Global stocks fall, U.S. yields rise after strong economic data

By Chibuike Oguh

NEW YORK (Reuters) -Global equity markets fell while U.S. Treasury yields rose on Friday following stronger-than-expected economic data that stoked worries the Federal Reserve will prolong its interest rate hiking cycle.

Commerce Department data showed that consumer spending, which accounts for two-thirds of U.S. economy activity, rose by 1.8% in January, the largest increase in nearly two years and exceeding analyst estimates, according to a Reuters poll.

Furthermore, the personal consumption expenditures (PCE) price index, the Fed's preferred inflation measure, accelerated by 0.6% last month, the biggest increase in six months, bringing the index to 5.4% for the 12 months through January.

The strong data deepened a market sell-off across most equities, with the MSCI world equity index, which tracks shares in 50 countries, shedding 1.17%. European stocks fell 1.04%.

"The fact we've got another data item that shows the economy is not slowing enough to hopefully give the Fed confidence that they're in front of the inflation problem - that's why the market is down," said Robert Stimpson, portfolio manager at Oak Associates Funds in Akron, Ohio.

On Wall Street all three major indexes posted their biggest weekly drop of 2023, led by a selloff of stocks in so-called cyclical sectors including technology, communication services, consumer discretionary, and even healthcare.

The Dow Jones Industrial Average fell 1.02% to 32,816.92, the S&P 500 lost 1.05% to 3,970.04 and the Nasdaq Composite dropped 1.69% to 11,394.94.

U.S. Treasury yields jumped, with benchmark 10-year yields hitting 3.9452%, and two-year yields, which are highly sensitive to Federal Reserve policy, rising as high as 4.8156%, the highest since Nov. 4.

"The risk to the market is that it was premature in its anticipation of a Fed pivot. The Fed is going to continue raising interest rates higher than people think and for longer than people think," Stimpson added.

Oil prices edged higher in volatile trade, bolstered by the prospect of lower Russian exports but pressured by rising inventories in the United States and concerns over global economic activity.

Brent crude futures settled at $83.16 a barrel, up 1.2%. West Texas Intermediate U.S. crude futures (WTI) settled at $76.32 a barrel, rising 1.2%.

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The U.S. dollar strengthened against other major currencies, with the dollar index up 0.65% at a seven-week high and the euro down 0.48% at $1.0544.

Gold prices dropped to their lowest levels in eight weeks, pushed down by the stronger dollar and higher bond yields. Spot gold dropped 0.6% to $1,810.97 an ounce, while U.S. gold futures fell 0.47% to $1,810.20 an ounce.