Shares flirt with highs on rate cut bets, gold at record

NEW YORK/LONDON :Global stocks hovered near their highest in a month on Tuesday, while the dollar softened and Treasury yields fell, as investors focused on bets that the U.S. Federal Reserve could offer further hints of imminent interest rate cuts.
With the data calendar relatively light across major economies this week, all eyes are on Wednesday’s release of the Fed’s July meeting minutes and Chair Jerome Powell’s speech at Jackson Hole on Friday for clues on the outlook for U.S. rates.
Fed policymakers have in recent days signalled possible easing in September, priming markets for a similar tone from Powell and other speakers at the annual meeting of global central bankers in Jackson Hole, Wyoming.
“Markets believe that once the Fed starts cutting rates it will pursue a predictable strategy of reducing them at every, or almost every, meeting over the next 12 months,” said Nicholas Colas, co-founder of DataTrek Research LLC.
“While that might sound like an aggressive, even worrisome, expectation, consider that eight 25 basis point reductions would only take Fed Funds to 3.25 per cent – 3.50 per cent. That’s still above the Fed’s own estimate of the neutral rate of interest,” Colas said.
Investors hope that monetary policy easing is in the offing to help support stock markets. By 1752 GMT, the S&P 500 had shed modest gains to be down 0.2 per cent, the Nasdaq Composite lost 0.4 per cent, and the Dow Jones Industrial Average eased 0.2 per cent.
That kept a MSCI index for global stocks unchanged near its strongest level in over a month.
“Should they acknowledge the U.S. economy’s disinflation path, it will confirm a September rate cut,” Thierry Wizman, a global currency and rates strategist at Macquarie, said about the Fed.
“Markets will likely turn on the extent to which Powell opens the door for the possibility of a 50 basis point cut at one of the next three FOMC meetings.”
In line with expectations of lower rates, the benchmark 10-year Treasury yield fell to 3.8256 per cent.
Futures markets are fully pricing in a 25 basis point cut from the Fed in September, with around a 25 per cent chance of a 50 basis point cut.
In Europe, the STOXX 600 index lost 0.5 per cent, having recovered most of the losses seen after a weak U.S. labour market report prompted worries about the health of the economy.
“Since the report, we’ve had number after number after number suggesting that a recession in the U.S. economy is not around the corner,” said Josephine Cetti, chief investment strategist at Nordea, citing strong U.S. retail sales, upbeat business surveys, improving jobless claims numbers and a benign inflation reading.
“The recession fears have been dampened over the last couple of weeks and the market has rebounded a lot,” Cetti added.
MSCI’s broadest index of Asia-Pacific shares outside Japan hit a one-month high before giving up some gains to trade 0.3 per cent higher.
Japan’s Nikkei 225 rose to its strongest level in over two weeks, closing up 1.8 per cent, but Chinese blue-chips fell 0.7 per cent on continued worries over the country’s gloomy economic outlook. Hong Kong’s Hang Seng Index edged down 0.3 per cent.
FED EXPECTATIONS DENT DOLLAR
Expectations of a dovish Fed outcome this week left the dollar struggling at a near eight-month low against the euro, which peaked at $1.1119 on Tuesday. Sterling briefly touched its highest in over a year and last bought $1.30230.
The dollar index was last at 101.49, having fallen to its lowest since early January of 101.76 earlier in the session.
Spot gold touched another record high of $2531.60 an ounce, drawing support from a broadly weaker dollar and on expectations of imminent U.S. rate cuts. [GOL/]
Against the yen, the dollar was down 0.8 per cent at 145.43, with traders looking to Bank of Japan Governor Kazuo Ueda’s appearance in parliament on Friday, where he is set to discuss the central bank’s decision last month to raise interest rates.
The BOJ’s hawkish tilt had injected huge volatility into markets as investors aggressively unwound yen-funded carry trades, rocking stocks globally.
The market turmoil has since abated after BOJ Deputy Governor Shinichi Uchida earlier this month played down the chance of further rate hikes in the near term.
“With markets calming, Ueda may change tack and return to talking about normalising interest rates,” said Joseph Capurso, head of international and sustainable economics at Commonwealth Bank of Australia.
In commodities, oil prices extended earlier losses, with Brent crude last down 0.6 per cent at $77.23 a barrel. U.S. crude fell 0.5 per cent to $73.97 per barrel.