Stock futures in Japan, Hong Kong, and Australia all slipped, while contracts for Chinese shares bucked the trend with the Nasdaq Golden Dragon China Index gaining for a fourth straight session.
The S&P 500 fell on Monday as the rally that put stocks on the brink of all-time highs hit speed bumps. Still, Nvidia Corp. climbed ahead of its results, while fellow megacap Alphabet Inc. hit a record. The yield on 10-year Treasuries rose two basis points to 4.28%. The dollar gained.
The sense of euphoria around the prospect of Fed rate cuts eased, just days after Chair Jerome Powell signalled a September rate cut is likely amid downside risks to the jobs market. Doubts over the pace of those reductions lingered on Wall Street as traders braced for a not-so-friendly price reading later this week.
“Now the discussion will likely turn to how aggressive the Fed may be,” said Chris Larkin at E*Trade from Morgan Stanley. “Signs of a slowing labour market currently appear to be outweighing inflation concerns, but the Fed hasn’t abandoned its 2% target.”
Policymakers are grappling with inflation that’s still above their 2% goal — and rising — and a labour market that’s showing signs of weakness. That unnerving reality, which pulls policy in opposite directions, is made worse by a high degree of uncertainty about how each of those factors will evolve over the coming months.
The Fed’s preferred gauge of underlying inflation probably ticked higher last month, with the personal consumption expenditures price index excluding food and energy rising 2.9% from a year ago. That would be the fastest annual pace in five months.
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China’s stock markets will once again be in focus after a rally on Monday saw shares in Shanghai jump 1.5%, keeping the stocks at a 10-year high.
The liquidity-driven rally is showing signs of euphoria in some corners of the market. The benchmark CSI 300 Index is coming off its best week since November and climbed another 2.1% on Monday. Technology shares continued to lead the charge, with stocks in the property sector also joining the broadening advance on evidence of more support measures.
Meanwhile, President Donald Trump confirmed that a deal setting a 15% tariff on South Korean goods will remain unchanged. Separately, Korean Air Lines Co. plans to order more than 100 Boeing Co. jets. The company also inked a $13.7 billion purchase deal with GE Aerospace after South Korean President Lee Jae-myung and Trump met at the White House.
Back on Wall Street, money markets are pricing in roughly 80% odds of a Fed rate cut in September and a total of two reductions by the end of the year.
“If we are right, the focus shifts to what happens after September,” said Krishna Guha at Evercore. “If the next set of labour data is not too bad, we think the Fed will begin to frame out the cautious recalibration cut while seeking to contain expectations of ‘too much too soon’.”
Investors will also monitor comments from US policymakers at public events this week to gauge their appetite for a September rate cut, with Fed Governor Christopher Waller scheduled to speak on Thursday.
Aside from the macro picture, the next big test for the stock market will be a read on what’s been driving gains for the past few years: artificial-intelligence euphoria.
Nvidia – the last of the “Magnificent Seven” to report earnings – is due to unveil its results on Wednesday after the close. Traders are hoping it can soothe fears about AI spending and effectively confirm that the stock market’s latest rally isn’t just a technology bubble.
“Unless we get some sort of major UFO (UnForeseen Occurrence), the most important development of this week will be the earnings report and guidance out of Nvidia,” said Matt Maley at Miller Tabak. “Those earnings will be good. The only question will be whether they’re good enough to push the stock higher after almost doubling over the past four-five months,” he added.
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