Stocks soar, yields slide on hints of cooling economy

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WASHINGTON — US stocks and oil posted strong gains for a second straight day on Tuesday, while US Treasury yields fell as investors questioned whether global central banks’ efforts to combat inflation might falter going forward.

A new report showing shrinking US job vacancies, a weaker read of US manufacturing data and a lower-than-expected rate hike by Australia’s central bank all added to investor speculation that a move by the central bank to less aggressive rate hikes could be imminent.

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That sentiment helped propel Wall Street higher on Tuesday, with the Dow Jones Industrial Average closing up 2.8%, the S&P 500 rising 3.06% and the Nasdaq Composite gaining 3.34%.

The MSCI world stock index, which reflects stocks from 45 nations, recently rose by 3.3%.

Global bond yields fell, with benchmark 10-year Treasury yields falling to 3.631%. The yield fell nearly 20 basis points on Monday after topping 4.0% just last week.

WORK SLOWDOWN?

On Tuesday, the US Department of Labor reported that August job vacancies fell by the most in nearly 2-1/2 years, suggesting the job market may cool if higher interest rates take hold.

For every unemployed person there were 1.7 job offers in August, compared to two in July. But the number of layoffs remained low, a sign of a still tight labor market that could keep the Federal Reserve on its aggressive monetary tightening path as Fed officials insist they still need to do more to contain inflation.

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“We do not expect any change in the Fed’s likely actions at the next meeting. In our view, the labor market has moved from “extremely tight” to “very tight” and the Fed is likely to respond with another 0.75% hike in interest rates next month,” said Jeffrey Roach, LPL Financial’s chief economist.

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Still, weaker economic data contributed to a weaker-than-expected US manufacturing report on Monday and a smaller rate hike from Australia, where the Reserve Bank of Australia surprised markets with a smaller-than-expected rate hike, boosting hopes that other central banks could follow suit .

“Clearly, today’s RBA decision will fuel speculation that other central banks will begin to slow the pace of rate hikes,” analysts at TD Securities said in a statement.

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Investors will look to Friday’s monthly US jobs report as key data showing whether rate hikes have started to take an economic toll.

Amid falling Treasury yields, the dollar posted a fifth straight daily loss against a basket of currencies — its longest streak of declines since August 2021 — as investors began to price in the possibility that tighter lending conditions will prompt the Federal Reserve to take a more cautious stance . The dollar index fell 1.44% to 110.14.

Markets are showing that investors believe inflation is likely to fall at a faster rate. On a five-year horizon, investors expect inflation to be just 2.33%, down from just under 3% six weeks ago.

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Oil prices continued their upward trend amid the prospect of production cuts from the world’s largest exporters. Brent crude rose 3.11% to $91.62 a barrel, while US crude rose 3.16% to $86.27 a barrel.

The dollar’s slide also helped boost gold, with spot gold prices rising 1.5% to $1,724.61 an ounce.

(Reporting by Pete Schroeder in Washington Additional reporting by Tom Westbrook in Sydney Editing by Mark Heinrich and Matthew Lewis)

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