World shares rise and US yields weaken on inflation data and Bank of Japan rate adjustment

A trader works at the New York Stock Exchange. On Wall Street, all three main indexes finished higher led by technology, communication services and consumer discretionary stocks. Getty Images / AFP

World shares rose while US Treasury yields fell on Friday, as markets digested the Bank of Japan's decision to tweak its ultra-loose monetary policy as well as data showing a continuing moderation in annual US inflation.

The Bank of Japan on Friday adjusted its yield curve control scheme, offering to buy 10-year Japanese government bonds beyond the previous 0.5 per cent target rate while keeping its benchmark short-term rate at -0.1 per cent and long-term bond yields at zero.

The move brings the BoJ more into line with other central banks, which have been aggressively increasing rates to reduce inflation.

The US Federal Reserve and European Central Bank had announced interest rates rises this week, with markets expecting them to be nearing the end of an increase cycle.

US inflation slowed considerably in the 12 months to June, with the personal consumption expenditures price index rising by 3 per cent, the smallest annual gain since March 2021, data from the Commerce Department showed on Friday.

The MSCI All Country stock index, which tracks shares in nearly 50 countries, rose 0.72 per cent to 705.13 points. The index has gained nearly 17 per cent year-to-date.

US Treasury yields weakened after hitting two-week highs for most maturities in the previous session, with yields on benchmark 10-year Treasury notes down at 3.957 per cent while two-year yields fell to 4.8786 per cent.

“I think the BoJ move turned out to be a whole lot less than what was feared. It's basically a minor tweak and the market is coming around to the fact that it is not really meaningful in terms of tightening,” said Garrett Melson, portfolio strategist at Natixis Investment Managers in Boston.

On Wall Street, all three main indexes finished higher, led by technology, communication services and consumer discretionary stocks.

The Dow Jones Industrial Average rose 0.5 per cent to 35,459.29; the S&P 500 gained 0.99 per cent to 4,582.23, and the Nasdaq Composite added 1.9 per cent to 14,316.66.

European stocks fell 0.2 per cent after hitting a 17-month high on Thursday when the ECB raised interest rates to their highest level in more than two decades and left open the possibility of a pause at its next meeting.

Overnight in Asia, the MSCI's broadest index of Asia-Pacific shares outside Japan closed 0.42 per cent higher, with Japan's Nikkei dropping 0.40 per cent.

“Right now, the market fully realises that it's all about how the data unfolds. We're really in the midst of a material slowdown in inflation trends and at the same time growth is holding up well, which is what you'd expect for the soft landing,” Mr Melson said.

The yen had a rough ride in its most volatile trading session in months following the BoJ's move, while the dollar fell against a basket of its major peers.

The yen weakened 1.18 per cent against the greenback at 141.08 per dollar. The dollar index fell 0.059 per cent, with the euro up 0.45 per cent to $1.1022.

Oil prices settled higher, reaching the fifth straight week of gains as investors were optimistic that healthy demand and supply cuts will keep prices buoyant.

Brent crude settled 75 cents higher to $84.99 a barrel, while US West Texas Intermediate (WTI) crude gained 49 cents to $80.58 a barrel.

Gold prices rose after a sharp fall in the previous session, helped by a slight retreat in the dollar. Spot gold added 0.7 per cent to $1,959.18 an ounce, while US gold futures gained 0.66 per cent to $1,958.50 an ounce.