MSCI global stock index loses steam after hitting record
Dollar loses sharply against yen, bond yields fall
In commodities: oil settles up, gold rallies 1.8%
(Updates prices after US stock market close)
A global index of stocks edged down and bond yields fell on Thursday after U.S. inflation data boosted bets on interest-rate cuts while the yen surged against the dollar, raising questions about whether Japan intervened to boost its currency.
U.S. Treasury yields dropped across the board after U.S. consumer prices unexpectedly slipped 0.1% in June after being unchanged in May, while the annual increase was the smallest in a year, reinforcing views that inflation was abating.
The report followed U.S. Federal Reserve Chair Jerome Powell's testimony to lawmakers on Capitol Hill that "more good data" would build the case for interest-rate cuts.
"The CPI print is the big macro driver today. Any way you look it's encouraging news. It's further evidence that basically gets the Fed across the finish line to that level of confidence to initiate rate cuts," said Garrett Melson, portfolio strategist at Natixis in Boston.
Despite the supportive data, Wall Street's two biggest indexes fell as investors rotated into lower-weighted interest-rate-sensitive sectors such as real estate .SPLRCR and utilities .SPLRCU and out of heavy-weight sectors such as technology .SPLRCT , which has already rallied this year.
The interest-rate-sensitive small cap Russell 2000 index .RUT rallied more than 3%.
Since investors now believe that the Fed is ready to start cutting interest rates, Sam Stovall, chief investment strategist at CFRA Research suggested they are already placing their bets without having to "wait for them to actually do it."
The Dow Jones Industrial Average .DJI rose 32.39 points, or 0.08%, to 39,753.75. But the S&P 500 .SPX lost 49.37 points, or 0.88%, to 5,584.54 and the Nasdaq Composite .IXIC lost 364.04 points, or 1.95%, to 18,283.41, with both snapping long winning streaks.
The benchmark S&P's decline followed six straight record-high closes while the Nasdaq's retreat on Thursday ended a seven-session streak of closing records.
MSCI's gauge of stocks across the globe .MIWD00000PUS fell 0.76 points, or 0.09%, to 824.01 after rising about 0.7% to a record high earlier in the day.
Europe's STOXX 600 .STOXX index earlier closed up 0.6%. In currencies, the dollar dropped, with the Japanese yen at one point gaining more than 2% against the greenback as traders priced in the likelihood of U.S. rate cuts.
The yen move was so steep that there was speculation about whether Japan had moved to shore up the currency, which fell last week to a 38-year low against the greenback.
Japan's TV Asahi, citing government sources, reported that Japanese authorities had intervened. But the country's top currency diplomat Masato Kanda said he was not in position to comment on whether authorities had intervened, according to a Jiji Press report.
The dollar index =USD , which measures the greenback against a basket of currencies including the yen and the euro, fell 0.48% to 104.47. The euro EUR= was up 0.31% at $1.0864.
Against the Japanese yen JPY= , the dollar weakened 1.75% at 158.84.
And Sterling GBP= strengthened 0.51% at $1.291 after hitting an almost one-year high as comments from Bank of England policymakers and better-than-forecast GDP data led traders to reduce bets on an August rate cut in Britain.
In Treasuries, after the inflation data U.S. two-year to 10-year yields slid to their lowest since mid-March, while those on 20-year and 30-year bonds sagged to two-week troughs.
The yield on benchmark U.S. 10-year notes US10YT=RR fell 7.4 basis points to 4.206%, from 4.28% late on Wednesday. The 30-year bond US30YT=RR yield fell 5.6 basis points to 4.4144% from 4.47% late on Wednesday.
The 2-year note US2YT=RR yield, which typically moves in step with interest-rate expectations, fell 12 basis points to 4.513%, from 4.633% late on Wednesday.
In commodity trading, oil prices edged higher after the inflation data.
U.S. crude CLc1 settled up 0.6%, or 52 cents at $82.62 a barrel and Brent LCOc1 rose to $85.40 per barrel, up 0.4%, or 32 cents.
Spot gold XAU= , added 1.82% to $2,414.27 an ounce. U.S. gold futures GCc1 gained 1.77% to $2,414.10 an ounce as the precious metal was bolstered by the prospect of rate cuts.
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