US stocks rise as survey points to easing of inflation expectations

US stocks rose on Friday, bringing an upbeat end to a disappointing week, as strong retail sales data and a survey hinting at easing inflation expectations tempered concerns over the economic outlook.

The S&P 500 share index was up 1.7 per cent by mid-afternoon in New York, but remained on track for a weekly loss of more than 1 per cent. The technology-focused Nasdaq Composite gained 1.6 per cent.

Europe’s Stoxx 600 equity index closed 1.8 per cent higher.

International oil benchmark Brent crude, which on Thursday fell to levels last seen before Russia’s invasion of Ukraine, added 2.1 per cent to $101.12 a barrel.

Data on Friday showed US retail sales rose 1 per cent month on month in June, exceeding economists’ forecasts for a 0.8 per cent gain. Separately, the University of Michigan’s closely watched consumer sentiment index indicated that medium-term inflation expectations had dropped to a one-year low of 2.8 per cent.

Markets in recent months have been gripped by debate over whether the US economy is strong enough to withstand aggressive rate rises by the Federal Reserve in response to red-hot inflation, after downbeat business surveys cast a pall over the outlook. The S&P is over 19 per cent lower for the year to date.

“The consumer is still spending money, still confident, there’s still pent-up demand,” said Ron Temple, head of US equity at Lazard.

Line chart of expected price growth in five years (%) showing US medium-term inflation expectations cool

He cautioned, however, that this could firm the US central bank’s resolve to tighten monetary policy, with the retail sales numbers showing “the rate hikes so far have not had an effect” in terms of cooling demand.

Futures markets are tipping the Fed to lift its main funds rate to about 3.6 per cent by next February, from a range of 1.5 per cent to 1.75 per cent at present. US consumer prices rose at an unexpectedly rapid annual rate of 9.1 per cent in June.

A weak Chinese gross domestic product report also stoked some bullishness on Friday, prompting speculation that Beijing would unleash hundreds of billions of dollars of additional stimulus funds to boost growth.

The world’s second-biggest economy expanded 0.4 per cent year on year in the three months to the end of June, below the 1.2 per cent forecast by economists and down from 4.8 per cent recorded in the first quarter.

“We think these kinds of numbers are only going to strengthen [the Chinese government’s] resolve to push more stimulus for the rest of the year and that matters on a global level as well,” said Hani Redha, multi-asset fund manager at PineBridge Investments.

Hong Kong’s Hang Seng index fell 2.2 per cent on Friday, however, taking it 6.6 per cent lower for the week in its largest weekly decline since March 2020.

In US Treasury markets, the yield on the benchmark 10-year note was 0.03 percentage points lower at 2.93 per cent. This yield, which underpins debt prices worldwide, has dropped from about 3.5 per cent a month ago as recession fears fed demand for low-risk government debt instruments. Bond yields fall as prices rise.

The two-year Treasury yield traded at 3.13 per cent in a so-called inverted yield curve pattern that has historically preceded recessions.

The dollar index, which measures the US currency against six others and was heading for its third straight week of gains, fell 0.4 per cent as risk appetite returned to markets.

The euro rose 0.6 per cent to $1.008, having fallen below $1 earlier this week for the first time in 20 years.

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