Dollar rises while global stock index falls; inflation and tariffs in focus

By Sinéad Carew and Alun John

NEW YORK/LONDON (Reuters) -The U.S. dollar index rose on Thursday while MSCI's global equities gauge fell as stronger-than-expected megacap earnings reports were balanced against signs of rising inflation and investor anxiousness ahead of President Donald Trump's deadline for trade agreements.

Trump gave Mexico a 90-day reprieve from higher tariffs to negotiate a broader trade deal but was expected to issue higher final duty rates for most other countries as the clock wound down on the Friday deadline.

Earlier in the day, an economic data release showed U.S. inflation increased in June as tariffs on imports started raising the cost of some goods, supporting economists' expectations that price pressures would pick up in the second half of the year.

Thursday's data also showed fewer-than-expected Americans applied for unemployment benefits, while second-quarter U.S. labor costs increased slightly more than expected on a pick-up in wage growth.

The Federal Reserve kept rates steady on Wednesday, and Chair Jerome Powell said the central bank needed to wait for more data before deciding whether to adjust rates in September, sending equities lower on the day and drawing further criticism from Trump.

Indexes saw some support earlier on Thursday from better-than-expected results from Microsoft and Meta Platforms but by the end of the day, gains had evaporated.

With the economic data appearing to support the Fed's more hawkish stance and an anxious wait for Friday's payroll report along with Trump's tariff deadline, investors had an awful lot to handle this week, said Kevin Gordon, senior investment strategist at Schwab.

“This is one of those weeks where it's almost too much information to digest, so the market is ignoring it all and staying in a tight range,” Gordon said.

However, he noted megacap strength was countering weakness elsewhere in the market including in small-cap companies, which have less latitude to cope with higher prices.

“You really only have communications services and parts of technology that are holding you up today. Breadth is generally pretty weak,” the strategist said.

The Russell 2000 small cap index ended down 0.93% while the S&P 600 small cap index fell 1.17%.

On Wall Street, the Dow Jones Industrial Average fell 330.30 points, or 0.74%, to 44,130.98 and the S&P 500 was down 23.51 points, or 0.37%, to 6,339.39 with only two of its 11 major industry sectors showing gains for the day.

The Nasdaq Composite fell 7.23 points, or 0.03%, to 21,122.45.

For the month, the S&P 500 gained 2.17% and the Nasdaq rose 3.7%, while the Dow added 0.08%.

MSCI's gauge of stocks across the globe fell 5.31 points, or 0.57%, to 929.02.

Earlier, the pan-European STOXX 600 index finished down 0.75%, at a more than one-week low. European investors were disappointed by corporate earnings reports from the likes of Sanofi and Ferrari, while beverage makers slid as they were faced with a 15% U.S. tariff.

US DOLLAR EYES MONTHLY GAIN

In currencies, the U.S. dollar was eyeing its first monthly gain for 2025 against major currencies, underpinned by hopes for clarity on trade policy and U.S. economic resilience.

For the day, the dollar index, which measures the greenback against a basket of currencies including the yen and the euro, rose 0.26% to 100.05.

The euro was up 0.08% at $1.1413 and the Mexican peso strengthened 0.23% versus the dollar at 18.854.

But against the Japanese yen, the dollar strengthened 0.84% to 150.76 after the Bank of Japan held interest rates steady and increased its inflation forecast.

The Korean won weakened 0.21% against the dollar after Trump's announcement that the U.S. would charge a 15% tariff on imports from South Korea, which would in return invest $350 billion in U.S. projects and purchase $100 billion in U.S. energy products.

In U.S. Treasuries, longer-dated yields were lower before the anticipated July jobs report, reversing an increase on Wednesday following Powell's comment.

The yield on benchmark U.S. 10-year notes fell 0.6 basis points to 4.372%, from 4.378% late on Wednesday, while the 30-year bond yield fell 1.5 basis points to 4.8979%.

But the 2-year note yield, which typically moves in step with interest rate expectations for the Federal Reserve, rose 2 basis points to 3.957%, from 3.937% late on Wednesday.

In oil markets, prices fell 1% after rising in each of the prior three sessions as investors considered the extension of an existing trade deal between the U.S. and Mexico and a surprise build in U.S. crude stocks put pressure on prices.

U.S. crude settled down 1.06%, or 74 cents at $69.26 a barrel while Brent settled at $72.53 per barrel, down 0.97%, or 71 cents on the day.

Gold prices rose as traders turned to the safe-haven asset on tariff uncertainty. Spot gold rose 0.51% to $3,291.55 an ounce.

(Reporting by Sinéad Carew, Alun John, Nell Mackenzie and Gregor Stuart Hunter; additional reporting by Ankur Banerjee; Editing by Barbara Lewis, Andrea Ricci and Jamie Freed)