By Herbert Lash and Huw Jones
NEWYORK/LONDON – A gauge of global stock performance rose and the dollar strengthened on Thursday after a slew of data showed a strong U.S. economy that is decelerating with slowing inflation, suggesting the Federal Reserve can engineer a soft landing.
Gross domestic product increased at a 2.9% annualized rate in the fourth quarter of 2022 as consumers boosted spending on goods, the Commerce Department said. But momentum rapidly slowed toward the year’s end, as rising interest rates eroded demand.
Growth in personal consumption expenditures slowed to 2.1% on an annualised basis from 2.3% in the prior quarter and the GDP price index, another inflation measure, decelerated to 3.5%.
MSCI‘s all-country world index, a gauge of stocks in 47 countries, was up 0.18% after paring gains after hitting a fresh five-month high. The dollar index rose 0.512%.
The largely better-than-expected data can help the weakening dollar find a near-term floor, said Joe Manimbo, senior market analyst at Convera in Washington.
“On balance, the data being better than expected suggests there’s more resilience in the economy than many have given it credit,” he said. “The fact that inflation figures in the Q4 data moderated suggests it’s a goldilocks scenario.”
Treasury yields rose as a resilient economy strengthened the case for the Fed to maintain its hawkish stance in coming months as it seeks to cool inflation with interest rates that officials have projected would stay above 5% into next year.
The yield on 10-year Treasury notes was up 3.8 basis points to 3.500% and the gap between yields on three-month Treasury bills and 10-year notes, seen as a recession harbinger, narrowed to -117.6 basis points.
“The net of all the releases, you have an economy that is decelerating, it’s not falling off a cliff,” said Steven Ricchiuto, U.S. chief economist at Mizuho Securities USALLC in New York.
“It’s not falling quickly enough from an above-trend growth rate over the last three quarters to create any slack in the labor market,” he said.
The Dow Jones Industrial Average fell 0.18%, the S&P 500 gained 0.11% and the Nasdaq Composite added 0.48%. In Europe, the broad STOXX 600 index rose 0.50%.
“What the market is really looking for is what the Fed will say next week in terms of how many hikes they have in mind,” said Laureline Renaud-Chatelain, fixed-income strategist at Pictet Wealth Management, who expects a 25 basis point hike at next week’s Fed meeting.
Markets are expecting rate cuts later this year and while there is momentum in stocks, the unfolding fourth-quarter results season is disappointing in parts, leading to corrections in earnings expectations, Renaud-Chatelain said.
Overnight in Asia, equities rose to a seven-month high, with Hong Kong shares playing catch-up to other markets’ gains as trade resumed after a three-day Lunar New Year holiday.
MSCI‘s broadest index of Asia-Pacific shares outside Japan climbed 1.1% and was set for its fifth-straight day of gains.
Oil prices rose more than 1% on Thursday on expectations demand will strengthen as top oil importer China reopens its economy and on positive U.S. economic data.
U.S. crude recently rose 1.22% to $81.13 per barrel and Brent was at $87.15, up 1.2% on the day.
Gold edged down after the strong U.S. data. Indications of a likely slowdown limited losses in the safe-haven asset.
Spot gold dropped 1.1% to $1,925.56 an ounce.