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Global shares up with Treasury yields; oil rallies on supply worries

European stock markets fall, Wall Street indexes rise

MSCI’s global equity index was advancing slightly while oil prices rallied on supply concerns and US Treasury yields rose as investors digested mixed messages from the Federal Reserve about the prospects for 2024 interest rate cuts.

Oil prices climbed after Houthi militants stepped up attacks on vessels in the Red Sea, raising concerns about supply disruptions although ample supply and scepticism around Russia’s plan to cut exports in December limited gains.

Chicago Federal Reserve President Austan Goolsbee on Monday pushed back against market bets on interest rate cuts. Also pushing back against expectations for cuts on Monday was Cleveland Fed President Loretta Mester, who votes on policy in 2024 until her June retirement.

But this was after investors had celebrated on Wednesday and Thursday after dovish comments from Fed chair Jerome Powell when the central bank’s meeting ended on Wednesday with officials pencilling in expectations for rate cuts.

Pushbacks on bets the Fed would pivot to cutting had started on Friday when the Fed’s New York President John Williams said it was “premature” to speculate about rate cuts.

“Powell seemed to be pretty sure in what he was saying. Then you had the New York Fed muddy the water on Friday,” said Robert Pavlik, senior portfolio manager at Dakota Wealth in Fairfield, Connecticut, also citing Goolsbee’s comments.

“On Thursday there was an immediate need to reallocate your portfolio because the Fed was pivoting. Then Friday you had a New York Fed official pour cold water on it. That leaves you without a pressing need to make changes today,” said Pavlik.

On Wall Street, The Dow Jones Industrial Average rose 59.54 points, or 0.16 per cent, to 37,364.7, the S&P 500 gained 25.25 points, or 0.54 per cent, to 4,744.44 and the Nasdaq Composite added 76.20 points, or 0.51 per cent, to 14,890.12.

The pan-European STOXX 600 index lost 0.27 per cent and MSCI’s gauge of stocks across the globe gained 0.14 per cent.

Longer-dated US Treasury yields rose in reaction to Goolsbee’s comments on Monday.

Benchmark 10-year notes were up 3.2 basis points to 3.960 per cent, from 3.928 per cent late on Friday. The 30-year bond was last up 4.2 basis points to yield 4.0688 per cent, from 4.027 per cent. The 2-year note was last was up 1 basis points to yield 4.4653 per cent, from 4.455 per cent.

However, the US dollar eased against the euro, extending last week’s fall, as the US currency remains under pressure from last week’s signals about the possibility of rate cuts.

The dollar index fell 0.058 per cent, with the euro up 0.23 per cent to $1.0919. The Japanese yen weakened 0.61 per cent versus the greenback at 143.04 per dollar, while Sterling was last trading at $1.2633, down 0.33 per cent on the day.

In the United States, a reading on core personal consumption expenditure (PCE) index due on Friday is forecast by analysts to rise 0.2 per cent in November with the annual inflation rate slowing to its lowest since mid-2021 at 3.4 per cent, according to Reuters polling. Also on investors’ watch lists this week is the Bank of Japan’s policy decision on Tuesday with April favoured by 17 of 28 economists as the kick-off for negative rates to be scrapped, making the BOJ one of the few central banks in the world actually tightening.

Oil rose after the Yemeni Houthi militant group Red Sea attacks disrupted maritime trade. Oil major BP said it temporarily paused transit there and other shipping firms also said they would avoid the route.

US crude recently rose 2.58 per cent to $73.27 per barrel and Brent was at $78.57, up 2.64 per cent on the day.