Aug 19 2024: World stocks edged higher on Monday, while the dollar slipped as global equities extended gains from their best week in nine months. This optimism was fueled by expectations that the U.S. economy would avoid a recession and that cooling inflation could trigger a cycle of interest rate cuts.
The prospect of lower borrowing costs kept gold near its historic highs and pressured the dollar against the euro. Meanwhile, the yen’s sudden surge weighed on Japan’s Nikkei index.
MSCI’s broadest index of world stocks rose by about 0.2% as of 0900 BST. In contrast, Japan’s Nikkei index .N225 ended 1.77% lower at 37,388.62, breaking a five-day winning streak that saw it gain 8.7% last week. Chinese blue-chip stocks gained 0.4%.
Shares of Seven & I Holdings surged by 23% to hit a daily limit high after a preliminary takeover offer from Canada’s Alimentation Couche-Tard for the 7-Eleven convenience store chain. However, no decision on the offer has been made yet.
In the U.S., Federal Reserve officials Mary Daly and Austan Goolsbee signaled over the weekend the possibility of easing monetary policy in September. The minutes of the last policy meeting, expected to be released this week, are likely to emphasize this dovish outlook. Investors are particularly focused on Fed Chair Jerome Powell’s upcoming speech at Jackson Hole on Friday, where many expect him to acknowledge the potential for a rate cut.
“Everything points to this Friday. We’ll be looking for any indication that rate cuts might be on the way. The next question is, how big will those rate cuts be?” said Paul O’Neill, chief investment officer at Bentley Reid. Futures markets are fully pricing in a quarter-point cut, with a 25% chance of a 50 basis-point cut, contingent on the upcoming payroll report.
Analysts at Goldman Sachs have reduced their expectations for a U.S. recession to a 20% probability, noting that they could revise this down further if the August jobs report, due in September, shows positive results.
European markets opened mixed ahead of a busy week, with broad European shares remaining flat on Monday. The blue-chip FTSE 100 index fell 0.3%, while Germany’s DAX edged down 0.2% by 0855 BST. Aerospace and defense stocks dropped by 1.3%, mirroring losses in European defense stocks following reports that the German government would reject new military aid requests for Ukraine due to budget cuts.
Investors are also looking ahead to flash Purchasing Managers’ Index (PMI) data for France, Germany, Britain, and the Eurozone later this week.
U.S. futures remained flat.
Rate Cuts on the Horizon
The Federal Reserve is not the only central bank considering easing its monetary policy. Sweden’s central bank is also expected to cut rates this week, possibly by an outsized 50 basis points.
In currency markets, the dollar fell by 1.0% to 146.12 yen, while the euro strengthened to $1.1040, just below last week’s peak of $1.1047.
“The overall Fed message this week is likely to reassure market participants looking for confirmation that policy rate cuts are now imminent,” said Jonas Goltermann, deputy chief markets economist at Capital Economics. “As such, the greenback may well remain under pressure in the near term, although given the extent to which Fed easing is already priced in, we doubt there is much further downside for the dollar.”
A weaker dollar, combined with lower bond yields, supported gold prices, which held around $2,503 per ounce, close to an all-time high of $2,509.
Oil prices continued to decline as concerns over Chinese demand weighed on market sentiment. Brent crude fell about 60 cents to $79.08 per barrel, while U.S. crude dropped 70 cents to $75.95 per barrel.
