Stocks lose ground while bond yields rise with rates in focus

NEW YORK/ LONDON :MSCI's global equity gauge was lower on Friday while bond yields climbed as investors waited for clues about the future path for interest rates from next week's U.S. Federal Reserve meeting.

In U.S. Treasuries, benchmark 10-year yields rose to a three-week high and were on track for their fifth-straight daily gain as investors bet that Fed chair Jerome Powell will signal a pause in policy easing after a widely expected 25-basis-point rate cut next Wednesday.

The U.S. central bank is grappling with inflation staying stubbornly above its 2 per cent annual target. Data released on Thursday showed higher-than-expected U.S. producer prices in November.

Friday's data showed U.S. import prices barely rose in November as increases in food and fuel costs were partially offset by decreases elsewhere, thanks to a strong dollar.

"The market is assuming that Powell cuts next week and then pauses. I think that's the right assumption because we're seeing a tension between the inflationary data and the labor-market data," said Matt Rowe, head of portfolio management and cross-asset strategies at Nomura Capital Management.

While bets on a December rate cut are almost unanimous, CME Group's Fedwatch tool implies just two cuts in 2025.

“They have to take into account that in an economy where inflation is showing itself at this point to be sticky, and you're very highly likely going to get further fiscal stimulus, deregulation, and some aspect of tariffs coming through, there's just no way you can validate why you keep cutting in that instance,” said Tom Fitzpatrick, head of global market insights at R.J. O'Brien in New York.

While a rally in chipmaker Broadcom boosted Wall Street, the indexes made no strong move in either direction.

At 2:59 p.m. EST (1959 GMT), the Dow Jones Industrial Average fell 61.58 points, or 0.14 per cent, to 43,852.54, the S&P 500 fell 0.80 points, or 0.01 per cent, to 6,050.55 and the Nasdaq Composite rose 19.33 points, or 0.10 per cent, to 19,922.17.

MSCI's gauge of stocks across the globe fell 2.30 points, or 0.26 per cent, to 866.11. Europe's STOXX 600 index closed down 0.53 per cent earlier, breaking a three-week winning streak, as investors sought clarity on Europe's rate policy amid concerns about economic growth and a potential trade war.

The yield on benchmark U.S. 10-year notes rose 7.5 basis points to 4.399 per cent, from 4.324 per cent late on Thursday while the 30-year bond yield rose 6.7 basis points to 4.615 per cent.

The two-year note yield, which typically moves with Fed-rate expectations, rose 5.5 basis points to 4.241 per cent.

In currencies, the dollar eyed its biggest weekly gain in a month on the prospect of slower U.S. rate cuts next year. Sterling fell after a surprise contraction in UK economic activity while the euro clawed back some recent losses in the wake of the European Central Bank's rate cut on Thursday.

On the day, the dollar index, which measures the greenback against a basket of currencies, rose 0.04 per cent to 107.00, with the euro up 0.26 per cent at $1.0494.

Against the Japanese yen, the dollar strengthened 0.69 per cent to 153.68, having risen all week as traders scaled back bets on a Bank of Japan rate hike next week.

In energy markets, oil prices settled at a three-week high on expectations that more sanctions on Russia and Iran could tighten supplies and that lower U.S. and European interest rates could boost fuel demand.

U.S. crude settled up 1.8 per cent, or $1.27 at $71.29 a barrel and Brent settled at $74.49 per barrel, up 1.5 per cent or $1.08 on the day.

In precious metals, gold fell on the day but was set for a weekly gain. Spot gold fell 1.05 per cent to $2,653.17 an ounce. U.S. gold futures fell 0.96 per cent to $2,661.70 an ounce.