Stocks dip, dollar advances after data, Powell comments

By Chuck Mikolajczak

NEW YORK (Reuters) -A gauge of global stocks fell for a third straight session on Thursday while the dollar climbed, after U.S. labor market data and comments from Federal Reserve Chair Jerome Powell suggested a slower path of rate cuts from the central bank.

The Labor Department said initial claims for state unemployment benefits dropped 4,000 to a seasonally adjusted 217,000 for the week, slightly below expectations for 223,000 by economists polled by Reuters, suggesting the weak October government payrolls report was an anomaly.

In the latest inflation reading, the producer price index for final demand rose 0.2% last month, matching expectations, after an upwardly revised 0.1% gain in September.

The data comes after Wednesday's consumer price index increased as expected in October amid higher costs for shelter such as rents.

In the 12 months through October, the PPI increased 2.4% after advancing 1.9% in September.

Powell said ongoing economic growth, a solid job market, and inflation that remains above the 2% target means the U.S. central bank does not need to rush to lower interest rates and can deliberate carefully.

"There was some concern after the election that Trump's threatened tariff policies would cause inflation and that spiked rates a little bit, but typically everybody calms down a little bit after a few days and the market gets back to its knitting, so I expect to see some volatility around here," said Scott Welch, chief investment officer at Certuity in Potomac, Maryland.

"The pressure on rates going forward from here is up, not down. We may see rates decline a little bit but when you look at the state of the economy, when you look at the anticipated legislative and executive policy plans, they are going to bounce around between 4% and 5%."

Stocks initially rallied in the wake of the U.S. presidential election. Each of Wall Street's major indexes closed at records on Monday, but have stalled in recent days as bond yields have moved to four-month highs.

U.S. stocks fell after the data and extended declines after Powell's comments.

The Dow Jones Industrial Average fell 175.86 points, or 0.40%, to 43,782.33, the S&P 500 fell 29.15 points, or 0.49%, to 5,956.23 and the Nasdaq Composite fell 105.02 points, or 0.55%, to 19,125.71.

Investors have gravitated toward assets expected to benefit from U.S. President-elect Donald Trump's policies in his second term after he pledged to impose high tariffs on imports from key trading partners, lower taxes and loosen government regulations.

But bond yields and the dollar have also surged recently on concerns that while Trump's policies will spur growth, they also could rekindle inflation after a long battle against price pressures following the COVID-19 pandemic. In addition, tariffs could lead to increased government borrowing, further ballooning the fiscal deficit and cause the Fed to alter its course of monetary policy easing.

MSCI's gauge of stocks across the globe fell 3.49 points, or 0.41%, to 851.36 and was on track for a third straight daily decline after five consecutive sessions of gains.

European shares rebounded from three-month lows, led by energy and tech stocks after a round of largely positive corporate earnings. The STOXX 600 index closed up 1.08%.

The dollar index , which measures the greenback against a basket of currencies, rose 0.34% to 106.82, with the euro down 0.29% at $1.0532. The greenback is on pace for its fifth straight session of gains.

Against the Japanese yen, the dollar strengthened 0.47% to 156.18. Sterling weakened 0.27% to $1.2669.

Expectations for more Fed rate cuts have been dialed back over the past few weeks, but have become more volatile recently. Expectations for a 25 basis point cut at the Fed's December meeting were at 72.2%, down from 82.5% in the prior session but above the 66.6% a week ago, according to CME's FedWatch Tool.

The yield on benchmark U.S. 10-year notes declined 1.4 basis points to 4.437%, paring losses after Powell's comments.

Fed Governor Adriana Kugler said the central bank has made considerable progress toward achieving its job and inflation goals, while stopping short of offering firm guidance over what that means for the near-term monetary policy outlook.



Richmond Federal Reserve President Tom Barkin said high union wage settlements and the possible tariff increases are among the uncertainties that could make Fed officials more cautious about thinking they have won their battle against high inflation.

U.S. crude settled up 0.39% to $68.70 a barrel and Brent rose to settle at $72.56 per barrel, up 0.39% on the day, in part due to dollar strength and as rising U.S. crude inventories added to concerns of oversupply.

Source: Investing.com