Wall Street stocks posted strong gains while Treasury yields and the dollar pulled back as data pointing to US economic growth boosted risk appetite, even as expectations for rate hikes kept bond yields near multi-year highs.
The US services sector grew at a steady clip in February, with new orders and employment rising to more than one-year highs, suggesting the economy continued to expand in the first quarter.
US shares jumped, with the Dow Jones Industrial Average up 1.17 percent, the S&P 500 1.61 percent higher, and the Nasdaq Composite adding nearly 2 percent.
“Following weeks of relentless upward pressure on interest rates, the S&P 500 got a bit of a reprieve today,” said Bill Sterling, global strategist at GW&K Investment Management in Boston.
He added that the small differential between shorter-term bonds indicated lower recession risk: “Market participants seem to be saying that the economy — and corporate profits – can withstand a higher-for-longer interest rate path.”
Asian stocks already jumped on investor optimism of a Chinese economic rebound. The positive market sentiment continued during the European session, with Europe’s STOXX 600 up 0.92 percent.
The recovery in euro zone business activity gathered pace last month, PMI survey data showed, in the latest piece of data to suggest the bloc would avoid a recession.
But euro zone government bond yields were still near their highest levels in years after euro zone inflation data on Thursday drove market expectations for the European Central Bank’s (ECB) terminal rate to around 4 percent.
At 2.688 percent, the benchmark 10-year German yield was near its highest level since 2011.
US Treasury yields paused their rally. The US 10-year Treasury yield fell to 3.960 percent, down from Thursday’s high of 4.091 percent. The two-year Treasury yield, which typically moves in step with interest rate expectations, dipped 4.3 basis points at 4.859 percent.
Federal Reserve Bank of Boston President Susan Collins reiterated in comments made public Friday that more central bank rate rises will be needed to lower high inflation levels. – Reuters
