Shares rebound, yields stay high as services data sends mixed signals

Shares rebound, yields stay high as services data sends mixed signals

By Herbert Lash and Amanda Cooper

NEW YORK/LONDON (Reuters) -Global stocks rebounded but bond yields rose on Wednesday after data showed U.S. services industry growth eased further in March, suggesting the economy and inflation are slowing and that the Federal Reserve may be able to cut interest rates soon.

The U.S. central bank had been expected to start easing rates as early as June, but robust economic data boosted Treasury yields this week to multi-month highs and jolted the expected timetable.

A measure of prices paid by businesses for inputs dropped to a four-year low, the Institute for Supply Management (ISM) survey showed, boding well for the inflation outlook.

MSCI’s gauge of global stock performance rebounded, rising 0.19%. But bond yields remained higher, with the benchmark 10-year Treasury note yield up 1.6 basis points at 4.381% after hitting a fresh four-month high.

The Treasury market viewed the data as showing a still-strong economy and sticky inflation.

Survey data such as ISM’s have been less useful in gauging the economy than gross domestic product, employment and even retail sales numbers, which have shown strength, said Joe LaVorgna, chief U.S. economist at SMBC Nikko Securities in New York.

“One of the problems is that the survey data have not been particularly accurate,” he said.

“I’m not sure the equity market’s reacting to any specific set of data at this point. It just seems to be a constant inflow (of investment) as the market keeps getting excited. One about AI and secondly about the prospects of an Immaculate landing.”

The pan-European STOXX 600 index rose 0.33%, as the ISM data cheered European investors. On Wall Street, the Dow Jones Industrial Average rose 0.06%, the S&P 500 gained 0.23% and the Nasdaq Composite added 0.31%.

The Fed should not cut its benchmark rate until the end of this year, Atlanta Fed President Raphael Bostic told broadcaster CNBC, maintaining his view that policymakers should reduce borrowing costs only once in 2024. Investors are waiting to hear Fed Chair Jerome Powell speak later on Wednesday.

The dollar index held near its highest level in more than four months, pinning the yen close to its lowest in decades, though the increased threat of currency intervention by Tokyo capped further declines in the Japanese currency.

The dollar index, a measure of the U.S. currency against six peers, was last down 0.46% at 104.28, not far from its highest level since November.

The yen was last at 151.71 per dollar, barely recovered from last week’s slump to a 34-year low of 151.975, as the Bank of Japan’s historic policy shift only served to underscore its outlier status.

Oil prices extended gains as investors mulled supply risks stemming from Ukrainian attacks on Russian refineries and the potential for escalation in the Middle East conflict, while OPEC+ ministers held steady their output policy.

U.S. crude rose 0.81% to $85.84 per barrel and Brent was at $89.71, up 0.89% on the day.

Gold prices hit a fresh record high for the fourth straight session, as a cocktail of factors from growing Mideast tensions, the expectation of U.S. interest rate cuts and sticky inflation boost bullion’s allure.

Spot gold added 0.2% to $2,283.54 an ounce.

Bitcoin rose 0.6% to at $66,057.00.

(Additional reporting by Stella Qiu in Sydney. Editing by Sam Holmes, Bernadette Baum, Gareth Jones and Richard Chang)