India Markets closed

Stocks climb, short-dated Treasury yields dip on bets for U.S. rate cut

By Caroline Valetkevitch
Traders work on the floor at the NYSE in New York

By Caroline Valetkevitch

NEW YORK (Reuters) - Major world stock markets rose and short-dated U.S. Treasury yields fell on Wednesday as investors bet that the U.S. Federal Reserve would cut interest rates and help boost a sluggish global economy.

Underscoring concerns over growth was a report by U.S. payrolls processor ADP Wednesday that showed U.S. private employers added only 27,000 jobs in May, well below economists' expectations and the smallest monthly gain in more than nine years.

While a flare-up in trade tensions between the United States and China hurt world stocks in May and triggered fears of an impending recession, comments from Fed Chairman Jerome Powell and other Fed officials this week have provided support for stocks. The policymakers warned that the trade war may force the Fed to respond, prompting investors to price in possible rate cuts.

Wednesday's ADP report comes two days ahead of the broader, and more closely watched, jobs report from the U.S. Labour Department.

"Today and yesterday the market was embracing the idea of more weakness in the economy giving the Fed some cover to preemptively cut rates. If the excuse evaporates with a strong jobs number Friday the market might be disappointed by that," said Jeffrey Kleintop, chief global investment strategist at Charles Schwab in Boston.

In the futures market, federal funds contracts implied traders have priced in a 55% chance the Fed would reduce borrowing costs by at least 75 basis points by year-end, up from 51% late Tuesday and 14% a week earlier, CME Group's FedWatch tool showed.

In another positive for equities, Republican Senator Chuck Grassley predicted the United States and Mexico would be able to strike a deal to avert tariffs that U.S. President Donald Trump has threatened to impose on Mexican imports.

The Dow Jones Industrial Average rose 207.39 points, or 0.82%, to 25,539.57, the S&P 500 gained 22.88 points, or 0.82%, to 2,826.15, and the Nasdaq Composite added 48.36 points, or 0.64%, to 7,575.48.

MSCI's broad gauge of stocks across the globe was up for a third day, rising 0.7%. The pan-European STOXX 600 index rose 0.38%.

In the U.S. Treasuries market, yields on U.S. two-year notes - sensitive to traders' views on Fed policy - were 3.20 basis points lower, at 1.841%, after hitting 1.773%, the lowest level since December 2017.

The spread between two- and 10-year yields grew to near 31 basis points, the widest in seven months.

The U.S. dollar was higher in late U.S. trading, reversing early losses.

The dollar index, which tracks the greenback versus a basket of six currencies, rose 0.261 points, or 0.27 percent, to 97.333. The Japanese yen weakened 0.27% versus the greenback at 108.45 per dollar.

Oil prices resumed their recent slide, extending losses after data showing a surprise build in U.S. crude stockpiles. U.S. crude fell 3.37% to settle at $51.68 a barrel. Brent futures settled down $1.34, or 2.2%, at $60.63.

Gold prices gained as the U.S. rate cut bets encouraged investors to flock toward bullion. Spot gold was up 0.4% at $1,329.57 per ounce.


(Graphic: World FX rates in 2019 link: http://tmsnrt.rs/2egbfVh)


(Graphic: MSCI All Country Wolrd Index Market Cap link: http://tmsnrt.rs/2EmTD6j)


(Graphic: Emerging markets in 2019 link: http://tmsnrt.rs/2ihRugV)


(Reporting by Caroline Valetkevitch; Additional reporting by Richard Leong and Sinead Carew in New York, Medha Singh in Bengaluru and Ritvik Carvalho in London; Editing by Lisa Shumaker and Leslie Adler)