LONDON, – Global stocks rose for a sixth consecutive day on Monday, driven by investor expectations that the U.S. Federal Reserve will initiate an interest rate cut this week, potentially marking the start of an easing cycle. Investors are bracing for what many believe could be a significant move, with some anticipating a half-point rate cut.
This week will also see central bank meetings in Japan and the UK, though both are expected to maintain current interest rates. Meanwhile, a busy data schedule includes key U.S. reports on retail sales and industrial production, providing further insights into the state of the economy.
Geopolitical tensions escalated as well, with news that Republican presidential candidate Donald Trump was the target of a second assassination attempt on Sunday, according to the FBI. Despite this, the primary market focus remains on the Federal Reserve’s upcoming decision, with traders betting on a sizable rate cut aimed at sustaining economic growth amid slowing job numbers and moderating inflation.
As European markets opened, the MSCI All-World Index gained 0.1%, continuing its rally for a sixth day. The index has surged 10% over the past six weeks, driven by optimism surrounding a potential Fed rate cut.
“Whether the Fed cuts rates by 25 basis points (bps) or 50 bps, the market’s reaction will depend on two factors: how the Fed communicates the decision and the reasons behind a potential 50 bps cut,” said Kathleen Brooks, research director at XTB. “If the Fed cuts by 50 bps to maintain a soft landing for the economy, it’s a positive signal for stocks. However, if the cut appears to be a reaction to looming economic concerns, stocks could decline.”
In early European trading, the STOXX 600 fell by 0.3% after last week’s 1% rally, with investors taking some profits. Meanwhile, S&P 500 and Nasdaq futures dipped slightly by 0.1%-0.2%, signaling a flat start to U.S. trading, after the S&P 500 posted its strongest weekly performance of the year.
Economic data from China showed that industrial output growth slowed to a five-month low in August, while retail sales and home prices also weakened, prompting Goldman Sachs and Citigroup to reduce their forecasts for China’s economic growth to 4.7% for 2024.
Focus on Fed and Interest Rate Decisions
Traders are now placing a 60% chance on a half-point cut by the Fed, up sharply from 30% just a week ago. Speculation around a more aggressive easing move increased following media reports. The rally in U.S. Treasuries has further fueled expectations, with the yield on the two-year note dropping 35 bps since early September. On Monday, it fell an additional 2 bps, trading at 3.555%, the lowest in two years.
The Bank of England is expected to hold its interest rate at 5.00% when it meets on Thursday, though markets have priced in a 31% chance of a cut. Similarly, the Bank of Japan is widely expected to keep rates steady during its Friday meeting, though it may signal tighter policies in October.
Lower U.S. Treasury yields strengthened the Japanese yen, which rose 0.7% against the dollar to 139.84, its highest level in 14 months. The euro also gained 0.35%, reaching $1.1112, though the prospect of future rate cuts by the European Central Bank has kept the currency below $1.1200.
Gold prices also saw gains, rising 0.3% to $2,583 per ounce, approaching an all-time high of $2,588.81, while oil prices inched higher amid supply concerns, with Brent crude up 0.5% to $71.97 per barrel, and U.S. crude rising 0.7% to $69.12.
As markets brace for a pivotal week of central bank decisions, investors are keenly watching the Federal Reserve’s next move, which could set the tone for global markets heading into the final quarter of the year.
Source: Reuters