Yields, dollar rise after stronger-than-expected US PPI data supress rate cut hopes

NEW YORK (Reuters): US Treasury yields rose and the dollar edged up against the yen on Friday after data showed US producer prices increased more than expected in January, adding to the view that any interest rate cuts by the Federal Reserve are not imminent.

US stocks ended lower, while the MSCI global stock index dipped slightly.

The US producer price index (PPI) for final demand rose 0.3 per cent last month after declining by a revised 0.1pc in December, the Labour Department’s Bureau of Labour Statistics said. Economists polled by Reuters had forecast the PPI rebounding 0.1pc following a previously reported 0.2pc drop.

On Friday, market expectations the Fed will start cutting rates in June were dialled back, with CME’s FedWatch Tool now showing a 69.9pc chance for a cut of at least 25 basis points, down from the nearly 90pc in the prior session.

“A number like this, it definitely pushes off the Fed for another month or two,” said Tom di Galoma, co-head of global rates trading at BTIG in New York.

A US consumer prices reading earlier this week was also stronger than expected.

The yield on the benchmark US 10-year Treasury note climbed 5.3 basis points to 4.293pc, down from an earlier high of 4.33pc, and was on pace for its second straight weekly gain.

The greenback also gained after the data. Against the Japanese yen, the dollar was up 0.2pc at 150.21. The dollar index was down 0.02pc to 104.28, while the euro was up 0.03pc at 1.0774.

Bank of Japan Governor Kazuo Ueda said on Friday that monetary policy would most likely remain accommodative, even after ending negative interest rates, echoing recent reassurances from BOJ officials that have weighed on the yen.

On Wall Street, the Dow Jones Industrial Average fell 145.13 points, or 0.37pc, to 38,627.99, the S&P 500 lost 24.16 points, or 0.48pc, to 5,005.57 and the Nasdaq Composite lost 130.52 points, or 0.82pc, to 15,775.65.

US markets will be closed on Monday for the Presidents’ Day holiday.

MSCI’s gauge of stocks across the globe fell 0.31 points, or 0.04pc, to 750.24, while Europe’s STOXX 600 rose 0.62pc.

Earlier on Friday, Japan’s benchmark Nikkei rallied to a 34-year high and was on the cusp of eclipsing the all-time peak reached during the heyday of the nation’s bubble economy in the 1980s.

Figures on Thursday showed that Japan and Britain slipped into recession at the end of last year.

Gold eased early on Friday and was set for a second straight weekly fall, but spot gold was last up 0.4pc on the day at $2,012.86 per ounce.

Oil prices rose amid geopolitical tensions in the Middle East. Brent crude futures gained 61 cents to settle at $83.47 a barrel, while US West Texas Intermediate crude rose $1.16 to settle at $79.19.