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Global Markets Show Mixed Results Ahead of Federal Reserve’s Rate Decision

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LONDON,– Share markets exhibited mixed performance on Tuesday as investors awaited U.S. Federal Reserve Chair Jerome Powell’s testimony for clues on potential interest rate cuts amid signs of a cooling U.S. labor market.

The Euro STOXX 600 fell by 0.2%, with euro zone blue-chip stocks showing a similar decline. Energy shares, tracking lower oil prices, led the losses with a 1.2% drop. In contrast, Wall Street was poised for a positive open, with S&P 500 and Nasdaq futures both up 0.3%, bolstered by gains in megacap tech and semiconductor stocks.

Powell’s upcoming testimony before Congress, scheduled for Tuesday and Wednesday, is expected to assess whether the recent signs of cooling inflation and a slowing job market will accelerate the Fed’s plans to cut interest rates. Investors now estimate an 80% chance of a rate cut in September, following soft labor market data.

“Fed policy is crucial for the U.S., but it’s not the only factor,” said Alexandre Marquis, senior portfolio manager at Unigestion. “Corporate earnings also help alleviate the disappointment over rate cut expectations.”

Powell’s testimony shifted investor focus away from France, where political deadlock in the euro zone’s second-largest economy reduced concerns about the fiscal impact of far-left or far-right policies. French left-wing leaders, who came first in Sunday’s legislative election, plan to govern according to their tax-and-spend agenda, though they lack a majority.

The euro remained steady near a four-week high, and euro zone bond yields inched higher ahead of Powell’s testimony. Germany’s 10-year bond yield, the benchmark for the euro zone, rose by 1 basis point to 2.53%. The yield gap between French and German bonds, which peaked at 85 bps in late June due to far-right fears, held steady at 66 bps.

In Japan, the Nikkei index surged 1.96% to a record high, supported by semiconductor shares and a weakened yen. MSCI’s broadest index of Asia-Pacific shares outside Japan edged 0.4% higher, slightly below a two-year peak reached the previous day.

Rate Cuts on the Horizon?

U.S. consumer price data, due on Thursday, will provide further insight into the health of the U.S. economy. Headline inflation for June is expected to slow to 3.1% from 3.3% in May, with core inflation steady at 3.4%. Markets have priced in a total of 50 basis points of easing for the remainder of 2024, equivalent to two rate cuts.

The U.S. dollar steadied near four-week lows at 105.02 against a basket of currencies. The Japanese yen remained at 160.87 per dollar, close to last week’s 38-year low of 161.96. In Britain, the pound edged down slightly from Monday’s one-month peak, last up 0.1% at $1.2817.

Oil prices remained steady after a hurricane in Texas caused less damage than anticipated. Brent futures fell 0.4% to $85.37 a barrel, while U.S. West Texas Intermediate crude climbed 2 cents to $82.33.

Source: Reuters