Wall Street rallies, Treasury yields retreat as data hints at potential Fed pause

Wall Street surged on Tuesday and Treasury yields dropped amid light, pre-holiday trading as a smattering of weak data had investors rejiggering their expectations regarding U.S. monetary policy. All three major U.S. stock indexes ended the session sharply higher, as investors looked ahead to crucial economic data due later this week that could sway the Federal Reserve's interest rate decisions in the coming months.

U.S. economic indicators released on Tuesday showed dampening consumer sentiment and job openings dropping to their lowest level since March 2021, offering evidence that the central bank's efforts to rein in inflation by throwing cold water on the economy are having their intended effect. "Today's data indicates that consumers are being cautious," said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia. "And a cautious consumer bodes well for efforts to control inflation; if consumers stop spending, prices will drop."

But as market participants drift toward a three-day U.S. holiday weekend, volumes are likely to be unusually light, which can bring about increased volatility.  "There aren’t that many people around to sell stock, and the people who are around are interested in buying, it seems," Tuz added. "It doesn’t take all that much to get the market going."

Data due as the week draws to a close include August payrolls, July PCE inflation and the Commerce Department's second take on April-June GDP. The Dow Jones Industrial Average (.DJI) rose 292.69 points, or 0.85 per cent, to 34,852.67, the S&P 500 (.SPX) gained 64.32 points, or 1.45 per cent, to 4,497.63 and the Nasdaq Composite (.IXIC) added 238.63 points, or 1.74 per cent, to 13,943.76.

European shares closed at a two-week high with a boost from the mining sector as Beijing's recent policy moves to jump-start China's languid economy fueled demand hopes. The pan-European STOXX 600 index (.STOXX) rose 0.97 per cent and MSCI's gauge of stocks across the globe (.MIWD00000PUS) gained 1.45 per cent.

Emerging market stocks rose 1.11 per cent. MSCI's broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) closed 1.35 per cent higher, while Japan's Nikkei (.N225) rose 0.18 per cent. U.S. Treasury yields retreated after a sharp fall in U.S. job openings increased the likelihood of a Fed rate hike pause.

Benchmark 10-year notes last rose 24/32 in price to yield 4.1178 per cent, down from 4.212 per cent late on Monday. The 30-year bond last rose 31/32 in price to yield 4.2303 per cent, from 4.289 per cent late on Monday. The greenback lost ground against a basket of world currencies, dipping into negative territory after the soft economic reports.

The dollar index (.DXY) fell 0.61 per cent, with the euro up 0.61 per cent to $1.0883. The yen strengthened 0.50 per cent versus the greenback at 145.81 per dollar but still hovered close to last year's intervention range, while sterling was last trading at $1.2647, up 0.35 per cent on the day. Oil prices rose as the dollar softened, while Hurricane Idalia bore down on Florida's Gulf Coast, threatening supply in a tightening market.

U.S. crude rose 1.32 per cent to settle at $81.16 per barrel, while Brent settled at $85.49, up 1.27 per cent on the day. Gold prices gathered upward momentum in the wake of weaker than expected U.S. data, which could give the central bank some wiggle room to ease its hawkish stance. Spot gold added 0.9 per cent to $1,937.14 an ounce.