NEW YORK (Reuters) – Oil futures rose on Thursday after attacks on two tankers off the coast of Iran, while the U.S. Treasury yield curve steepened and stocks rose following economic data that was seen as strengthening the case for the Federal Reserve to cut interest rates this year.
Wall Street’s major stock indexes climbed after falling for two days as investors regained their appetite for risk assets.
The number of Americans applying for unemployment benefits unexpectedly rose last week, potentially adding to concerns about the U.S. labor market after May job growth slowed. Other data showed import prices fell by the most in five months in May in the latest indication of muted inflation pressures, adding to expectations the Fed will cut rates this year.
“There are a lot of cross currents but in general a grind higher,” said Joseph Quinlan, head of chief investment office market strategy for Merrill and Bank of America Private Bank in New York, citing everything from the Fed rate cut expectations to a lack of new headlines on the U.S.-China trade war.
“On days when there’s no new news from the U.S. and China that’s a positive,” he said. “The Middle East problems haven’t caused a flight to safety. That’s a positive sign.”
The S&P pared gains slightly but was still positive after U.S. Secretary of State Mike Pompeo said, without offering concrete evidence, the United States believes Iran is responsible for tanker attacks in the Gulf of Oman.
The Dow Jones Industrial Average rose 68.59 points, or 0.26%, to 26,073.42, the S&P 500 gained 8.17 points, or 0.28%, to 2,888.01, and the Nasdaq Composite added 34.43 points, or 0.44%, to 7,827.14.
The pan-European STOXX 600 index rose 0.16% and MSCI’s gauge of stocks across the globe gained 0.01%.
After falling hard on Wednesday, oil futures rebounded sharply on the news of the tanker attacks in the Gulf of Oman near Iran and the Strait of Hormuz, a key passage for seaborne oil cargoes.
U.S. crude rose 2.11% to $52.22 per barrel, recouping some of the previous day’s 4% drop. Brent was up 2.7% at $61.57.
YIELD CURVE STEEPENS
Increased expectations of Fed rate cuts pulled short-dated U.S. Treasury yields lower on Thursday, steepening the yield curve ahead of Friday’s retail sales data and the Fed’s meeting next week.
Benchmark 10-year notes last rose 11/32 in price to yield 2.091%, from 2.127% late on Wednesday.
In currencies, the U.S. dollar was little changed against the euro as investors were slow to take large positions before the Fed meeting and the G20 summit later in June when U.S. and China leaders are expected to discuss trade.
The dollar index, which tracks the greenback against six major currencies, rose 0.01%, with the euro down 0.09% to $1.1277.
The Japanese yen strengthened 0.16% versus the greenback, to 108.34 per dollar, while sterling was last trading at $1.2681, down 0.04% on the day.
Gold prices edged higher on expectations for a U.S. rate cut after the soft inflation data, although the uptick in equities capped gains.
Spot gold added 0.6% to $1,340.78 an ounce.
(Graphic: Fed Funds rate projections link: tmsnrt.rs/2XgZ7Jj)
(Graphic: Position of evacuated tankers in Gulf of Oman link: tmsnrt.rs/2X6nIQF).
Reporting by Sinead Carew; Additional reporting by Karen Brettell and Kate Duguid in New York, Marc Jones and Tommy Wilkes in London, Hideyuki Sano in Tokyo; Editing by Bernadette Baum and Leslie Adler