U.S. Rate Cut Expectations Propel Another Stock Market Rally; Dollar Trading Steadily
Global shares hovered near one-month highs on Tuesday, buoyed by renewed optimism surrounding potential U.S. interest rate cuts. Currency markets saw the dollar holding steady amid a weaker yen and a stronger euro.
Last week’s U.S. jobs report, which fell short of economist expectations and sluggish growth data from the prior week, sparked a significant shift in the outlook for Federal Reserve rate adjustments. Traders are now pricing in the likelihood of 45 basis points of rate cuts by the end of 2024, with the first cut potentially occurring in September. This contrasts with previous expectations, which foresaw only one cut due to persistent inflation figures.
The yield on 10-year Treasury notes dipped to nearly a one-month low, while the dollar index retreated approximately 1.3% from its recent six-month peak. Analysts suggest that despite recent dollar weakness, concerns about the rest of the world catching up to the U.S. regarding economic strength may limit the dollar’s decline in the near term.
The strength of the U.S. housing market and indications of stalled progress on inflation have led some Federal Reserve officials, such as Minneapolis Fed President Neel Kashkari, to suggest that monetary policy may be less restrictive than previously anticipated.
The prospect of lower interest rates has spurred investor appetite for stocks and riskier assets, including bitcoin. Significant indices, such as MSCI’s global stock gauge and Wall Street’s Dow Jones Industrial Average, S&P 500, and Nasdaq Composite, have all posted gains, with European stocks reaching one-month highs.
Treasury yields have slipped as market participants brace for significant new supply issuance this week. Despite concerns, demand is expected to be robust, particularly given Fed Chair Jerome Powell’s dovish comments last week and the softer-than-expected jobs report.
In the currency market, declining rate expectations have dampened the dollar’s performance. However, European rate cuts and expectations of minimal rate movement in Japan have helped cap the euro and yen.
Meanwhile, oil prices stabilized amid concerns over sticky U.S. inflation and weakness in the physical market despite escalating tensions in the Middle East.
Spot gold experienced a slight decline in precious metals, while bitcoin saw a modest increase, reflecting ongoing market sentiment.
