(Bloomberg) -- More evidence that inflation has taken hold in the U.S. economy spurred bets that it can withstand higher interest rates as it waits for stimulus from the Trump administration, fueling a rally that took global equities toward a record and a selloff in Treasuries.
MSCI’s broadest measure of global equities closed at a record for the first time since May 2015, while the S&P 500 capped its longest winning streak in three years, as retail sales in the U.S. advanced more than forecast, suggesting consumers are positioned to buttress economic growth. The 10-year Treasury yield topped 2.50% as the cost of living increased in January by the most since February 2013, adding to a raft of readings showing faster inflation in major economies. Emerging-market stocks jumped, while the dollar slipped with crude.
Wednesday’s data lifted the odds for a Fed rate hike in March to 42% from 30% two days ago, helped by Fed Chairwoman Janet Yellen’s testimony that the central bank doesn’t need to wait for Donald Trump to outline plans on fiscal stimulus before resuming rate hikes. Her case got a boost after the U.S. inflation reading came in at 2.5% for January, the fastest pace since 2012.
“The January U.S. CPI report is a strong set of data which justifies the belief that reflationary forces have been building within the US economy in recent months well in advance of any legislative program being enacted by the new administration,” Michael Shaoul, chief executive officer at Marketfield Asset Management wrote in a note to clients.
Before Yellen’s testimony, traders anticipated the Fed would start raising U.S. borrowing costs in June. Now they see one as early as May, according to futures data compiled by Bloomberg. Data this week showed factory price increases accelerated in both China.
The main moves in markets on Wednesday:
The MSCI All-Country World Index added 0.7 % and the S&P 500 rose 0.5% at 4 p.m. in New York. U.S. stocks rose for a seventh straight day, giving the S&P 500 its longest run of gains since 2013. Banks and health-care shares advanced more than 0.7% to pace the advance. Emerging-market equities jumped 1.1% to the highest since July 2015.
The yield on 10-year Treasuries increased for a fifth day, climbing three basis points to 2.50%. The rate on two-year notes rose two basis points to 1.25%, touching the highest level of the year. The uptick in March odds for an interest rate increase comes after after Yellen reiterated in her semi-annual testimony to the Senate Banking Committee Tuesday that waiting too long to tighten policy “would be unwise.”