By Herbert Lash
NEW YORK (Reuters) -Treasury yields rose and the dollar index bounced off a one-year low on Friday, after a decline in U.S. retail sales suggested the economy is slowing but not fast enough to stop the Federal Reserve from raising interest rates again in May.
Traders of futures tied to the Fed’s policy rate increased bets that the U.S. central bank will raise its benchmark rate next month by another quarter of a percentage point, even after data showed retail sales were stronger than expected.
Retail sales fell 1.0% last month, the Commerce Department said. Data for February was revised up to show retail sales falling 0.2% instead of 0.4% as previously reported.
Gold pulled back from near record highs as the dollar bounced and Fed Governor Christopher Waller added weight to the prospect of another rate hike, saying the central bank’s lack of progress on slowing inflation meant rates needed to move higher.
“The Fed is going to stay higher than it’s forecast. They’re going to hike one more time in May, then they’re going to go on pause,” said Brad Conger, deputy chief investment officer at Hirtle Callaghan & Co.
Futures priced in an 81.6% chance the Fed raises its lending rate by 25 basis points when policymakers conclude a two-day meeting on May 3, up from 67% on Wednesday, CME Group’s FedWatch Tool showed.
The yield on two-year Treasuries, which reflect interest rate expectations, rose 12 basis points to 4.097%, while on benchmark 10-year notes they rose 6.4 basis points to 3.515%.
The dollar index rose 0.485%, with the euro down 0.37% to $1.1003.
GUIDANCE UNCERTAIN
Major U.S. stock indexes fell as financials limited losses in the S&P 500, after shares of JPMorgan Chase and other banks rallied following their quarterly results.
“The first quarter is going to be better than lowered expectations, which is good, but the guidance at best will be uncertain,” Conger said.
MSCI’s gauge of stocks across the globe shed 0.15%, while the Dow Jones Industrial Average fell 0.57%, the S&P 500 lost 0.29% and the Nasdaq Composite dropped 0.41%.
In Europe, the broad STOXX 600 index rose for a fifth session in a row, rising 0.57%.
Asian shares gained after the Monetary Authority of Singapore (MAS) surprised many by leaving policy unchanged, saying the tightening already underway would ensure inflation slowed sharply later this year.
Atlanta Fed President Raphael Bostic told Reuters that one more quarter percentage point interest rate hike could allow the Fed to end its tightening cycle.
The euro benefited from expectations that the ECB will continue to raise rates, after data on Thursday showed euro zone industrial output was stronger than expected in February.
The euro was down 0.39% to $1.1005 after earlier hitting its highest in around a year.
European government bond yields were set for a weekly rise. The benchmark 10-year German yield was at 2.426%, on track for its biggest weekly rise so far in 2023.
Oil prices rose, headed for a fourth straight week of gains, after the West’s energy watchdog said it expected global demand to rise to a record high this year on the back of a recovery in Chinese consumption.
U.S. crude recently rose 0.15% to $82.28 per barrel and Brent was at $85.88, down 0.24% on the day.
(Reporting by Herbert Lash, addition reporting by Elizabeth Howcroft and Wayne Cole; Editing by Alexander Smith and David Holmes)