Stocks mixed, dollar gains after robust inflation, jobs data

By Lawrence Delevingne and Marc Jones

(Reuters) -Global stock markets were mixed on Thursday, as investors weighed indicators of economic strength with rising bond market costs and expectations of more global interest rate hikes.

After initially sagging, European shares rose 0.5%as euro zone inflation numbers justified what is widely expected to be another 50 basis point hike in the European Central Bank’s already decade-high rates this month.

Consumer price inflation in the 20 countries sharing the euro currency eased to 8.5% in February from 8.6% in January on lower energy prices, a barely noticeable move and above the 8.2% economists polled by Reuters had expected.

It was not enough to lift the euro or stall the dollar’s rise though [FRX/], with Wall Street stocks lacking clear direction as U.S. jobless claims numbers fell again and a measure of the price of labor increased at a 3.2% annualized rate last quarter.

The Dow Jones Industrial Average rose 0.37%, lifted by Salesforce Inc, whose shares jumped about 11% after the cloud-based software provider gave an upbeat full-year profit forecast and doubled its share repurchase program.

The S&P 500 lost 0.1% and Nasdaq Composite dropped 0.37%, as Tesla Inc fell around 6%. The company said it would cut vehicle assembly costs by half in future generations of cars, but Chief Executive Elon Musk did not unveil a much-awaited small, affordable electric vehicle.

MSCI’s broadest index of world shares fell 0.2% to around seven-week lows.

Stock and bond markets in recent weeks have been driven by different factors, said Kevin Gardiner, global investment strategist at Rothschild & Co. The chief concern in stocks is the expectation of pressured corporate profits, while bonds are sensitive to inflation and rate expectations.

“The economic impact of tightening remains a puzzle. Profitability might not be that fragile, at least, not yet,” he said.

Overnight, both benchmark government bonds and shares had taken a blow, as inflation indicators from Germany and the United States reinforced expectations interest rates would go higher and stay there for longer

Germany’s 2-year government bond yield rose to its highest since October 2008.

In the United States, manufacturing activity contracted for a fourth-straight month in February, but a gauge of prices for raw materials increased last month, stoking concerns that inflation would remain stubborn.

“Economic data has surprised to the upside,” said Steven Oh, global head of credit and fixed income at PineBridge Investments. Any unexpected result in the data would drive policymakers to be more aggressive, and that’s reset market expectations, he said.

PRESSURE POINTS

Benchmark 10-year Treasury yields hit a fresh four-month high of 4.085%, while two-year yields also advanced to 4.916%, around a fresh 16-year high.

Investors still mostly foresee the Fed raising rates by 25 basis points at its next meeting later this month, but expectations of a larger 50 basis points hike have increased. The probability that the Fed’s policy rate, currently set in the 4.5% to 4.75% range, could peak above 5.5%, stood at 53%, compared with 41.5% on Feb. 28, according to the CME Fedwatch tool.

“We expect interest rates to stay higher for longer, and we expect stock market volatility ahead,” strategists at the Wells Fargo Investment Institute wrote on Thursday, adding that stronger-than-expected economic data this winter pushed their recession outlook into the second half of 2023.

DOLLAR REBOUND CONTINUES

In currency markets, the U.S. dollar index, measuring its value against a basket of major peers, gained 0.6% at $105.111. The index is now up about 1.5% for the year, but still down from a September high around $114.

The euro lost 0.75% and the pound dropped 0.8%, with hotter-than-expected inflation numbers adding pressure on the ECB to raise rates.

In the crypto world, shares in Silvergate Capital plunged 49% after the cryptocurrency-focused bank said it was delaying its annual report and was evaluating its ability to operate as a going concern. Bitcoin was last down about 1% at $23,303.

Oil was flat as signs of a strong economic rebound in top crude importer China conflicted with fears over the impact of potential European interest rate hikes. U.S. crude was flat at $77.70 per barrel and Brent was at $84.21, down 0.12% on the day.

Spot gold was slightly lower at $1,833 per ounce. [GOL/]

(Reporting by Lawrence Delevingne in Boston and Nell Mackenzie and Marc Jones in London; Editing by Tomasz Janowski, Sharon Singleton, Emelia Sithole-Matarise, Andrea Ricci and Richard Chang)