LDN - Business

Stocks pause, dollar languishes ahead of Fed update on rates

[August 21, 2024] By Huw Jones

LONDON (Reuters) - Global shares paused on Wednesday after a weeks-long rebound towards record highs, leaving the dollar languishing at 2024 lows as investors hoped for clearer clues on Friday from the Federal Reserve on the magnitude of future interest rate cuts.

Oil slipped on easing Middle East tensions and estimates of swelling U.S. inventories, while the weaker greenback kept gold near Tuesday's record high.

The MSCI All Country index for global stocks was trading down just 0.04% at 824.36 points, less than 1% from its mid-July lifetime high and up 13.4% for the year.

In Europe, the STOXX index of 600 companies was up 0.1% at 512.76 points, nearing its all-time high of 525.59 on June 7.

Stocks have seen a volatile, rollercoaster ride after investors took fright last month following U.S. jobs data that raised the specter of recession in the world's biggest economy.

Those worries have since given way to bets on a soft landing cushioned by cuts in borrowing costs starting in September.

Later on Wednesday preliminary revisions to U.S. labour data are due to be published and a large downward revision is expected, helping to support the case for cutting interest rates.

Fed meeting minutes are also expected on Wednesday to reinforce a dovish stance ahead of a speech from the central bank's chair Jerome Powell on Friday.

Interest rate futures have priced in a 25 basis point (bps) U.S. rate cut next month, with a 1/3 chance of a 50 bps cut. Almost 100 bps in cuts are priced in for this year, and another 100 bps next year.

A potentially unique situation beckons where there are material rate cuts but without a recession, unlike the backdrop for cutting borrowing costs in five of the past seven cutting cycles, said Ross Yarrow, U.S. equities managing director at investment bank Baird.

"If we get a scenario where the Fed are cutting, inflation is falling and employment continues to rise, it really does start to look like a Goldilocks scenario," Yarrow said.

"So I think the rebound in equities and their prospects from here are actually pretty good," Yarrow said.

On Wall Street, the S&P 500 snapped eight sessions of gains with a 0.2% overnight drop as investors took a breather.

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A man walks under an electronic screen showing Japan's Nikkei share price index inside a conference hall in Tokyo, Japan June 14, 2022. REUTERS/Issei Kato/File Photo

U.S stock index futures were slightly firmer.

WALMART SELLS JD.COM STAKE

MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.5%.

Hong Kong's Hang Seng slid 0.8% with JD.com dropping 8.6% as top shareholder Walmart moved to sell its large stake.

Japan's Nikkei fell 0.3% as a recovery from its collapse in early August runs into resistance around the 38,000 level.

On Thursday, U.S. and global purchasing managers' index surveys are due.

The falling dollar has launched gold to record highs and returned the yen to 146.15 per greenback, a gain of about 1.6% for the week so far and some 11% higher than last month's 38-year trough.

The euro is up nearly 3% for August to date and, at $1.111 in early European trade, is at its highest since early December and testing major chart levels. [FRX/]

The mood kept bond markets supported and 10-year U.S. Treasury yields nudged lower to 3.81%, while two-year yields hovered at 3.99%.

Commodity prices stabilized with Brent crude futures at $77.11 a barrel.

Dalian iron ore prices climbed more than 4% after a Bloomberg report that China plans to allow local governments to buy unsold homes in the latest property-market support measure.

China is the world's biggest steel consumer and markets are sensitive to any signs that construction could get back on track.

Big miners' shares were steady in Australia, and gained in London.

Gold prices hovered at $2,509 an ounce, just below record levels touched on Tuesday.

(Reporting by Huw Jones, additional reporting by Tom Westbrook, Editing by Kim Coghill and Bernadette Baum)

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