Global stocks rise as U.S. data dims September rate hike chances

Thu Sep 15, 2016 4:42pm EDT
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By Saqib Iqbal Ahmed

NEW YORK (Reuters) - Global equity prices gained on Thursday after weak U.S. retail sales data undermined the argument that the Federal Reserve will raise interest rates next week.

The U.S. Treasury yield curve surged to its steepest levels in 2-1/2 months as longer-dated debt fell, highlighting expectations that the Fed could hold off from raising rates at its two-day meeting that concludes on Wednesday.

August U.S. retail sales fell more than expected, pointing to cooling domestic demand that further diminishes expectations for an interest rate increase next week.

"The disappointing retail sales numbers really reinforces our view that it would be difficult for the Fed to lift rates next week," said Bill Merz, an investment strategist at U.S. Bank Wealth Management in Minneapolis.

Also on Thursday, U.S. weekly jobless claims data showed a tightening labor market with subdued layoffs last week, while underlying producer price inflation crept up in August.

The gap between five-year note yields and 30-year bond yields US5US30=TWEB widened to 129.70 basis points, the steepest since June 27.

Expectations that the Fed will wait longer to raise rates is causing the long bond to underperform as lower rates are likely to boost inflation longer-term, which erodes the value of the debt.

Futures traders are pricing in a 12 percent chance of a rate increase this month, down from 15 percent on Wednesday, according to the CME Group’s FedWatch tool. Friday's consumer price inflation data is the next economic focus.   Continued...

Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., September 15, 2016.  REUTERS/Brendan McDermid