By Sinéad Carew and Tom Wilson
NEW YORK/LONDON (Reuters) -MSCI’s global equities index bumped around in a narrow range on Tuesday while the benchmark U.S. 10-year yield ticked higher after U.S. Federal Reserve Chair Jerome Powell said that more good data would strengthen the case for rate cuts but gave no hints on the timing for easing.
Powell appeared to show increasing faith that inflation would return to the Fed’s target and pointed to risks to the job market and the economy if interest rates stay too high for too long, but said he was not sending a signal on timing on day one of his two-day testimony in Congress.
While Wall Street’s two biggest indexes managed to stay above water, they were below session highs and bond yields rose.
“He’s beginning to tee up a rate cut. The question is exactly when. That’s something he’s not going to be able to answer. He says we need more data but we don’t know how much more,” said Brian Jacobsen, chief economist at Annex Wealth Management in Brookfield, Wisconsin.
While Jacobsen wasn’t expecting any big changes from Powell, the comments may have been “a slight disappointment for people who were hoping he’d give greater clarity” about how much more data the Fed needs for confidence to cut rates, he said.
Traders are now baking in a roughly 70% probability that the Fed’s first rate cut would come in September, down slightly from 71% on Monday, according to CME Group’s FedWatch tool.
On Wall Street, at 02:52 p.m. ET the Dow Jones Industrial Average fell 60.58 points, or 0.15%, to 39,284.21, the S&P 500 edged up 4.64 points, or 0.08%, to 5,577.49 and the Nasdaq Composite rose 17.52 points, or 0.10%, to 18,421.26.
This was after Monday’s fourth record close in a row for the benchmark S&P, while the tech-heavy Nasdaq’s advance on Monday represented its fifth straight record close.
MSCI’s gauge of stocks across the globe was down 0.24 points, or 0.03%, to 817.90 and Europe’s STOXX 600 index earlier closed down 0.9%.
With rates in mind, investors were in wait-and-see mode ahead of Thursday’s consumer price report, as they are hope that further signs of easing in inflation would put the Fed in a position to be more accommodative. Headline inflation for June is expected to slow to 3.1%, from 3.3% in May, with core inflation seen steady at 3.4%.
Benchmark 10-year Treasury yields inched higher on Tuesday after Powell’s statement and longer and shorter-dated bond yields also gained.
The yield on benchmark U.S. 10-year notes rose 3.5 basis points to 4.304%, from 4.269% late on Monday while the 30-year bond yield rose 3.9 basis points to 4.4975% from 4.458% late on Monday.
The 2-year note yield, which typically moves in step with interest rate expectations, rose 1.5 basis points to 4.6326%, from 4.618% late on Monday.
In currencies, the dollar gained as Powell did not give a clear signal the U.S. central bank is close to cutting rates even as he acknowledged progress in inflation.
Adam Button, chief currency analyst at Forexlive in Toronto, said that “there were some in the market who were looking for a more concrete step towards rate cuts later this year, and when (Powell) didn’t deliver that we saw a little bit of U.S. dollar buying, a bit of disappointment in stocks – but the base case is watching the data and waiting for September.”
The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, gained 0.15% to 105.13.
The euro fell 0.1% to $1.0811 while against the Japanese yen, the dollar rose 0.3% to 161.3.
Oil prices slipped on Tuesday after a hurricane that hit a key U.S. oil-producing hub in Texas caused less damage than markets had expected, easing concerns over supply disruption.
U.S. crude settled down 1.12% or 92 cents at $81.41 a barrel and Brent finished at $84.66 per barrel, down 1.27%. pt $1.09 on the day.
Gold prices were choppy with spot gold adding 0.23% to trade at $2,364.12 an ounce after earlier falling.
(Reporting by Sinéad Carew, Karen Brettell, Caroline Valetkevitch in New York, Tom Wilson in London, Stella Qiu in Sydney; Editing by Chizu Nomiyama, Emelia Sithole-Matarise and Nick Zieminski)