Stocks, US yields up after Fed minutes; inflation data on deck

By Chuck Mikolajczak

NEW YORK (Reuters) -Global stocks advanced on Wednesday along with U.S. Treasury yields, as minutes from the Federal Reserve's September meeting indicated more rate cuts, while investors awaited inflation data for further clues on the central bank's interest rate path.

Minutes from the meeting showed a "substantial majority" of U.S. Federal Reserve officials supported beginning an era of easier monetary policy with an outsized half-point rate cut, but there appeared even broader agreement that the initial move would not commit the Fed to any particular pace of rate reductions in the future.

U.S. stocks added to gains after the minutes, with both the Dow and S&P 500 closing at record levels.

The Dow Jones Industrial Average rose 431.63 points, or 1.03%, to 42,512.00, the S&P 500 rose 40.91 points, or 0.71%, to 5,792.04 and the Nasdaq Composite rose 108.70 points, or 0.60%, to 18,291.62.

Investors have scaled back expectations for aggressive rate cuts by the Fed after last week's strong U.S. jobs report. They will also monitor inflation data on Thursday in the form of the consumer price index (CPI) for insight on the Fed's rate path, while the corporate earnings season kicks off with bank earnings on Friday.

"The minutes were also further confirmation that they believe that they've won the fight on inflation so that tomorrow's CPI number shouldn't be too much of a surprise," said Lindsey Bell, chief strategist at 248 Ventures in Charlotte, North Carolina.

"There's an air of optimism in the market since the Friday jobs report. Investors remain optimistic on the soft-to-no landing scenario."

After completely pricing in a cut of at least 25 bps last week, with a 35.2% chance of a second consecutive cut of 50 bps, the market is betting on a 79.4% chance of a 25 basis point cut at the Fed's November meeting, and a 20.6% chance it will hold rates steady, CME's FedWatch Tool showed. The expectations for a cut in November decreased slightly after the Fed minutes.

Dallas Federal Reserve Bank President Lorie Logan said she supported last month's outsized rate cut but wants smaller reductions ahead, given "still real" upside risks to inflation and "meaningful uncertainties" over the economic outlook.

MSCI's gauge of stocks across the globe advanced 3.61 points, or 0.43%, to 848.39 and was on track for a second straight session of gains. In Europe, the STOXX 600 index closed up 0.66%, buoyed in part by automakers as the indexed bounced back from a decline in the prior session.

A rally in China stocks short-circuited, with both the Shanghai Composite index and CSI300 index suffering their biggest one-day percentage drops since February 2020.

China's main information office said the finance ministry will detail plans on fiscal stimulus to boost the economy at a news conference on Saturday.

U.S. yields were higher in the wake of Logan's comments and the Fed minutes, as well as an auction of 10-year notes. The yield on benchmark U.S. 10-year notes gained 3.8 basis points to 4.073% while the 2-year note yield, which typically moves in step with interest rate expectations, rose 4.3 basis points to 4.022%.

The 10-year yield topped 4% for the first time in two months earlier in the week.

The dollar index, which measures the greenback against a basket of currencies, climbed 0.42% to 102.92, with the euro down 0.38% at $1.0938.

Against the Japanese yen, the dollar strengthened 0.76% to 149.32. Sterling weakened 0.34% to $1.3059.

Crude prices fell for a second straight session on rising U.S. crude inventories, while the risk of Iranian supply disruptions caused by the Middle East conflict and Hurricane Milton in the United States curbed price declines.

U.S. crude settled down 0.45% to $73.24 a barrel and Brent fell to settle at $76.58 per barrel, down 0.78% on the day.

(Reporting by Chuck Mikolajczak; Additional reporting by Lisa Mattackal in Bengaluru; Editing by Richard Chang, Nick Zieminski and Daniel Wallis)