Global shares experienced a boost on Monday, thanks to growing expectations that the Federal Reserve will not raise interest rates again and hopes that China’s steady policy stimulus will stabilize its economy. The United States’ holiday resulted in limited activity before key readings on U.S. services and Chinese trade and inflation later in the week.
Furthermore, additional policy action is expected from Beijing, including the relaxation of restrictions on home buying. The approval given by creditors to embattled property developer Country Garden to extend payments for an onshore private bond also provided relief.
Lazard’s chief market strategist, Ron Temple, suggested that the recent measures announced in China, combined with stabilization and improvement in PMI data, could signal an upcoming turn in investor psychology. However, Temple expressed concern about the lack of urgency among Chinese policymakers.
The MSCI All-World index, which had its strongest weekly rally since mid-July last week, increased by 0.2% on Monday. Meanwhile, the dollar was around 0.16% lower compared to the previous day.
Craig Erlam, a strategist at OANDA, speculated that the gains in Europe may be due to carryover from last week or the prospects of a stimulus-induced boost to China’s economy. However, Erlam also noted that the gains might be purely a result of post-summer break trading.
This week, investor sentiment in the tech sector will be tested by the initial public offering for chip giant Arm Holdings. The company aims for a price range of $47 to $51, which would value it between $50 billion and $54 billion.
S&P 500 futures and Nasdaq futures rose between 0.2% and 0.3%, while European stocks approached one-month highs. The STOXX 600 increased by 0.3%, led by gains in tech stocks such as Dutch semiconductor manufacturer ASML and drugmaker Novo Nordisk, which briefly overtook French luxury group LVMH as Europe’s most valuable company last week.
Stocks rose on Friday after the U.S. payrolls report for August firmed expectations for an end to rate hikes. Although the headline jobs number exceeded forecasts, downward revisions to the previous two months and a dip in wage growth indicated a loosening in the labour market. The jobless rate also increased as more people went looking for work, resulting in the lowest vacancies to unemployed ratio since September 2021.
At present, futures imply a 93% chance of rates staying unchanged this month and a 67% probability that the entire tightening cycle is over. This week, at least seven Fed officials are scheduled to speak ahead of the next policy meeting on September 19-20.
The head of the European Central Bank, Christine Lagarde, emphasized the importance of policymakers keeping inflation expectations firmly anchored. Following a series of soft data, the market is now leaning against a hike at the ECB’s September meeting.
The dollar was supported by the relative outperformance of the U.S. economy, trading at 146.33 yen, not far from its recent 10-month peak of 147.37. Meanwhile, the euro rose by 0.3% to $1.0803, still within sight of its recent low at $1.0765.
In the commodities market, oil traded near seven-month highs due to tightening supply. It is widely expected that Saudi Arabia will extend voluntary oil production cuts into October. Brent crude futures rose by 0.2% to $88.75 a barrel, while U.S. futures reached $85.73.
More detail via Reuters here… ( Image via Reuters )