The MSCI gauge of stocks across the world closed up 2.0%. The pan-European index rose 1.22%.
On Wall Street, it rose 1.28%, gained 1.89% and advanced 2.57%. Growth stocks rose 2.48% while value stocks gained 1.60%. [.N/C]
The gains were a rebound from oversold last week, said Anthony Saglimbene, global market strategist at Ameriprise Financial (NYSE:), citing the sixth consecutive weekly loss for the Nasdaq and S&P 500.
“There’s this battle in the stock market between which breaks first: inflation or the consumer. The stock market is betting that the consumer will break and the credit markets are betting that inflation will break first,” he said. he declared.
“The stock market is about to overcorrect and price in the likelihood of a recession which I think is just too high,” Saglimbene said.
Data also showed industrial production rose 1.1% in April, with the manufacturing capacity utilization rate at its highest level since 2007. The sector is too hot and needs to slow for inflation be brought under control, said Bill Adams, chief economist for Comerica (NYSE:) Bank.
The Federal Reserve will raise the federal funds rate by half a percentage point at each of its next two policy meetings to throw sand in the gears of the economy, Adams said in an email.
The U.S. central bank “will continue to push” to tighten U.S. monetary policy until it is clear that inflation is down, Fed Chairman Jerome Powell said at an event on Tuesday. Wall Street Journal.
“What we need is a clear and convincing decline in inflation,” he said. “If we don’t see that, we will have to consider acting more aggressively” to tighten financial conditions.
The Fed is behind and trying to catch up, said Brian Ward, managing director of Broadmark Realty Capital (NYSE:) Inc.
“We’re trying to deal with a very complex set of facts with a very blunt instrument via monetary policy and I think that’s not going to go down well,” Ward said.
The yield rose 10.7 basis points to 2.986%.
The dollar eased for a third straight day, falling from a two-decade high against a basket of major peers, as a rise in risk appetite reduced the greenback’s appeal as a value refuge.
The dollar fell 0.787%, with the euro up 1.07% at $1.0543. The Japanese yen weakened 0.14% to 129.36 per dollar.
Fears remain over the strength of the world’s two largest economies after weak retail and factory figures in China and disappointing manufacturing data in the United States.
An index compiled by US bank Citi that tracks whether economic data is better or worse than economists expected has returned to negative territory.
Chart: Negative Surprises – https://fingfx.thomsonreuters.com/gfx/mkt/zjpqkgkqlpx/Pasted%20image%201652779321439.png
Crude oil lost gains on news that Washington could ease restrictions on the Venezuelan government, and prices fell further as Powell began to speak out on concerns that a Fed policy mistake could send a crash. economy and reduce energy demand.
futures fell $1.80 to settle at $112.40 a barrel and settled down $2.31 at $111.93 a barrel.
Gold fell as strong US retail sales data and the likelihood of aggressive Fed rate hikes outweighed support from a weaker dollar.
The United States settled up 0.3% to $1,818.9.
Hopes China could ease lockdowns after Shanghai hit the long-awaited milestone of three consecutive days with no new COVID-19 cases outside quarantine zones.
Mainland China’s CSI300 index gained 1.25% while Hong Kong’s rose 3.27% as tech companies listed in the city jumped nearly 6% on hopes that a crackdown on Beijing on the sector be relaxed.