(Adds closing US markets)
* US consumer spending increases, inflation slows
* Wall Street rises, cutting a series of weekly losses
* Falling treasury returns
* The price of Brent oil rises by two dollars
Written by Elizabeth Dilts Marshall
NEW YORK (Reuters) – Global markets enjoyed a broad-based rally on Friday, while the yield on benchmark US Treasuries fell after data showed that US consumer spending rose in April and the rise in inflation, the world’s two largest indicators, slowed. The economy could be on track for growth this quarter.
Consumer spending, which accounts for more than two-thirds of US economic activity, rose 0.9% last month, and although inflation continued to rise in April, it was lower than in recent months. The personal consumption expenditures (PCE) price index rose 0.2%, the smallest rise since November 2020.
Wall Street rebounded on Friday after the data, with all three major US stock indexes marking a decisive end to its longest streak of weekly losses in decades.
The US Federal Reserve, in the minutes of its May meeting released earlier this week, described inflation as a serious concern. The majority of central bankers supported two rate increases of half a percentage point in June and July, as the group tries to curb inflation without causing a recession.
The Fed has left room to pause in increases if the economy weakens.
Analysts said consumer spending and inflation data were encouraging and supported estimates of growth for the second quarter, which are mostly above the 2.0 annual rate.
“The growth engine for the US economy is still alive and kicking, and that’s important,” said Joe Quinlan, CIO head of market strategy for Bank Merrill and Bank of America Private. “Growth estimates (for the second quarter) are still good. There is a better tone in the market than we’ve seen in recent weeks, in terms of inflation likely to peak here. Maybe we can avoid stagflation.”
The MSCI World Stock Index, which measures stocks in 45 countries, was up 2.12% at 4:45 pm ET (2045 GMT).
Global equity funds saw inflows in the week ending May 25 for the first week in seven weeks, according to Refinitiv Lipper.
European shares hit a three-week high and rose 1.42%. Britain’s FTSE also reached a three-week high, and was headed for its best weekly showing since mid-March.
The Dow Jones Industrial Average rose 575.77 points, or 1.76%, to 33,212.96, the Standard & Poor’s increased 100.4 points, or 2.47%, to 4,158.24 points, and the Nasdaq Composite increased 390.48 points, or 3.33%, to 12,131.13.
The yield on the benchmark 10-year Treasury note was 2.7432%. It reached a three-year high of 3.2030% earlier this month on concerns that the Fed may have to raise interest rates quickly to control inflation.
Bank of America’s Quinlan said lower yields show that Fed monetary policy is succeeding in tightening credit and slowing prices.
“The 10-year yield suggests that we don’t have to push inflation above 9-10%,” Quinlan said. “We are approaching peak inflation.”
The two-year yield, which rose with traders anticipating a hike in the Fed funds rate, fell to 2.4839%.
German 10-year bond yields fell 4 basis points to 0.955%.
Asian stocks also benefited from hopes of stabilizing Sino-US relations and more Chinese government stimulus.
On Thursday, Secretary of State Anthony Blinken said in comments interpreted by some investors as positive for bilateral relations, that the United States would not prevent China from expanding its economy, but wanted it to abide by international rules.
Emerging market shares rose 1.98%. MSCI’s broadest index of Asia-Pacific shares outside Japan closed up 2.17%, while Japan’s Nikkei index rose 0.66%.
The swing toward broadly positive market sentiment pushed the dollar to a one-month low against the currency index.
The dollar index slipped 0.059%, with the euro advancing 0.06% to $1.073.
Oil prices are close to two-month highs amid the prospect of market tightening due to rising US gasoline consumption in the summer, as well as the possibility of a European Union ban on Russian oil.
US crude closed up 98 cents, or 0.86%, to $115.07 a barrel. Brent crude closed up $2.03, or 1.73 percent, at $119.43 a barrel.
And the spot gold price rose 0.2 percent to $ 1852.83 an ounce.
(Reporting by Elizabeth Dilts Marshall in New York; Additional reporting by Chuck Mikolajchak in New York, Carolyn Cohn in London, Stella Keogh in Beijing and Kevin Buckland in Tokyo; Editing by Chizu Nomiyama, Alistair Bell and Matthew Lewis)