By Chuck Mikolajczak
NEWYORK (Reuters) – A gauge of global equities edged lower on Tuesday and U.S. Treasury yields climbed as a stronger-than-anticipated report on retail sales raised the possibility that a second rate cut by the Federal Reserve this year could be pushed back by several months.
U.S. retail sales rose 0.4% in June, as households stepped up purchases of motor vehicles and a variety of other goods. The solid number comes on the heels of recent data showing a strong labor market and a pickup in consumer prices.
While the Fed is still largely expected to cut rates by a quarter of a percentage point at its July 30-31 policy meeting, expectations for a more aggressive half a percentage point cut have been scaled back.
“One of the things I have been wringing my hands over is this divergence between very strong consumer confidence and retail sales that have just been going nowhere so maybe we are starting to close the gap,” said Jack Ablin, chief investment officer at Cresset Capital Management in Chicago.
“I don’t know if this is going to take the Fed off its July easing plan but it could perhaps push the second rate reduction out a few months.”
The Dow Jones Industrial Average <.DJI> rose 17.04 points, or 0.06%, to 27,376.2, the S&P 500 <.SPX> fell 3.12 points, or 0.10%, to 3,011.18 and the Nasdaq Composite <.IXIC> dropped 9.50 points, or 0.12%, to 8,248.68.
With earnings season underway, banking shares were in focus after a mixed bag of results from JPMorgan <JPM.N>, Goldman Sachs <GS.N> and Wells Fargo <WFC.N>. The S&P banks sector was off 0.2%.
Other data showed manufacturing output in the U.S. picked up steam in June, while import prices declined the most in six months.
The data boosted U.S. Treasury yields, while the improving economic picture has seen the U.S. yield curve steepen in the past week.
Benchmark 10-year notes <US10YT=RR> last fell 11/32 in price to yield 2.1288%, compared with 2.092% late on Monday.
European equities rose as disappointing data out of Germany and new concerns over Brexit helped boost expectations for stimulus from the European Central Bank.
Germany’s ZEW indicator showed that the mood among investors in Europe’s largest economy deteriorated more than expected in July, with the survey pointing to the unresolved China-U.S. trade dispute and to political tensions with Iran.
The pan-European STOXX 600 index <.STOXX> rose 0.38% and MSCI’s gauge of stocks across the globe <.MIWD00000PUS> shed 0.08%.
The dollar strengthened versus the euro as a result of the disparate data while a debate between the two candidates to become Britain’s next prime minister sent the pound tumbling because of heightened worries about a no-deal Brexit.
The dollar index <.DXY> rose 0.35%, with the euro <EUR=> down 0.34% to $1.1219. Sterling <GBP=> was last trading at $1.2415, down 0.81% on the day.
Oil prices steadied as a resumption of production in the Gulf of Mexico after Hurricane Barry and a boom in U.S. supply from shale oil countered tensions in the Middle East.
U.S. crude rose 0.03% to $59.60 per barrel and Brent <LCOcv1> was last at $66.76, up 0.42% on the day.
(For a graphic on ‘Global assets in 2019’, click http://tmsnrt.rs/2jvdmXl)
(For a graphic on ‘Global currencies vs. dollar ‘, click http://tmsnrt.rs/2egbfVh)
(For a graphic on MSCI All Country Wolrd Index Market Cap, click http://tmsnrt.rs/2EmTD6j)
(Reporting by Chuck Mikolajczak; Editing by Steve Orlofsky)