GLOBAL MARKETS: Oil prices drop, stocks rise despite geopolitical concerns

NEW YORK/MILAN - Global equities rose on Thursday as investors pared back their bets on a U.S. rate hike, while oil prices fell more than 2% as higher inventories and lower global demand forecasts offset geopolitical concerns.

U.S. producer price data, which was unchanged in July, reduced expectations for a Federal Reserve rate hike next month, helping tech stocks power the S&P 500 to an intraday record high.

The data followed Wednesday's consumer price report, which showed U.S. prices rose 3.4% in the 12 months through July, in line with economists' expectations.

Traders scaled back their bets on a September rate hike, pricing in a 65% probability of the Fed staying on hold next month versus 50% on Wednesday.

Gold prices fell after touching a two-month peak. U.S. Treasury yields extended their decline after the producer price data.

MSCI's gauge of stocks across the globe .MIWD00000PUS rose 5.90 points, or 0.51%, to 1,160.43.

TECH BOOSTS WALL STREET

The Dow Jones Industrial Average .DJI rose 69.72 points, or 0.13%, to 53,839.99, the S&P 500 .SPX rose 50.49 points, or 0.65%, to 7,798.99 and the Nasdaq Composite .IXIC rose 214.54 points, or 0.81%, to 26,803.03.

"Earnings season (for AI infrastructure names) has been strong and shows no signs of slowdown in capex," said Mohit Kumar, an economist at Jefferies. He added that the bank remained with an overweight position in the AI sector.

"The background of high amounts of cash in the system and Fed not hiking (Jefferies view) should continue to support risky assets," he said.

European shares were muted as investors awaited euro zone inflation data following a strong earnings season. Weaker commodity prices also weighed on energy and mining shares.

The pan-European STOXX 600 .STOXX closed little changed at 659.24 points. The benchmark retreated from record highs in the previous session.

MSCI's broadest index of Asia-Pacific shares outside Japan .MISX00000PUS closed up 0.96% and emerging market stocks .MSCIEF rose 0.83% to 1,695.93.

US-IRAN DEADLOCK

Washington and Tehran traded accusations on Thursday over a deal to reopen the strategically vital Strait of Hormuz, with the United States saying Iran had failed to meet its obligations and Iran countering that Washington had not delivered on ending a blockade of Iranian ports.

Brent crude futures LCOc1 finished down 2.15% at $87.07 a barrel following a six-session rally, and U.S. crude CLc1 closed down 2.4% at $81.25 a barrel after advancing for five sessions.

Commercial crude oil inventories posted their largest weekly gain since January 2023, and the Organization of the Petroleum Exporting Countries lowered its world oil demand growth forecast for 2026.

High energy prices are expected to weigh more heavily on the economies of the euro zone and Japan, both large energy importers, while the United States is seen as relatively insulated from oil shocks.

CURRENCIES, BONDS

The dollar index =USD, which measures the greenback against a basket of currencies including the yen and the euro, rose 0.03% to 99.98, with the euro EUR= up 0.02% at $1.1526.

The yield on benchmark U.S. 10-year notes US10YT=RR fell 4.73 basis points to 4.645% and the 30-year bond US30YT=RR yield fell 2.81 basis points to 5.2189%

Analysts said the U.S. federal budget deficit's rise to $432 billion is likely to add upward pressure on long-term borrowing costs.

“I would still be careful chasing rallies (in U.S. Treasuries), especially in the back end, where supply, fiscal concerns and oil-related term premium remain hard to dismiss,” Mizuho strategist Evelyne Gomez-Liechti said.

The Japanese yen JPY= weakened 0.08% to 159.55 per dollar.

Expectations that the Bank of Japan would hike interest rates next month, earlier than previously expected, were reinforced by Japan's producer price index, which rose 7.2% in July from a year earlier.

In commodities, spot gold XAU= fell 1.28% to $4,350.72 an ounce after touching their highest since early June. U.S. gold futures GCcv1 dipped 1.1% to settle at $4,420.40.

-Reporting by Chris Prentice in New York and Stefano Rebaudo in Milan; Editing by Sharon Singleton, Andrew Heavens, Susan Fenton and Aurora Ellis/Reuters