Investors turn to Fed after muted Wall Street amid stocks rebound

By Lawrence Delevingne and Huw Jones

The global shares market seemed to hit a pause on Wednesday after a strong rebound that brought them closer to recent record highs. Investors are now eagerly awaiting hints on potential interest-rate cuts from the Federal Reserve to make their next strategic move.

Fed Chair Jerome Powell is anticipated to solidify the perception that the central bank is gearing up to relax credit conditions following the successful containment of the worst inflation outbreak in four decades. His insights are eagerly awaited as he is set to address the public on Friday at the Fed’s Jackson Hole conference in Wyoming.

Oil prices experienced a dip in early afternoon U.S. trading, while the weakening dollar on the likelihood of rate cuts has kept gold prices lingering near Tuesday’s all-time high.

On Wall Street, the Dow Jones Industrial Average remained relatively flat at 40,858, the S&P 500 showed a modest increase of 0.28% to 5,612, and the Nasdaq Composite rose by 0.3% to 17,871.

The MSCI All Country index for global stocks edged up by 0.27%, hovering near its mid-July peak and reflecting a 13.5% gain for the year.

In Europe, the STOXX index of 600 companies saw an increase of about 0.3%, also nearing its record high achieved on June 7.

This month has been quite the roller-coaster for stocks as investors initially panicked following U.S. jobs data suggesting a looming recession in the world’s largest economy.

However, these concerns have now shifted to expectations of a soft landing supported by anticipated cuts in U.S. borrowing costs scheduled to kick off in September.

According to the Labor Department’s latest report, U.S. employers added significantly fewer jobs than initially reported between March and the current year, intensifying worries about the labor market’s health.

Furthermore, market participants are anticipating the release of Fed meeting minutes later today, which are expected to reaffirm a dovish stance.

Guy Stear, head of developed markets strategy at Amundi Investment Institute, mentioned, “We expect the Fed chairman to continue signaling a potential rate cut in September. However, any references to persistent inflation might disappoint investors.”

Interest-rate futures have fully factored in a 25 basis point U.S. rate cut next month, with a possibility of a 50 bp cut. Nearly 100 bps of cuts are anticipated for this year, along with another 100 bps for the following year.

U.S. Treasury yields saw a downward trend, with the yield on benchmark 10-year notes dropping by 3.4 basis points to 3.784% compared to 3.818% from the previous day. The 2-year note yield, which usually corresponds with interest rate expectations, fell by 7.2 basis points to 3.9284%.

Ross Yarrow, U.S. equities managing director at investment bank Baird, noted a potentially unique scenario of significant rate cuts without a concurrent recession, unlike the backdrop for previous cutting cycles.

Yarrow added, “If the Fed proceeds with rate cuts, inflation trends downwards, and employment continues to rise, it could potentially lead to a Goldilocks scenario, where equities rebound and thrive.”

He concluded on an optimistic note, stating, “So I believe that the rebound in equities and their future prospects look promising.”

However, Sameer Samana, senior global market strategist at Wells Fargo Investment Institute, cautioned that markets could remain subdued. He wrote, “We anticipate that markets will maintain a range-bound stance until after the November elections.”

On the other side of the globe, MSCI’s broadest index of Asia-Pacific shares outside Japan witnessed a decline of 0.34%. Hong Kong’s Hang Seng recorded a drop of 0.7%, with JD.com declining by 8.7% after top shareholder Walmart initiated the sale of its substantial stake.

Meanwhile, Japan’s Nikkei also experienced a downturn of 0.3% as its recovery from the slump in early August encountered resistance around the 38,000 level.

The weakening dollar has led to a surge in gold prices to record highs and propelled the yen to 145.140 per dollar, rebounding from last month’s 38-year low.

Additionally, the euro has strengthened by approximately 3% this August, reaching $1.115, its highest value since early December.

Amidst all these fluctuations, oil prices witnessed a decline on Wednesday, with U.S. crude dropping by 1.69% to $71.93 per barrel and Brent falling to $76.09 per barrel, down 1.44% on the day.

Gold prices continued to hover around $2,500 an ounce, just slightly below the recent record levels touched on Tuesday.

Disclaimer: This article has been automatically generated from a news agency feed without any modifications to the original text.