Wall Street rallies, oil jumps as data strengthens Fed pause bets

By Stephen Culp

NEW YORK (Reuters) – Wall Street advanced and crude prices surged on Thursday as robust economic data failed to budge expectations that the Federal Reserve will leave its key interest rate unchanged next week.

A broad rally sent all three major stock indexes higher, with the continued upward trajectory of oil prices putting energy stocks on top.

A spate of economic data released before the opening bell showed energy prices, specifically gasoline, were largely responsible for a hotter-than-expected producer prices reading and a consensus-beating retail sales number.

“The Fed has guided to focus on core (inflation), and the change in prices that we’ve seen is coming from energy,” said Michael Green, chief strategist at Simplify Asset Management, Philadelphia. “That suggests that the Fed is done raising rates and that’s removing concerns around equities.”

“This is consistent with the idea of a soft landing,” Green added.

The European Central Bank (ECB) hiked its key interest rate to a record high, but also hinted that this latest increase would be its last.

“Once one central bank decides they’re going to pause, everyone gets on board,” Green said. “There’s a general sense that the rate hiking cycle is done for now.”

Financial markets have baked in a 97% likelihood of the Fed holding the Fed funds target rate steady at 5.25%-5.50% at the conclusion of next week’s monetary policy meeting, and a growing 66.8% chance of holding firm at the November meeting to follow, according to CME’s FedWatch tool.

The Dow Jones Industrial Average rose 206.18 points, or 0.6%, to 34,781.71, the S&P 500 gained 27.84 points, or 0.62%, to 4,495.28 and the Nasdaq Composite added 97.61 points, or 0.71%, to 13,911.20.

European stocks jumped after the ECB, hiking interest rates for the tenth straight time, suggested it was at the end of its monetary policy tightening cycle.

The pan-European STOXX 600 index rose 1.45% and MSCI’s gauge of stocks across the globe gained 0.71%.

Emerging market stocks rose 0.71%. MSCI’s broadest index of Asia-Pacific shares outside Japan closed 0.71% higher, while Japan’s Nikkei rose 1.41%.

The dollar gained ground against a basket of world currencies in the wake of U.S. economic data, and on euro weakness following the ECB rate decision.

The dollar index rose 0.37%, with the euro down 0.56% to $1.0668.

The Japanese yen strengthened 0.24% versus the greenback at 147.12 per dollar, while Sterling was last trading at $1.2425, down 0.50% on the day.

U.S. Treasury yields ticked higher but remained range-bound following the PPI and retail sales reports.

Benchmark 10-year notes last fell 4/32 in price to yield 4.2644%, from 4.248% late on Wednesday.

The 30-year bond last fell 16/32 in price to yield 4.3675%, from 4.337% late on Wednesday.

Oil prices surged, with Brent touching its highest level this year as a tighter supply outlook offset demand concerns.

U.S. crude rose 1.78% to $90.10 per barrel and Brent was last at $93.54, up 1.81% on the day.

Gold prices steadied, reclaiming ground after an initial dip in opposition to the strengthening greenback.

Spot gold added 0.1% to $1,907.69 an ounce.

(Reporting by Stephen Culp; Additional reporting by Marc Jones in London, Editing by William Maclean)