LONDON– Global stock markets remained steady on Tuesday, with the U.S. dollar hovering near a two-week high as investors exercised caution ahead of a series of critical economic reports that could influence the Federal Reserve’s upcoming interest rate decisions.
Market participants are closely watching the U.S. ISM manufacturing activity survey, set to be released later today, which will provide an important prelude to Friday’s jobs data. These reports are expected to be decisive in determining whether the Federal Reserve will opt for a 25 or 50 basis point interest rate cut at its September 18 meeting, as well as the extent of further rate cuts for the remainder of the year.
World shares were relatively unchanged, hovering just below record highs, while Europe’s STOXX 600 index dipped slightly. U.S. stock futures also edged lower, down by 0.1% to 0.3%. Meanwhile, the yield on 10-year U.S. Treasury notes fell by one basis point to 3.90% as trading resumed in Asia following a U.S. holiday.
Economists are predicting a modest improvement in the ISM survey, though it is expected to remain in contraction territory with a reading of 47.5 for August. “We think market reaction to any surprise will likely be contained today given the event risk ahead of us,” noted Evelyne Gomez-Liechti, a rates strategist at Mizuho in London.
Looking ahead to Friday, analysts anticipate an increase of 160,000 in U.S. non-farm payrolls (NFP) and a slight decrease in the unemployment rate to 4.2%. This follows July’s jobs report, which revealed a jump in the unemployment rate to 4.3%, the highest in nearly three years, amid a notable slowdown in hiring. The recent data, combined with a reduction in yen carry trades, has prompted investors to double their expectations for rate cuts by the Federal Reserve this year.
Currently, traders are pricing in approximately 100 basis points of rate cuts across three Fed meetings this year, with expectations for a significant 50 basis point cut at one of those meetings. However, some investors believe this is an overestimation given the relatively stable state of the U.S. economy.
“Friday’s number will be pivotal,” said Raisah Rasid, a global market strategist at J.P. Morgan Asset Management in Singapore. “Policymakers are looking for signs of a cooling labor market to justify rate cuts. We don’t see any stress or indications that would necessitate a 50 basis point cut … the question is how long will risk assets continue to rally?”
On the currency front, the dollar remained strong against a basket of currencies, close to a two-week high. The euro slipped 0.2% against the dollar but remained above the two-week low it reached on Monday. “If NFP comes in on target, or close to it, that’s probably going to lock in that 25-bps cut, and I think because of that we’ll probably see some more dollar appreciation,” said Nick Twidale, chief market analyst at ATFX Global in Sydney.
In Japan, the yen strengthened by 0.8% against the U.S. dollar to 145.735, reversing a four-day losing streak. This was bolstered by reports that the Bank of Japan governor reiterated the central bank’s commitment to raising interest rates if the economy and inflation perform as expected.
Earlier in Asian trading, MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.5%, weighed down by declining profits in China’s banking sector. Japan’s Nikkei index also dropped 0.3%.
In the commodities market, Brent crude futures declined for a third consecutive session, down 0.9% to $76.84 per barrel. After surging above $81 in late August due to political tensions in Libya, oil prices have struggled to maintain momentum amid concerns over weakening demand. Meanwhile, gold prices edged higher, trading around $2,505 an ounce after reaching a record high of $2,531 in August.
Source: Reuters