Wall Street stocks climb, dollar drops on rate-cut optimism

NEW YORK (Reuters) - Wall Street stocks closed higher and the dollar fell on Friday as investors prepared for a U.S. interest-rate cut, while oil futures were little changed as a forecast for a global crude surplus offset worries about U.S. output declines due to a tropical storm.

Traders work on the floor of the New York Stock Exchange shortly after the opening bell in New York, U.S., July 12, 2019. REUTERS/Lucas Jackson

The U.S. Treasuries yield curve steepened slightly, with yields largely unmoved by stronger-than-expected producer price data. Market expectations of an interest rate cut in July held firm after two days of testimony from Federal Reserve Chair Jerome Powell.

Wall Street's benchmark, the S&P 500 .SPX, and the Dow Jones Industrial Average rose modestly a day after hitting record highs.

Since Powell reinforced expectations of a July rate cut that fed a recent rally, the market is “churning before it makes the next move” during quarterly earnings season that kicks off next week, said Ken Polcari, managing principal at Butcher Joseph Asset Management in New York.

Polcari said improving economic data is making investors cautious over the Fed’s rate path.

“Now there’s a little trepidation that if the data is coming in strong why are we cutting rates?” he said. “The market’s thinking he’s going to cut rates in July and then that’ll be it.”

The Dow Jones Industrial Average .DJI rose 243.95 points, or 0.9%, to 27,332.03, the S&P 500 .SPX gained 13.86 points, or 0.46%, to 3,013.77 and the Nasdaq Composite .IXIC added 48.10 points, or 0.59%, to 8,244.14.

All three stock indexes registered their second weekly advance in a row ahead of the start of second-quarter corporate earnings season. Analysts are forecasting a decline in S&P 500 earnings per share of 0.4% for the quarter, according to I/B/E/S data from Refinitiv.

“Most of the gains this year have been from multiple expansion. Earnings needs to start doing its part. Otherwise you risk people looking at multiple expansion saying this looks like a top,” said Michael Antonelli, market strategist at Robert W. Baird in Milwaukee.

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The pan-European STOXX 600 index .STOXX rose 0.04% and MSCI's gauge of stocks across the globe .MIWD00000PUS gained 0.30%.

U.S. producer prices rose slightly in June as a rising cost of services was offset by cheaper energy costs, beating economists’ expectations that prices would be unchanged.

The Labor Department report comes on the heels of strong consumer price data on Thursday, suggesting overall inflation could continue to rise moderately.

“One individual dataset will not sway or set” the Fed’s decision on interest rates, said Michael Lorizio, senior fixed income trader at Manulife Investment Management.

In Treasuries, benchmark 10-year notes US10YT=RR last rose 2/32 in price to yield 2.1149%, from 2.12% late on Thursday.

In currencies, continued bets on a U.S. rate cut sent the dollar lower for the third day in a row. The dollar index .DXY, which tracks the greenback against six major peers, fell 0.23%, with the euro EUR= up 0.15% to $1.1269.

The Japanese yen strengthened 0.59% versus the greenback at 107.87 per dollar.

Oil prices inched up as U.S. Gulf of Mexico crude output was halved by disruptions caused by a tropical storm. Gains were limited after the International Energy Agency forecast a large global crude inventory build in coming months .

U.S. crude futures settled up 1 cent at $60.21 per barrel, resulting in a 4.7% rise for the week while Brent crude ended up 20 cents at $66.72, with a weekly gain of 4%. Both benchmarks fell last week.

Gold prices nudged higher as investors shrugged off concerns that the stronger-than-expected U.S. consumer inflation could influence the Fed’s decision on aggressive monetary policy easing.

Spot gold XAU= added 0.8% to $1,414.22 an ounce.

Additional reporting by Kate Duguid, Gertrude Chavez-Dreyfuss and Laila Kearney in New York; Editing by Bernadette Baum, Leslie Adler and David Gregorio