(Source-marketwatch.com)
U.S. Central Bank Poised for Significant Rate Reduction as Global stocks Markets Edge Higher
Markets Expect Aggressive Fed Rate Cut
Global stocks saw modest gains on Monday, continuing their upward momentum for the sixth consecutive day. Investors are closely watching the U.S. Federal Reserve’s upcoming meeting, which is anticipated to mark the beginning of an easing cycle. With slowing job growth and moderating inflation in the U.S., many believe the Federal Reserve may implement a more substantial rate cut, possibly reducing interest rates by half a percentage point. This move would aim to prevent an economic downturn while maintaining growth. Futures markets suggest that traders now place a 60% chance on a half-point rate cut, a sharp increase from 30% just a week prior.
Kathleen Brooks, research director at XTB, emphasized that market reactions will depend on how the Federal Reserve communicates the cut and explains its rationale. “If the Fed cuts by 50 basis points while assuring the public that it’s preserving a soft economic landing, it would be a positive signal for the global stocks market. However, if the cut appears to be a response to looming economic threats, global stocks could face a downturn,” Brooks stated.
European and Asian Markets Respond Cautiously
In Europe, the MSCI All-World index continued to rally, gaining 0.1% early in the day. Despite this, the STOXX 600 index fell by 0.3%, as European investors took profits following a 1% rally last week. Meanwhile, in Asia, market activity remained subdued due to several public holidays. Economic data from China painted a more concerning picture, as industrial output growth in August hit a five-month low, and retail sales weakened further. These developments prompted major financial institutions, including Goldman Sachs and Citigroup, to lower their 2024 growth forecasts for China to 4.7%.
In the U.S., S&P 500 and Nasdaq futures dipped slightly, signaling a flat start to the trading week after the S&P 500 posted its best weekly performance of the year. Economic indicators, such as upcoming U.S. retail sales and industrial production data, are also being closely monitored as investors await the Federal Reserve’s rate decision.
Currency and Commodity Markets Shift
In the currency markets, the prospect of lower U.S. interest rates led to a rally in the Japanese yen, which rose 0.7% against the U.S. dollar, pushing the dollar down to its weakest level in 14 months. The euro also gained ground, rising by 0.35% to $1.1112. Meanwhile, lower bond yields, driven by falling U.S. Treasury yields, boosted gold prices, with the precious metal climbing 0.3% to $2,583 per ounce, near a record high.
Oil prices also saw an uptick, with Brent crude rising 0.5% to $71.97 per barrel. U.S. crude climbed 0.7% to $69.12, as nearly 20% of crude oil production in the Gulf of Mexico remained offline. This trend in commodities further reflects the ongoing market volatility as investors brace for potential shifts in monetary policy from central banks worldwide.
With central bank meetings in Japan and the UK also taking place this week, investors are preparing for significant developments that could shape global stocks economic policy in the months ahead.
