GLOBAL MARKETS-Shares rebound, Treasury yields rise on stronger data

BY Reuters | ECONOMIC | 05/17/22 11:15 AM EDT

(Adds comment, U.S. data, byline; changes dateline, previous LONDON)

By Herbert Lash

NEW YORK, May 17 (Reuters) - A gauge of global equity markets rebounded and U.S. Treasury yields rose on Tuesday as an easing of China's crackdowns on tech and COVID-19 and solid U.S. retail sales in April suggested economic growth might be getting stronger.

Retail sales rose 0.9% last month while data for March was revised higher to show sales advancing 1.4% instead of 0.7% as previously reported, the Commerce Department said.

The data show U.S. consumers weathering the inflationary headwinds as sales gained for the fourth consecutive month, said Jeffrey Roach, chief economist for LPL Financial. Sales are nominal, so much of the increase is from higher prices, he said.

"If pricing pressures can moderate enough to relieve some of the pressure on consumers, we expect a rebound in economic growth in Q2," Roach said in an email.

U.S. and European stocks rallied, following a positive start overnight in Asia. MSCI's gauge of stocks across the globe gained 1.14%, while the pan-European STOXX 600 index rose 0.96%.

On Wall Street, the Dow Jones Industrial Average rose 0.38%, the S&P 500 gained 0.79% and the Nasdaq Composite added 0.93%.

The rally in part is a reaction to oversold conditions after the Nasdaq and the S&P 500 posted their sixth consecutive weekly loss last week, said Anthony Saglimbene, global market strategist at Ameriprise Financial.

"There's this battle in the stock market between what breaks first: inflation or the consumer. The stock market is betting that the consumer is going to break and credit markets are betting that inflation is going to break first," he said.

"The stock market is getting close to overcorrecting and pricing in the probability of a recession that I think is just too high," Saglimbene said.

Data also showed industrial production rose 1.1% in April, with the manufacturing capacity utilization rate at its highest since 2007. The sector is running too hot and needs to slow for inflation to get under control, said Bill Adams, chief economist for Comerica Bank.

The Federal Reserve will raise the federal funds rate half a percentage point at each of its next two policy meetings to throw some sand in the economy's gears, Adams said in an email.

Futures markets are pricing consecutive 50 basis point hikes in June and July, putting the benchmark U.S. interest rate at 2.75% by year-end.

The yield on 10-year Treasury notes rose 6.9 basis points to 2.948%.

The dollar eased for a third straight day, pulling back from a two-decade high against a basket of major currency peers, as an uptick in the appetite for riskier bets diminished the greenback's safe-haven appeal.

The dollar index fell 0.691%, with the euro up 0.94% to $1.0529. Japan's yen weakened 0.05% to 129.22 per dollar.

MSCI's broadest index of Asia-Pacific shares outside Japan gained 2.5%, but the index is still down 16.8% so far this year.

Fears remain about the strength of the world's two largest economies after weak retail and factory figures in China and some disappointing U.S. manufacturing data..

An index compiled by U.S. bank Citi that monitors whether economic data comes in better or worse than economists had been expecting is back in negative territory.

Oil hit its highest in seven weeks, supported by the European Union's continuing push for a ban on Russian oil imports that would tighten supply and as investors focused on higher demand from an easing of China's COVID lockdowns.

U.S. crude rose 0.64% to $114.93 per barrel and Brent was at $114.90, up 0.58% on the day.

Gold prices firmed, as the pullback in the dollar supported demand for greenback-priced bullion and countered pressure from the recovery in U.S. Treasury yields. Spot gold dropped 0.3% to $1,818.23 an ounce.

CHINA BOOST

Hopes that China might ease two key sets of restrictions had set the positive mood in shares early on Tuesday.

Shanghai achieved the long-awaited milestone of three straight days with no new COVID-19 cases outside quarantine zones, which could lead to the beginning of the lifting of the city's harsh lockdown.

Mainland China's CSI300 Index gained 1.25% while Hong Kong's Hang Seng Index rose 3.27%, as tech firms listed in the city jumped nearly 6% on hopes of Beijing's crackdown on the sector being relaxed.

(Reporting by Herbert Lash, with additional reporting by Lawrence White in London and Scott Murdoch in Hong Kong; Editing by Lincoln Feast, Kirsten Donovan, Barbara Lewis and Jonathan Oatis)

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.

fir_news_article