Treasury yields fall on data, rate cut expectations; dollar gains

By Sinéad Carew and Tom Wilson

NEW YORK/LONDON (Reuters) -Treasury yields fell on Wednesday while the dollar gained and MSCI’s global stock index barely rose as U.S. Federal Reserve officials provided mixed messages on monetary policy while third-quarter data provided encouraging signs for the economy.

In U.S. equities, the S&P 500 edged lower and Nasdaq dipped while the Dow rose slightly as investors waited for a key inflation reading due out early on Thursday.

Commerce Department data however, provided some optimism earlier on Wednesday, with U.S. gross domestic product rising at a 5.2% annualized rate in the third quarter, revised up from the previously reported 4.9% and marking the fastest expansion since the fourth quarter of 2021.

The GDP report also confirmed inflation was trending lower, with slight downward revisions to measures watched by the Fed for monetary policy, suggesting a so-called Goldilocks scenario to Garrett Melson, portfolio strategist at Natixis Investment Managers Solutions.

“The improving data is earning the possibility of some recalibration of policy next year. That’s what the market is pricing in. If the data continues on this path it will earn modest rate cuts next year. That’s helping to ignite risk appetites,” said Melson.

While the Federal Reserve officials on Wednesday sent mixed messages, investors still focused on comments made on Tuesday by Fed Governor Christopher Waller, an influential and previously hawkish voice at the U.S. central bank. Waller had said rate cuts could begin in months if inflation keeps easing.

On Wednesday the Fed’s Bank of Atlanta President Raphael Bostic said he expects U.S. growth to slow and inflation to continue to ease on the back of tight monetary policy.

In contrast, Richmond Federal Reserve Bank President Thomas Barkin said on Wednesday he is “skeptical” that inflation is on its way down to 2%, and wants the option of another rate hike in case inflation gains steam.

The Dow Jones Industrial Average rose 13.44 points, or 0.04%, to 35,430.42, the S&P 500 lost 4.31 points, or 0.09%, at 4,550.58 and the Nasdaq Composite dropped 23.27 points, or 0.16%, to 14,258.49.

MSCI’s gauge of stocks across the globe gained 0.010%.

U.S. Treasury yields fell with the benchmark 10-year note on track for a third straight session of declines as the latest economic growth reading failed to upend market expectations that a Fed rate cut could be on the horizon.

Benchmark 10-year notes were down 7.3 basis points at 4.263%, from 4.336% late on Tuesday. The 30-year bond was last down 7.8 basis points to yield 4.4463%, from 4.524%. The 2-year note was last was down 9.9 basis points to yield 4.6372%, from 4.736%.

The dollar index, which measures the greenback against other major currencies, climbed from its lowest level in more than three months as investors consolidated positions after four days of losses, with support from the U.S. economic data.

The dollar index rose 0.205%, with the euro down 0.16% to $1.0972. The Japanese yen strengthened 0.15% versus the greenback at 147.24 per dollar, while Sterling was last trading at $1.2696, up 0.02% on the day.

“Given how sharply the dollar has sold off the last few weeks, it’s only natural that we could be seeing a bit of profit taking,” said Paresh Upadhyaya, director of fixed income and currency strategy at Amundi US in Boston.

Oil prices rose more than $1 as investors looked past a jump in U.S. crude, gasoline and distillate stock piles and focused on an upcoming meeting of OPEC+, the Organization of the Petroleum Exporting Countries and allies such as Russia.

Talks ahead of the meeting were focusing on additional cuts, although details have yet to be agreed, sources close to the group told Reuters.

U.S. crude settled up 1.9% at $77.86 per barrel and Brent finished at $83.10, up 1.74% on the day.

Elsewhere, spot gold shot earlier in the day to a roughly seven-month high of $2,051 an ounce and was last up 0.2% to $2,044.16 an ounce. U.S. gold futures gained 0.28% to $2,045.70 an ounce.

(Reporting by Sinéad Carew, Gertrude Chavez-Dreyfuss in New York, Tom Wilson in London and Tom Westbrook in Singapore; Editing by Josie Kao, Nick Zieminski and Richard Chang)