By Chuck Mikolajczak
NEW YORK (Reuters) -Global stocks rose on Friday, lifted by U.S. bank earnings, and on track for a weekly gain while U.S. Treasury yields were mostly lower after inflation and consumer confidence reports solidified expectations for the path of Federal Reserve rate cuts.
The U.S. producer price index for final demand was unchanged in September, slightly below the forecast of economists polled by Reuters for a gain of 0.1%. It followed an unrevised 0.2% increase in August, indicating inflation continues to cool and giving the Fed leeway to continue cutting interest rates.
In the 12 months through September, the PPI increased 1.8% versus the 1.6% estimate.
On Thursday, the consumer price index turned out to be slightly higher than expected as goods costs increased.
The University of Michigan's preliminary reading on the overall index of consumer sentiment came in at 68.9 this month, compared with a final reading of 70.1 in September and below the 70.8 estimate as high prices discouraged shopping.
On Wall Street, U.S. stocks advanced, with the Dow and S&P 500 closing at record highs, as bank shares jumped 4.21%, its biggest daily percentage gain since May 2023, at the start of the quarterly earnings season. JP Morgan rose 4.44% and Wells Fargo (NYSE:WFC) shot up 5.61%.
"As we get to the latter part of this year and into next year, you're going to see earnings growth in the broader market and not just a small group of stocks and what the banks are telling us today is that's happening," said Craig Sterling, head of U.S. equity research at Amundi U.S. in Boston.
"Banks have been as big a question mark as anybody - the level of rates, the yield curve, capital markets activity, et cetera - and two of our biggest banks today are saying well everything's going to be pretty good."
S&P 500 earnings growth is expected to be 4.9%, LSEG data showed, down slightly from 5.2% at the start of October.
The Dow Jones Industrial Average rose 409.74 points, or 0.97%, to 42,863.86, the S&P 500 rose 34.98 points, or 0.61%, to 5,815.03 and the Nasdaq Composite rose 60.89 points, or 0.33%, to 18,342.94.
Gains were capped, however, by an 8.78% tumble in Tesla (NASDAQ:TSLA) shares as the electric vehicle maker promised much at its robotaxi event with few practical details.
MSCI's gauge of stocks across the globe rose 4.56 points, or 0.54%, to 852.75 and was on track for its fourth weekly gain in five weeks. In Europe, the STOXX 600 index closed up 0.55% as investors shifted their focus to China's fiscal stimulus, corporate earnings seasons and the European Central Bank's (ECB) expected rate cut next week.
Bets that the Fed will cut rates by 25 basis points at its November meeting have been choppy in recent sessions, and stand at 88.4%, with markets pricing in a 11.6% chance of no change in rates, CME's FedWatch Tool showed.
Markets had been fully pricing in a cut of at least 25 basis points, with a chance for another outsized 50 bps cut last week, until a strong U.S. payrolls report prompted investors to dial back expectations.
Comments from Fed Chair Jerome Powell and other central bank officials have signaled a shift in focus from combating high inflation to labor market stability.
On Thursday, several policymakers said the data gives the Fed room to continue cutting rates, but Atlanta Federal Reserve Bank President Raphael Bostic told the Wall Street Journal he was open to skipping a rate cut.
U.S. yields were choppy around the data as investors gauged the Fed's rate path before heading lower. The benchmark U.S. 10-year note yield 0.5 basis point to 4.089% while the 2-year note yield, which typically moves in step with interest rate expectations, declined 5 basis points to 3.949%.
The 10-year yield is up about 11 bps for the week, poised for its fourth straight weekly advance. The 2-year yield is nearly 7 bps on the week, on track for a second straight weekly climb.
In currency markets, the dollar index, which measures the greenback against a basket of currencies, edged up 0.05% to 102.94, with the euro down 0.03% at $1.0932. The greenback is up 0.44% on the week, on track for a second straight weekly gain after four straight weeks of declines.
Against the Japanese yen, the dollar strengthened 0.4% to 149.15. Sterling strengthened 0.05% to $1.3065 but remained near a one-month low after data showed Britain's economy grew in August after two consecutive months of stagnation.
Crude prices slipped, but secured a second straight weekly climb, as investors weighed the impact of hurricane damage on U.S. demand against any broad supply disruption if Israel attacks Iranian oil sites.
U.S. crude settled down 0.38% to $75.56 a barrel and Brent fell to settle at $79.04 per barrel, down 0.45% on the day.