U.S. stocks rose to records as retail sales sparked optimism in the economy and JPMorgan Chase & Co. signaled tax cuts will bolster profits. The dollar weakened the most since March, sending the euro to a three-year high and the pound to its strongest since June 2016.
Treasuries pared losses that sent the two-year yield over 2 percent for the first time since 2008 as investors assessed an unexpected acceleration in core inflation that likely boosts the Federal Reserve's case for higher rates. The S&P 500 Index capped a weekly gain that took its gain this year past 4 percent. JPMorgan rallied after saying tax cuts will balloon profits this year. The Stoxx Europe 600 Index rose. Asian shares advanced as data showed Chinese exports rose in December. Oil pushed higher for a fifth day, leaving it at a three-year high. Gold surged.
The underlying pace of U.S. inflation unexpectedly accelerated in December amid increased housing costs, reinforcing the outlook for the Fed to raise interest rates several times in 2018. That weighed on Treasuries but did little to stem losses for the dollar as Germany formed a government.
Stocks initially showed weakness on the inflation data, as investors fretted over whether the central bank tightening would slow growth but turned higher as strong retail sales bolstered optimism in the economy. JPMorgan's tax commentary underscored how generous the overhaul will be to the nation's largest lenders.
"As the probability of three to four rate hikes become solidified, it has a major impulse into the equity markets," Chad Morganlander, a portfolio manager at Washington Crossing Advisors, said by phone. "I don't think that's priced in. The markets have to readjust to the reality of what the Fed will do."
In Europe, reports that German policymakers are set to resolve a months-long political stalemate added to news yesterday that the European Central Bank is open to tweaking its policy guidance soon to align it with a strengthening economy. Elsewhere, an exchange-traded fund tracking Brazilian equities dropped in after-hours U.S. trading after S&P Global Ratings cut Brazil's sovereign credit rating deeper into junk territory. Bitcoin steadied after four days of losses amid increasing scrutiny from regulators around the world.
And these are the main moves in markets:
- The S&P 500 rose 0.7 percent to 2,786.12 at 4 p.m. in New York. The index rose 1.6 percent in the week and is now higher by 4.2 percent in January.
- The Dow Jones Industrial Average jumped 0.9 percent as JPMorgan rose 1.7 percent.
- The Stoxx Europe 600 Index advanced 0.3 percent to cap a gain in the the five days.
- Germany's DAX index was little changed.
- The Bloomberg Dollar Spot Index fell 0.5 percent to the lowest in more than 16 weeks on the largest fall in more than a week.
- The euro jumped 1.2 percent to $1.2181, the strongest in about three years on the biggest increase in almost two months.
- The British pound increased 1.4 percent to $1.373, the strongest since June 2016.
- The yield on 2-year Treasuries added two basis points to 1.9976 percent. It reached as high as 2.02 percent.
- 10-year rates increased one basis point to 2.548 percent. It climbed as much as five basis points before pulling back.
- Germany's 10-year yield ended unchanged at 0.581 percent.
- Britain's 10-year yield climbed three basis points to 1.339 percent, the highest in six weeks.
- Gold futures advanced 0.9 percent to settle at $1,334.90 an ounce. It posted the fifth straight weekly advance, the longest stretch since mid-2016.
- West Texas Intermediate crude settled at $64.30 a barrel, giving it a five-day rally.