Stocks rise as traders reduce rate hike bets, oil prices drop

On Thursday, global equities experienced an upward trend as investors reduced their expectations of a U.S. rate hike. Oil prices declined by over 2%, driven by larger inventories and lower demand forecasts, despite concerns over geopolitical issues. Surprisingly, U.S. producer price data for July remained flat, further diminishing the likelihood of a Federal Reserve rate increase next month.

This development aided tech stocks, propelling the S&P 500 to an intraday record high. The data followed a similar consumer price report on Wednesday, which indicated a 3.4% increase in U.S. prices over the past year, matching economists' forecasts.

Investors adjusted their rate hike predictions, with traders now believing there is a 65% chance the Fed would maintain its stance in September, up from 50% on Wednesday. Gold prices dropped after peaking for two months, and U.S. Treasury yields continued to fall after the producer price data release. The MSCI gauge for global stocks increased by 5.90 points, or 0.51%, to 1,160.43.

Key indices, including the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite, rose by 69.72 points, 0.13%, 50.49 points, 0.65%, and 214.54 points, respectively, to 53,839.99, 7,798.99, and 26,803.03.

Analysts noted that the strong earnings season for AI infrastructure companies, coupled with ample cash reserves and no anticipated Fed rate hike, would likely continue to support riskier assets. European shares were relatively subdued, awaiting European inflation data following a robust earnings period. Meanwhile, lower commodity prices negatively impacted energy and mining shares.

The pan-European STOXX 600 index remained unchanged at 659.24 points after a previous record high. MSCI's broad Asia-Pacific index outside Japan climbed by 0.96%, while emerging market stocks rose by 0.83% to 1,695.93.

Tensions between Washington and Tehran escalated over a deal to reopen the strategic Strait of Hormuz, with the U.S. accusing Iran of failing to meet obligations, while Iran argued the U.S. hadn't fulfilled its promise to end a blockade of Iranian ports. Brent crude futures fell by 2.15% to $87.07 a barrel, after a six-day rally, while U.S. crude oil prices declined 2.4% to $81.25 a barrel, having risen for five consecutive days.

Commercial crude oil inventories recorded their biggest weekly increase since January 2023, and the Organization of the Petroleum Exporting Countries revised its 2026 global oil demand growth forecast downward. The perceived impact of high energy prices on the economies of the euro zone and Japan, both significant energy importers, was expected to be greater than on the U.S., which was considered more resilient to oil shocks.

Finally, the dollar index edged up by 0.03% to 99.98, with the euro gaining 0.02% to $1.1526. The yield on the benchmark U.S. 10-year note decreased by 4.73 basis points to 4.645%, and the 30-year bond yield fell by 2.81 basis points to 5.2189%. Analysts cautioned against premature enthusiasm for U.S. Treasury yields, cautioning that supply concerns, fiscal issues, and oil-related term premiums could still hinder the market's performance.