NEW YORK/LONDON, Aug 20 (Reuters) – Global stocks hovered near their highest in a month on Tuesday, while the dollar hit an eight-month low, 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.
“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% – 3.50%. That’s still above the Fed’s own estimate of the neutral rate of interest,” Colas said.
“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 3.818%.
Futures markets are fully pricing in a 25 basis point cut from the Fed in September, with around a 25% chance of a 50 basis point cut.
Item 1 of 3 Traders work on the floor at the New York Stock Exchange (NYSE) in New York City, U.S., July 3, 2024. REUTERS/Brendan McDermid/File Photo
“The recession fears have been dampened over the last couple of weeks and the market has rebounded a lot,” Cetti added.
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 $1.12775 on Tuesday. Sterling briefly touched its highest in over a year and last bought $1.30540.
The dollar index was last at 101.41, its lowest since January.
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.
Against the yen, the dollar was down 0.8% at 145.34 , 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.
“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% at $77.21 a barrel. U.S. crude fell 0.7% to $74.04 per barrel.
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Reporting by Samuel Indyk and Rae Wee; Editing by Edwina Gibbs, Kim Coghill, Christina Fincher, Sharon Singleton and Aurora Ellis
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