Stocks Gain, Dollar Declines on Fed Cut Hopes: Markets Wrap

(Bloomberg) — Share markets advanced on Monday while wagers on lower US interest rates pushed the dollar to its lowest in five months.

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A gauge for Asian shares climbed, building on its best week in over a year. Chinese and Hong Kong technology shares were among the gainers. Meanwhile, the Asian Dollar Index gained as much as 0.7%, and the yen soared. Contracts for US equities fell while those for European stocks were flat.

Monday’s activity underscores just how the prospect of lower borrowing costs is lifting investor sentiment. The major signpost for the week will be on Friday, when Federal Reserve Chairman Jerome Powell is expected to give fresh insights on the course of US monetary policy at the central bank’s annual confab in Wyoming.

“All attention this week will be on Jackson Hole,” Seth Carpenter, chief global economist at Morgan Stanley, wrote. “We expect Powell to hold forth on the medium-term strategy for the Fed,” with slowing price pressures allowing officials to sustain economic momentum while still bringing inflation back to target.

Goldman Sachs at the weekend trimmed the probability of a US recession in the next year to 20% from 25%, citing last week’s retail sales and jobless claims data. If the August jobs report set for release on Sept. 6 “looks reasonably good, we would probably cut our recession probability back to 15%,” Goldman economists led by Jan Hatzius wrote in a report to clients on Saturday.

Policy Meetings

In Asia, investors will be looking this week to central bank meetings in Indonesia and South Korea for signs of policy easing, while the Thailand rate decision will be crucial following reports the nation’s new prime minister may abandon a key stimulus package.

Stronger Asian currencies which have benefited from improved risk sentiment should bring faster policy rate cuts by many Asian central banks, Tomo Kinoshita, global market strategist at Invesco Asset Management Japan, said on Friday.

“The market is envisaging a brighter picture for Asian economies in the coming quarters,” he added. “This should encourage investors to allocate more funds to Asian equities, especially Indian, Indonesian and Malaysian equities.”

Bank of Japan Governor Kazuo Ueda is scheduled to attend a special session at parliament this week to discuss the July 31 interest rate hike, which roiled global markets. Hedge funds have turned bullish on the nation’s currency for the first time since 2021, which marks a sharp turnaround from the extremely negative sentiment seen among these traders as recently as early July.

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Large investors, such as Vanguard, are still betting on more interest rate hikes in Japan in the coming months, even after a sharp decline in market pricing for more tightening this year. The yen rose for a second session on Monday to trade at around 145 per dollar, as the nation’s equities fell for the first time in six days.

The moves in currencies will likely offer a tailwind for European forex, with the pound standing to benefit from the greenback’s bearish sentiment. Elsewhere in Europe, Sweden’s Riksbank will likely resume its easing cycle in August, bringing the policy rate to 3.5% from 3.75%, according to forecasts.

Oil declined for the fourth time in five sessions as traders tracked US-led efforts to secure a cease-fire in the 10-month old Middle East, while the Russia-Ukraine war is escalating. Gold wavered near an all-time high on hopes the Fed is edging closer to cutting rates. Elsewhere, iron-ore had its worst week since early June on concern that a steel-industry crisis rippling across China will sap demand, while supplies from miners remain robust.

Here’s what’s coming up:

• US Democratic National Convention takes place Aug. 22, Monday

• Start of annual US-South Korea joint military exercise, Monday

• China loan prime rates, Canada and euro area CPI, Tuesday

• Sweden and Turkey interest rate decisions, Tuesday

• Indonesia and Thailand interest rate decisions, Wednesday

• US FOMC minutes of of July 30-31 policy meeting, BLS preliminary annual payrolls revision, Wednesday

• European Central Bank Governing Council member Fabio Panetta speaks in Rimini, Wednesday

• South Korea central bank rate decision, Thursday

• US Vice President Kamala Harris delivers acceptance speech on the final night of Democratic National Convention, Thursday

• Mexico’s central bank, National Bank of Poland issues monetary policy minutes

• Malaysia CPI data, while Mexico and Norway publish GDP data

• Japan CPI data due, and Bank of Japan Governor Kazuo Ueda to attend special session at Japan’s parliament to discuss July 31 rate hike, Friday

• Federal Reserve Chair Jerome Powell and Bank of England Governor Andrew Bailey speak at Kansas City Fed’s annual Jackson Hole symposium, Friday

Some of the main moves in markets:

Stocks

• S&P 500 futures fell 0.1% as of 3:11 p.m. Tokyo time

• Nikkei 225 futures (OSE) fell 2.3%

• Japan’s Topix fell 1.4%

• Australia’s S&P/ASX 200 rose 0.1%

• Hong Kong’s Hang Seng rose 0.8%

• The Shanghai Composite rose 0.5%

• Euro Stoxx 50 futures were unchanged

Currencies

• The Bloomberg Dollar Spot Index fell 0.4%

• The euro rose 0.2% to $1.1050

• The Japanese yen rose 1.5% to 145.37 per dollar

• The offshore yuan rose 0.4% to 7.1318 per dollar

• The Australian dollar rose 0.2% to $0.6681

• The British pound rose 0.2% to $1.2964

Cryptocurrencies

• Bitcoin fell 2.4% to $58,410

• Ether fell 1.7% to $2,620.17

Bonds

• The yield on 10-year Treasuries declined two basis points to 3.87%

• Japan’s 10-year yield advanced 1.5 basis points to 0.885%

• Australia’s 10-year yield declined one basis point to 3.92%

Commodities

• West Texas Intermediate crude fell 0.5% to $76.23 a barrel

• Spot gold fell 0.2% to $2,504.09 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Winnie Hsu and Abhishek Vishnoi.

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