LDN - Business

Stocks creep up, investors pin hopes on modest Fed rate cut

[August 15, 2024] By Dhara Ranasinghe

LONDON (Reuters) -Stock markets around the world were on firmer ground on Thursday, continuing to recover from an early August rout, on optimism that the U.S. Federal Reserve would start to cut interest rates soon.

The dollar remained on the back foot a day after benign U.S. consumer inflation data reinforced bets for a September Fed rate cut, oil prices rallied and data from China dashed expectations for a speedy recovery in the world's second biggest economy.

U.S. stock futures rose in a positive sign for the Wall Street open. European stocks firmed but trade was subdued due to a public holiday across many countries in the region, while Asian stocks also gained.

Japan's blue-chip Nikkei rose 0.8%, lifted by data showing the economy rebounded strongly in the second quarter, while Chinese blue chips firmed almost 1% as lacklustre economic data boosted expectations for more stimulus.

Overall market sentiment continues to recover from a stocks rout at the start of the month when softer-than-anticipated U.S. jobs data stoked U.S. recession fears and popular yen carry trades were rapidly unwound following a surprise Japan rate hike in late July.

Wall Street’s most-watched gauge of investor anxiety, the VIX volatility index, is near its lowest levels since the start of the month. It closed at a four-year high on Aug 5.

"The tentative rebound in risk appetite has happened surprisingly fast, so I would be cautious," said Nordea chief market analyst Jan von Gerich.

U.S. July retail sales numbers, out later in the session, are next on the watch list for investors assessing the speed and scale of Fed rate cuts.

Money markets fully price in a quarter point Fed rate cut in September and just under a 40% chance of a bigger half-point move.

"If we were to see a negative retail control sales number, it would likely set alarm bells ringing, given the market's recent concerns about a recession in the U.S.," said IG market analyst Tony Sycamore.

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People walk on an overpass with a display of stock information in front of buildings in the Lujiazui financial district in Shanghai, China August 6, 2024. REUTERS/Nicoco Chan/File Photo

DOLLAR BEARS ARE OUT

The dollar remained weak after slumping on Wednesday to its lowest level to the euro since the end of last year. The single currency traded flat at $1.1012 after reaching $1.10475 on Wednesday.

The dollar was also a touch softer at 147.19 yen, while the dollar index -- which measures the greenback's value against a basket of other major currencies -- slipped to 102.55 and in sight of recent lows.

Sterling gained almost 0.2% to $1.2849 after data showed Britain's economy grew 0.6% in the second quarter of 2024, in line with economists' expectations.

The Australian dollar added 0.4% to $0.6624, erasing early losses after a surprise surge in employment helped offset weakness in key commodity prices.

Elsewhere, Norway's central bank held its policy interest rate unchanged at a 16-year high of 4.50%.

European and U.S. bond yields edged up as global risk appetite recovered , while gold rose 0.35% to $2,456 per ounce.

Oil prices rose, supported by optimism that potential U.S. rate cuts will boost economic activity.

Brent crude futures were up almost half a percent to $80.15 a barrel, recovering some of the previous day's losses. U.S. West Texas Intermediate crude futures <CLc1> gained 0.5% to $77.21 per barrel.

(Additional reporting by Kevin Buckland in TOKYO; Editing by Toby Chopra)

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