Key Points:
- Wall Street gained on optimism about Fed rate cuts and economic resilience. The Dow, S&P 500, and Nasdaq all saw increases.
- Fed officials hint at potential rate cuts in September. Goldman Sachs reduces U.S. recession expectations to 20%.
- European shares and FTSE 100 index rise; Nikkei falls. Sweden’s central bank may cut rates by 50 basis points.
- The dollar slips, the euro strengthens, and gold retreats from historic highs. Oil prices dip amid concerns over Chinese demand.
Wall Street continued its upward trajectory on Monday, buoyed by optimism that the U.S. economy will avoid a recession and that cooling inflation will prompt the Federal Reserve to initiate a cycle of interest rate cuts. At 2:14 PM (ET), the Dow Jones Industrial Average rose 0.36% to 40,807, the S&P 500 gained 0.58% to 5,587, and the Nasdaq Composite increased 0.62% to 19,629.
Federal Reserve officials Mary Daly and Austan Goolsbee signaled over the weekend that easing could begin early in September. The minutes of the Fed’s last policy meeting, set to be released this week, are expected to underscore this dovish outlook.
Investors also closely watch Federal Reserve Chair Jerome Powell, who will speak at the Jackson Hole symposium on Friday. Many anticipate that Powell will acknowledge the potential for a rate cut without committing to its size. According to TD Securities analysts, Powell will likely hint at the Fed beginning to ease monetary policy next month, leaving the door open for a more substantial cut depending on upcoming economic data.
Interest rate futures are currently fully pricing in a quarter-point reduction, with a 25% chance of a 50 basis point cut, contingent on the next payroll report’s results. Meanwhile, yields on U.S. government debt eased on Monday, with the benchmark U.S. 10-year notes falling 3.2 basis points to 3.86%. Goldman Sachs analysts have reduced their U.S. recession expectations to a 20% chance and might lower them further if the August jobs report, due in September, appears favorable.
In Europe, broad shares climbed around 0.6%, reaching a three-week high, while the blue-chip FTSE 100 index gained 0.55% to 8,357. Investors await flash Purchasing Managers’ Index (PMI) data for Britain, France, Germany, and the Eurozone later this week. The Nikkei index in Japan closed 1.77% lower at 37,388.62, ending a five-day winning streak that saw it rise 8.7% last week. Chinese blue chips, however, managed to close 0.3% higher.
The Federal Reserve isn’t alone in considering looser monetary policy. Sweden’s central bank is expected to cut rates this week, potentially by an outsized 50 basis points.
At 2:20 PM (ET), the dollar slipped 0.72% to 146.52 yen in currency markets, while the euro stood at $1.108, continuing its August climb. Despite a softer dollar and lower bond yields, gold futures reach around $2,542 an ounce, its all-time peak. Oil prices also dipped as concerns about Chinese demand weighed on market sentiment. U.S. crude lost 2.52% to $73.64 per barrel, while Brent fell 2.54% to $77.66 per barrel.
