By Sinéad Carew and Marc Jones
NEW YORK/ LONDON (Reuters) -MSCI’s global equities gauge lost ground while bond yields rose as investors worried that Thursday’s surprisingly strong economic data would make the Federal Reserve more cautious about cutting interest rates.
U.S. Treasury yields rose after the Commerce Department’s Bureau of Economic Analysis said the U.S. economy grew faster than previously thought in the second quarter, pumped up by an ebb in imports and a pickup in consumer spending. Second quarter gross domestic product increased at an upwardly revised 3.8% annualized rate versus initial reports of a 3.3% pace.
Also, new orders for key U.S.-manufactured capital goods unexpectedly increased in August, but a decline in shipments of these goods suggested a moderate pace of growth in business spending on equipment this quarter.
And the Labor Department said on Thursday that the number of Americans filing new applications for unemployment benefits fell by 14,000 to a seasonally adjusted 218,000 for the week ended September 20. Economists polled by Reuters had forecast 235,000 claims for the latest week.
“If you’re looking for continued fuel for equities to move higher and broaden out versus what we’ve seen the last couple of years, you need a continuation of the momentum that’s been built over the summer in terms of the Fed easing and easing materially through 2026,” said Matt Stucky, chief portfolio manager for equities at Northwestern Mutual Wealth Management Company.
Also on Thursday, Fed Bank of Chicago President Austan Goolsbee said that while he supported last week’s interest-rate cut because the labor market is cooling, he was not eager to do a lot more policy easing while inflation is above target and moving the wrong way.
But Fed Governor Stephen Miran said on Fox Business’ Mornings with Maria program that the U.S. economy is more vulnerable to shocks right now due to high interest rates based on unfounded inflation concerns among Federal Reserve policymakers.
And San Francisco Federal Reserve Bank President Mary Daly said on Wednesday she “fully supported” the decision by the Fed to cut its policy rate last week and expects further reductions ahead. But regarding the timing of those cuts she said it was “hard to say.”
On Wall Street, indexes hit one-week lows after the data and the commentary. At 02:41 p.m. the Dow Jones Industrial Average fell 146.95 points, or 0.32%, to 45,975.28, the S&P 500 fell 32.12 points, or 0.48%, to 6,605.85 and the Nasdaq Composite fell 114.50 points, or 0.51%, to 22,383.35.
MSCI’s gauge of stocks across the globe fell 6.30 points, or 0.64%, to 973.11 after hitting its lowest level since September 11.
Earlier the pan-European STOXX 600 index closed down 0.66% after touching its lowest level since Sept 5 with med-tech stocks coming under pressure after news of the U.S. opening new import-related probes, and investors focused on Fed commentary.
In government bonds, U.S. Treasury yields rose on Thursday following stronger-than-expected second-quarter economic data that could strengthen the case for a rates pause from the Fed at its October meeting.
“It seems like we’re reacting more to the GDP upside surprise,” said Molly Brooks, U.S. rates strategist at TD Securities, about the uptick in two- and 10-year Treasury yields. “(But) I think markets are still biased towards seeing a slowdown in data going forward.”
The yield on benchmark U.S. 10-year notes rose 3 basis points to 4.178%, from 4.147% late on Wednesday while the 30-year bond yield fell 0.4 basis points to 4.7536%.
The 2-year note yield, which typically moves in step with interest rate expectations for the Federal Reserve, rose 6.7 basis points to 3.666%, from 3.598%.
In currencies, the dollar gained against peers including the euro and yen on signs that the U.S. economy grew faster than previous expectations in the second quarter, potentially restraining Fed rate easing.
The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, rose 0.72% to 98.54.
The euro was down 0.71% at $1.1654 and against the Japanese yen, the dollar strengthened 0.64% to 149.85. Sterling weakened 0.83% to $1.3332.
Against the Swiss franc, the dollar strengthened 0.67% after the Swiss National Bank held interest rates at zero on Thursday in its first pause since late 2023.
Oil prices gave up earlier losses to settle near Wednesday’s seven-week closing high while the economic data tempered optimism about the rate cut outlook.
U.S. crude settled down 0.02%, or 1 cent at $64.98 a barrel and Brent settled at $69.42 per barrel, up 0.16%, or 11 cents on the day.
Safe-haven gold pulled itself back up from early session losses, but was still below Wednesday’s peak.
Spot gold rose 0.56% to $3,756.93 an ounce. U.S. gold futures rose 0.06% to $3,734.20 an ounce.
In cryptocurrencies, bitcoin fell 3.47% to $109,656.05 after hitting its lowest level since early September.
(Reporting by Sinéad Carew in New York, Matt Tracy in Washington, Marc Jones in London, Stella Qiu in Sydney; Editing by Kirsten Donovan and Nick Zieminski)
