NEW YORK – Global equity markets rose to a new high on Friday as U.S. consumer spending in July suggested a strong economic rebound lies ahead, while the Japanese yen surged on safe-haven buying after Prime Minister Shinzo Abe resigned for health reasons.
The dollar neared lows last seen in May 2018, retreating from Thursday when the Federal Reserve said it will allow inflation to run faster for longer, a stance that will likely lead to a period of prolonged low interest rates.
Longer-term yields fell and gold rose more than 2% as investors sought a perceived store of value in the likelihood of higher inflation and real rates that are negative.
U.S. consumer spending increased more than expected last month, raising expectations for a sharp rebound in growth in the third quarter, though momentum could ebb as the COVID-19 pandemic lingers and fiscal stimulus dries up.
A U.S. Commerce Department report showed a rise in personal income after two straight monthly declines, while monthly inflation pushed higher.
“There’s a big bounce on Main Street, the economic data every day on Main Street is bouncing higher,” said Jim Paulsen, chief investment strategist at Leuthold Group in Minneapolis.
People are becoming more optimistic about the economy but underneath that is a healthy dose of caution as “Main Street is still a mess,” he said. “As the market keeps going up, more and more of them are reducing their bearish bets a little bit and putting more into stocks, which is helping drive the market higher,” he said.
MSCI’s benchmark for global equity markets rallied 0.58% to a new closing high. Wall Street also rallied, with the S&P 500 notching its sixth record closing high since confirming a bull market on Aug. 18.
The Dow Jones Industrial Average rose 0.57%, the S&P 500 gained 0.67%, and the tech-laden Nasdaq Composite added 0.6%.
“A lot of this is momentum. It’s just fear of being left behind, fear of missing out,” said Tim Ghriskey, chief investment strategist at Inverness Counsel in New York.
“Value has been outperforming growth and you’re seeing that reverse today. When growth underperforms for a period of days, it tends to rebound very sharply. We’re seeing that in market preferences today.”
Information technology rose 1.0% and accounted for almost half of the S&P 500’s gain.
Stocks extended gains after a top aide to Donald Trump said the U.S. president is willing to sign a $1.3 trillion coronavirus relief bill, four weeks after emergency unemployment benefits expired for millions of Americans.
In Europe, stocks slipped as investors dumped this year’s outperformers, including technology and healthcare stocks, and bid up banking shares after the Fed unveiled its new policy framework.
The broad pan-regional FTSEurofirst 300 index slid 0.50% to close at 1,429.82.
In Japan, the benchmark Nikkei 225 share index closed down 1.4% while the yen, seen as a safe-haven currency to buy in times of uncertainty, strengthened 1.13% versus the greenback at 105.36 per dollar.
There had been speculation about Abe’s health all week but the resignation of Japan’s longest-serving premier rattled investors, given that he has spearheaded efforts to revive growth through his reflationary “Abenomics” policies.
The dollar index fell 0.761%, while the euro rose 0.64% to $1.1897.
The yield on the 10-year U.S. Treasury traded down 1.5 basis points to 0.726%. Investors are rebalancing intermediate-dated debt following large auctions earlier this week.
U.S. Treasury auctions of roughly $150 billion worth of three-year, five-year and seven-year notes received strong demand starting on Tuesday. The decline in yields on each of those instruments on Friday likely reflected traders repositioning, said Subadra Rajappa, head of U.S. rates strategy for Societe Generale.
German bond yields briefly rose to their highest levels since early June after the Fed’s decision to target average inflation.
Oil prices slid a notch after Hurricane Laura passed the heart of the U.S. oil industry in Louisiana and Texas without causing widespread damage and companies began to restart operations.
Brent crude futures settled down 4 cents at $45.05 a barrel and U.S. crude futures slipped 7 cents to settle at $42.97 a barrel.
U.S. gold futures settled up 2.2% at 1,974.90 an ounce.