(Add US market closing price)
* Stocks gain on retail sales, China optimism
* Dollar slips as risk appetite recovers
* Crude oil prices fall on worries about Fed tightening
* Powell keeps Fed’s hawkish message
Herbert Rush
NEW YORK, May 17 (Reuters) – Global stocks rose and U.S. Treasury yields rose on Tuesday, as solid U.S. retail sales in April suggested economic growth could strengthen and China eased its lockdown to contain the COVID-19 pandemic. Measures may also be stepped up.
U.S. retail sales rose 0.9% last month, the Commerce Department said, while March data was revised up to show a 1.4% rise in sales instead of the 0.7% previously reported.
Jeffrey Roach, chief economist at LPL Financial, said the data showed U.S. consumers weathered inflation headwinds as sales rose for a fourth straight month. Sales are nominal, so most of the growth comes from higher prices, he said.
“We expect a rebound in economic growth in the second quarter,” Roach said in an email, if prices are moderate enough to relieve some of the pressure on consumers.
U.S. and European stocks rebounded after overnight gains in Asia. MSCI’s broadest index of world stocks closed up 2.0 percent. The pan-European STOXX 600 rose 1.22%.
On Wall Street, the Dow Jones Industrial Average was up 1.28%, the S&P 500 was up 1.89% and the Nasdaq Composite was up 2.57%. Growth stocks gained 2.48% and value stocks gained 1.60%.
It was a rebound from an oversold week last week, with the Nasdaq and S&P 500 falling for a sixth straight week, said Anthony Saglimbene, global market strategist at Ameriprise Financial.
“There’s a battle in the stock market between crashing first: inflation or the consumer. The stock market is betting that the consumer will crash, and the credit market is betting that inflation will crash first,” he said.
“The stock market is approaching an overcorrection, and I think the odds of a recession are too high,” Saglimbene said.
The data also showed that industrial production rose 1.1% in April, with manufacturing capacity utilization reaching the highest level since 2007. Bill Adams, chief economist at Comerica Bank, said the industry was overheating and needed a slowdown to keep inflation under control.
Adams said in an email that the Fed will raise the federal funds rate by half a percentage point at each of the next two policy meetings to inject some sand into the economy.
Federal Reserve Chairman Jerome Powell said at a Wall Street Journal event that the central bank will “continue to push” to tighten U.S. monetary policy until inflation falls noticeably.
“What we need to see is inflation coming down in a clear and convincing way,” he said. “If we don’t see that, we’re going to have to think about more aggressive action” to tighten financial conditions.
Brian Ward, chief executive of Broadmark Realty Capital Inc, said the Fed is behind the curve and trying to catch up.
“We’re trying to address a very complex set of facts with a very blunt tool through monetary policy, and I don’t think it’s going to end well,” Ward said.
The 10-year U.S. Treasury yield rose 10.7 basis points to 2.986%.
The dollar fell for a third day, retreating from a two-year high against a basket of major currencies, as rising risk appetite dented the greenback’s safe-haven appeal.
The dollar index fell 0.787%, with the euro up 1.07% to $1.0543. The yen fell 0.14% to 129.36 against the dollar.
Concerns remain about the strength of the world’s two largest economies after weak retail and factory data from China and some disappointing U.S. manufacturing data.
An index compiled by Citibank, which monitors whether economic data is doing better or worse than economists expected, is back in negative territory.
Crude oil pared gains on news that Washington may ease restrictions on the Venezuelan government, while prices fell further when Powell began to speak on concerns that a Fed policy error could hit the economy and reduce energy demand.
U.S. crude futures fell $1.80 to settle at $112.40 a barrel, while Brent crude futures settled down $2.31 at $111.93 a barrel.
Gold fell as strong U.S. retail sales data and the prospect of aggressive Fed rate hikes outweighed support from a weaker dollar.
U.S. gold futures settled up 0.3 percent at $1,818.9.
It is hoped that China may ease its lockdown with no new COVID-19 cases outside the quarantine zone, after Shanghai achieved a long-awaited milestone for three days in a row.
Mainland China’s CSI 300 gained 1.25 percent, while Hong Kong’s Hang Seng gained 3.27 percent, with Hong Kong-listed technology companies up nearly 6 percent on hopes that Beijing’s crackdown on the industry would ease.
(Reporting by Herbert Lash; Additional reporting by Lawrence White in London and Scott Murdoch in Hong Kong; Editing by Lincoln Feast, Kirsten Donovan, Barbara Lewis, Jonathan Oatis and David Gregorio)
