Investors are closely watching economic data for clues on when the Fed might begin cutting rates

Global stock indexes gained, Treasury yields dropped and the dollar softened against the Japanese yen on Thursday after a larger-than-expected decline in U.S. retail sales in January prompted a slight repositioning of expectations for interest rate cuts.

The U.S. Commerce Department report showed retail sales declined 0.8% last month, the biggest drop since February 2023. Economists polled by Reuters had forecast retail sales dropping 0.1%.

However, winter storms were seen as possible factors impacting the data, with economists noting that a fairly healthy labour market remains supportive for consumer spending.

A separate report showed initial jobless claims dropped 8,000 to a seasonally adjusted 212,000 for the week ended February 10, marginally below the 220,000 estimate.

Investors are closely watching economic data for clues on when the Fed might begin cutting rates.

Bets for an at least 25 bps rate cut in May edged up to 40.6%, while odds for June sat at 82%, per the CME Group’s FedWatch Tool.

A more resilient reading of U.S. consumer prices earlier this week prompted traders to cut the chances of a prompt rate cut from the Federal Reserve, which lifted the dollar and triggered a sell-off in the fixed income market.

Traders also are once again watching the dollar/yen rate as it topped 150 in the last few days, a crucial level that puts the market on alert for possible Japanese intervention to weaken its currency.

The yen firmed despite unexpectedly weak Japanese GDP figures for the fourth quarter of 2023, which saw the country overtaken by Germany as the world’s third-biggest economy.

Against the Japanese yen, the dollar was 0.41% lower at 149.94. The dollar index dropped 0.38% at 104.28, with the euro 0.4% higher at 1.0768.