By Wayne Cole and Naomi Rovnick
LONDON/SYDNEY (Multibagger) - Global Stock Markets Hover at Record Highs Amid Rate Cut Anticipation from China and Switzerland
As investors eye the next moves by central banks in China and Switzerland to invigorate the global economy with rate cuts, world stocks remain near record highs, following the decisive rate cut by the U.S. Federal Reserve last week.
In advance of U.S. inflation data that traders expect to support further easing, China's central bank reduced its 14-day repo rate by 10 basis points, shortly after disappointing markets by not cutting longer-term rates.
MSCI's broad index of world stocks held steady after two weeks of gains, with its gauge of Asia-Pacific shares outside Japan adding 0.3% following a 2.7% increase last week. Singapore's main index soared to its highest level since late 2007.
Although Tokyo's stock markets were closed for a holiday, futures trading indicated these recent laggards would join the rally, with contracts trading at 38,510 compared to a cash close of 37,723.
The index surged 3.1% last week as the yen weakened, and the Bank of Japan (BOJ) signaled no rush to tighten policy further.
Markets are still buoyed by the Federal Reserve's half-point rate cut, with futures indicating a 50% probability of another significant move in November.
However, Christoph Schon, multi-asset strategist at Simcorp, cautioned that a U.S. recession might still be imminent, noting that the last two occasions the Fed initiated a 50 bps cut were in 2008 and 2001, both years of severe downturns. "Every time we hear this time is different and maybe this time it is, but there is now growing concern," he said.
Conversely, if economic data comes in surprisingly strong, causing a downward shift in rate cut expectations, share prices might fall, Schon added.
Markets showed little caution on Monday, with Europe's Stoxx share index holding steady and futures trading indicating a robust session for Wall Street.
The S&P 500 firmed 0.3% and Nasdaq futures added 0.6%. The S&P is up 1% so far in September, historically the weakest month for stocks, and has gained 19% year-to-date, reaching all-time highs.
Friday saw over 20 billion shares change hands on U.S. exchanges, the busiest session since January 2021.
The significance of U.S. monetary policy cannot be overstated, given the Fed's role in USD liquidity conditions worldwide, Barclays economist Christian Keller noted.
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Market exuberance may also hinge on the Fed's preferred inflation gauge, the core personal consumption expenditures (PCE) report on Friday. Analysts expect a 0.2% month-on-month rise, bringing the annual rate to 2.7%, while the headline index is projected to slow to 2.3%.
This aligns with a more benign inflation outlook globally.
The Swiss National Bank meets Thursday, with markets fully pricing a quarter-point cut to 1.0% and a 41% chance of a 50 basis point cut.
Sweden's central bank also meets on Wednesday and is expected to ease by 25 basis points, with some chance of a larger cut.
The coming week also includes surveys on global manufacturing, U.S. consumer confidence, and durable goods.
One central bank not easing is the Reserve Bank of Australia (RBA), which meets on Tuesday and is expected to hold at 4.35% as inflation remains stubborn.
In currency markets, the dollar edged up 0.1% to 144.30 yen, having bounced 2.2% last week from a low of 139.58. The euro gained almost 3% last week to reach 161.09 yen and held firm against the dollar at $1.1160 on Monday.
The yield on the benchmark U.S. 10-year Treasury, which influences global borrowing costs and moves inversely to its price, remained steady at 3.745%.
In one sign of recessionary fears, gold traded at an all-time peak of $2,630.93 an ounce. Net long positions in Comex gold hit their highest level in four years last week.
Oil prices weakened despite tensions in the Middle East as Israel struck Hezbollah targets, following a rally last week. Brent crude eased 0.2% to $74.35 a barrel, while U.S. crude also fell 0.2% to $70.89.
## Simplified Analysis:
### What's Happening?
1. **Global Stocks Near Record Highs**: Stocks worldwide are close to record highs as investors look to central banks in China and Switzerland to cut interest rates, boosting the global economy.
2. **Recent U.S. Fed Action**: The U.S. Federal Reserve recently cut interest rates by half a percentage point, and there's a 50% chance they might cut rates again in November.
3. **China's Move**: China cut its 14-day repo rate by 10 basis points, though markets were expecting more aggressive cuts.
4. **Market Performances**:
- **MSCI World Index**: Steady after two weeks of gains.
- **Asia-Pacific Shares**: Up 0.3%.
- **Singapore**: Highest since 2007.
- **Japan**: Expected to join the rally.
5. **Europe and U.S. Markets**: Europe's Stoxx index and U.S. futures indicate strong sessions.
6. **Currency and Commodities**: Small changes in major currencies; gold at an all-time high due to recession fears; oil prices slightly down.
### How Does This Affect You?
- **Investors**: Potential for gains in stock markets but be cautious of economic downturns.
- **Consumers**: Interest rate cuts can make borrowing cheaper, but inflation data will be crucial.
- **Global Economy**: Central bank actions in major economies like the U.S., China, and Switzerland can significantly impact global economic conditions and liquidity.
Keep an eye on upcoming economic data, central bank decisions, and market reactions to navigate your investments wisely.