By Chuck Mikolajczak
NEW YORK (Reuters) -A gauge of global stocks was set for its biggest weekly drop in two months and the hit its highest level in 5-1/2 months on Friday as economic data and comments from Federal Reserve officials indicated a slower pace of interest rate cuts ahead.
Fed Chair Jerome Powell said on Thursday that the central bank did not need to rush to lower interest rates due to ongoing economic growth, a solid job market and inflation that remains above its 2% target.
The U.S. Commerce Department on Friday reported that retail sales rose 0.4% last month after an upwardly revised 0.8% advance in September. The growth topped the 0.3% rise expected by economists polled by Reuters, after a previously reported 0.4% gain in September.
The Fed on Thursday somewhat changed its message that it would continue to cut interest rates, now showing “more sympathy for if the data doesn’t allow them to do that, they’re not going to do that, they’re going to take their time,” said Matt Stucky, chief portfolio manager for equities, Northwestern (NASDAQ:) Mutual Wealth Management in Milwaukee, Wisconsin.
In addition, the Labor Department said on Friday that import prices unexpectedly rose 0.3% last month after an unrevised 0.4% decline in September amid higher prices for fuels and other goods. Analysts had expected a decline of 0.1%.
Equities had rallied in the wake of the U.S. presidential election, as investors gravitated toward assets expected to benefit from U.S. President-elect Donald Trump’s policies in his second term after he pledged to impose higher tariffs on imports, lower taxes and loosen government regulations.
But the rally has stalled in recent days as markets try to calibrate the Fed’s rate cut trajectory and any legislative policy changes.
“It’s kind of like peak uncertainty right now,” Stucky said. “There’s a new administration coming through, but I don’t know if there’s a whole lot of certainty out there for what’s actually going to occur until it starts to get introduced and debated on Capitol Hill.”
On Wall Street, the fell 339.38 points, or 0.77%, to 43,412.72, the fell 89.53 points, or 1.51%, to 5,859.55, and the fell 485.04 points, or 2.54%, to 18,622.49. Each of the three major indexes closed at record highs on Monday.
Other Fed officials in comments on Friday also clouded the picture on the timing and magnitude of more rate cuts.
MSCI’s gauge of stocks across the globe lost 9.47 points, or 1.11%, to 841.73, on track for its fourth straight decline, following five straight advances.
In Europe, the index closed down 0.77% but managed to eke out a small weekly gain, its first in four weeks.
Bond yields and the dollar have surged not just on growth prospects but also on concerns that Trump’s policies may rekindle inflation after a long battle against price pressures following the COVID-19 pandemic. In addition, tariffs could lead to increased government borrowing, further ballooning the fiscal deficit and potentially causing the Fed to alter its course of monetary policy easing.
The , which tracks the U.S. currency against peers including the euro and Japan’s yen, was 0.25% lower on the day to 106.61 with the euro up 0.14% at $1.0545.
The greenback had risen for five straight sessions and was on pace for its biggest weekly percentage gain since early October.
Against the Japanese yen, the dollar weakened 1.34% to 154.14. Sterling was down 0.32% to $1.2623.
Expectations for a 25 basis point cut at the Fed’s December meeting stood at 61.6% on Friday, down from 72.2% in the prior session, and 85.5% a month ago, according to CME’s FedWatch Tool.
The yield on benchmark U.S. 10-year notes fell 0.6 basis points to 4.414% after reaching 4.505%, its highest level since May 31. The yield is up about 11 bps this week and is set for its eighth weekly rise in the past nine.
fell 2.2% to $67.19 a barrel and fell to $71.16 per barrel, down 1.93% on the day, on track for a weekly decline as investors digested a slower Fed rate cut path and waning Chinese demand.
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