NEW YORK, May 27, Reuters World shares rose and the yield on benchmark U.S. Treasuries weakened on Friday after data showed that U.S. consumer spending rose in April and the inflation rate slowed, two signs that the world's largest economy could be on track to grow this quarter.
Consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased by 0.9% last month, and was less than in recent months, although inflation continued to increase in April. Personal consumption expenditures PCE price index increased by 0.2%, the smallest gain in November 2020.
The U.S. Federal ReserveFederal Reserve, in minutes from its May meeting earlier this week, called inflation a serious concern. A majority of the central bankers backed two half-of-a-percentage point rate hikes in June and July, as the group tried to curb inflation without causing a recession.
If the economy weakens, the Fed may allow for a pause in hikes.
The consumer spending and inflation data was encouraging and supported growth estimates for the second quarter that are mostly above a 2.0 annualized rate, according to analysts.
Joe Quinlan, head of CIO Market Strategy at Merrill and Bank of America Private Bank said that the growth engine of the U.S. economy is still alive and kicking. Growth estimates for the second quarter are good. There is a better tone in the market than we have seen in recent weeks, in terms of inflation possibly peaking here. The MSCI world equity index, which tracks shares in 45 nations, went up 1.78% at 2: 50 p.m. EDT 1850 GMT Global equity funds saw inflows for the first week in seven in the week to May 25, according to Refinitiv Lipper.
European shares hit a three week high of 1.42%. Britain's FTSE hit a three week high and was heading for its best weekly showing since mid-March, despite the fact that it had hit a three-week high.
The Dow Jones Industrial Average rose 368.34 points, or 1.13%, to 33,005. The S&P 500 gained 75.33 points, or 1.86%, to 4,133, at the beginning of 53. 17 and the Nasdaq Composite added 319.75 points, or 2.72%, to 12,060. The yield on the benchmark 10 year Treasury notes was 2.7432%. It had hit a three-year high of 3.2030% earlier this month, because of fears that the Fed might have to raise rates quickly to bring inflation under control.
BofA's Quinlan said that the Fed's monetary policy is helping in tightening credit and slowing down prices because of lower yields.
The 10 year yield is suggesting we don't need to have inflation break above 9 -- 10%, Quinlan said. We are close to a peak in inflation. The two-year yield, which grew with traders' expectation of higher fed fund rates, fell to 2.4839%.
Asian shares also benefited from hopes of stabilizing Sino-U. Secretary of State Antony Blinken said on Thursday that the United States would not block China from growing its economy, but wanted it to adhere to international rules.
Emerging market stocks went up 2.01%. MSCI's broadest index of Asia-Pacific shares outside Japan was 2.23% higher, while Japan's Nikkei rose 0.66%.
The dollar fell to one-month lows against an index of currencies because of the swing toward broadly positive market sentiment.
The dollar index fell 0.02% last year, with the euro up 0.03% to $1.0727.
Oil prices were near two-month highs on the prospect of a tight market due to rising gasoline consumption in the United States in summer, and the possibility of an EU ban on Russian oil.
The U.S. crude was 98 cents higher, or up 0.86%, at $115.07 a barrel. Brent was trading $2.03 higher or up 1.73%, at $119.43 a barrel.